October 2009 Archives

This week we're running a poll on FWi asking "Should the Milk Marketing Board be reintroduced?"

This is not because we have even the slightest misapprehension that it could actually happen, but simply because it is now (exactly) 15 years since the Milk Marketing Scheme was abandoned and it seemed like an interesting question to ask!

To mark this anniversary, we've also produced a special feature in this week's Farmers Weekly looking at developments in the dairy sector over the past 15 years. (You can find it on p28/29 if you've not seen it already, or if you've not bought your issue, it's available here, at the click of a mouse!)

It includes interviews with Dairy UK director general Jim Begg and NFU dairy board chairman Gwyn Jones, who give their candid views of change in the dairy sector.

During my interviews with these two "leading lights" I asked both what they thought the outcome of such a poll might be. Jim thought it would be a walk over, suggesting 99% would want the MMBs back. Gwyn was a bit more circumspect, but still expected a majority verdict....

Talk about bad timing! Today's announcement by First Milk that it is cutting its milk price by 0.65p/litre will guarantee a hostile reception for new chairman Bill Mustoe when he addresses the co-op's AGM for the first time on Thursday (29 Oct).

The company points to "continued pressure on the cheese market" for the drop, with supermarkets turning to cheap imports to fund their promotions.

That will count for little with First Milk's 2500 dairy farmer members who have had to put up with one of the lowest milk prices in the country for quite long enough.

They will be rightly vexed that all the signals for the past few weeks have been suggesting price rises, not price falls. Butter prices are up, skimmed milk powder prices are up, whole milk powder prices are up, cream prices are up - to record levels.

Even the liquid milk sector is showing signs of strength, with volumes and expenditure increasing in the UK over the past 12 months...

I've just had the dubious pleasure of watching the former chairman and chief milk manager of defunct co-op Dairy Farmers of Britain giving evidence to a high ranking cross-party committee.

I say "dubious" because it involved sitting in front of my computer for the best part of two-and-a-half hours watching the recorded session. While that was a bit of an endurance test, the actual content of what they were saying was, at times, quite enthralling.

Of course there was a lot of cross examination that was mind-numbingly dull, as the two main witnesses - Lord Grantchester and Gerry Smith - were quizzed on things like board member training protocols and co-op voting procedures.

But then there were a few gems. For example:

* the fact that the purchase by DFOB of ACC from The Co-op in 2004 included a surprise £6m tax liability

* the fact that it cost DFOB £1m in financial advice to circumvent this

* the fact ACC was losing money for over a year before anyone at DFOB spotted this so-called "black hole"

* the fact that DFOB's liquid operations were operating at an assets-to-utilisation ratio of just 58%, when the rest of the industry was at 80%

* the fact that milk delivered direct to Co-op stores (rather than to a regional distribution centre) earned a 15p/gallon premium, but cost an extra 45p/gallon to get it there

* the fact that the DFOB rationalisation programme cost £2m less than budgeted and left the company with a liquid milk division that generated £1.5m profit in the two months before the plug was pulled...

Richard and Judy, Posh and Becks, Morecombe and Wise - when it comes to natural couplings, it has to be said that the NFU and British Sugar make unlikely bed-fellows.

But the fact that these two long-standing antagonists will have to bury their differences and learn to get along was made crystal clear at a briefing I attended with the NFU last Friday.

All too often, the long term interests of the British sugar sector have been compromised because the two biggest stakeholders have been at loggerheads.

When it comes to negotiations in Brussels in particular, this lack of unity has encouraged DEFRA to fight more strongly for the UK's cane refining industry, rather than the UK's beet refining industry. That, at least, was the view of NFU sugar board chairman Will Martin.

That has to change. Further reform of the EU sugar regime is just around the corner and the EU Commission may well be interested in getting rid of quotas, as it plans for milk, and introducing far greater market liberalisation....

By Paul Spackman

UK farmers know only too well how much impact the exchange rate can have on profits - both good and bad.

Fortunately at the moment, the weak value of sterling against both the euro and dollar is generally good news for farmers here - single payments were 15% up this year and the benefits for exports, livestock markets have been well aired.

But spare a thought for our friends a few thousand miles away in New Zealand. According to John Mabb from Meat & Wool New Zealand, who (bravely?) gave the opening presentation at this year's EBLEX conference for English farmers, sheep producers in NZ could see profits drop back close to a 50-year low next season, thanks in a big way to the exchange rate.

The economic turmoil in the US and Europe means that currently the NZ dollar looks pretty strong against the US dollar, which isn't such good news for a country that relies heavily on exports, particularly in their summer/ autumn - November to June...

Clearly there are two sides to every story...and having just been taken out for a very nice lunch by the French agriculture attaché, I'm happy to say that that includes the story about French protein crop subsidies too.

Contrary to the views expressed in this blog a week ago, it seems the driving force behind the French decision to pay up to €150/ha additional aid to pea and bean producers is the desire to reduce dependency on imported proteins.

Like many other member states, France has been struggling to get the protein supplies it needs for its livestock because of the EU's "zero tolerance" approach to maize and soya shipments containing just traces of non-approved GMOs.

France is therefore eager to step up domestic production to levels that existed a few years ago.

According to my lunchtime host, the measure is not designed to give French pea and bean producers an advantage in key export markets, as I'd previously suggested. Indeed, the €150/ha subsidy will only be available to producers whose crops go into animal feed...

Much has been written and said in recent weeks about the downside of the EU's policy of "zero tolerance" when it comes to importing animal feed that contains traces of non-EU approved GM varieties.

Just last week, EU agriculture commissioner Mariann Fischer Boel was urging ministers to "shoulder their responsibilities" and get away from a "ludicrous situation" where desperately needed cargoes of animal protein were being turned away at EU ports for no scientific reason.

NFU president Peter Kendall also raised the issue with supermarket leaders at the IGD conference last week. He urged them to take a lead in explaining GMs to consumers so we do not end up importing meat from parts of the world where livestock are fed on the very crops the EU currently bans.

As expressed previously on this blog, their concerns are entirely justified and the sooner the EU moves away from its zero tolerance policy the better.

But we are where we are, and in one respect at least there is some potential "upside" to zero tolerance - and that is highlighted by the current situation regarding linseed....

Faster than a speeding bullet, DEFRA has put out a press release revealing the exchange rate at which this year's single farm payments will be converted from euros to sterling.

Confirming what the rest of the agricultural industry was talking about two weeks ago, farming minister Jim Fitzpatrick has declared that the conversion will be made at 90.93p/euro, securing farmers a 15% increase in their SFPs for 2009.

Important as this figure may be, perhaps a more newsworthy piece of information to come my way this week is the figure from the Rural Payments Agency confirming that as many as 1900 SFP claimants in England have elected to receive their subsidies in euros this year, rather than sterling.

That's three times as many as did so in 2008, suggesting there has been a reasonable uptake of the various schemes being touted by financiers in February and March to persuade farmers to pre-book their euros at the exchange rate prevailing earlier this year.

The figure still only amounts to less than 2% of the total number of SFP claimants in England, and is well short of the 7% who told an earlier survey they were going to pre-book their euros. But it shows a growing number of farmers are at least looking at ways of controlling their exposure to risk....

Another conference, another lesson in A level economics....

Last week it was the fundamentals of supply and demand that dominated the HGCA's annual outlook conference in London and provided fodder for some blog ramblings.

This week, courtesy of the IGD's "Leadership in Adversity" convention, it was that old mantra "the consumer is always right" that took me back to my first week at Sixth Form College.

The message was delivered, loud and clear, by most of the leading lights in the UK grocery trade attending the event. (And what a slick event it was too, with over 700 sharply suited executives rubbing shoulders in the ballroom of one of London's swankier hotels.)

Sir Terry Leahy, chief executive of Tesco, insisted the key to surviving the recession was to "follow the consumer". "Your entire focus should be on understanding what customers want, and reacting to deliver," he said. He should know....

When EU agriculture ministers signed off last year's CAP health check, I described the package in Farmers Weekly as "the good, the bad and the ugly".

The "good" included the fact that EU modulation was being raised closer to UK rates, creating a more level playing field. Eliminating set-aside and simplifying the CAP were also praised.

The "bad" included some of the sweeteners offered by the EU Commission to win the support of individual member states, such as offering additional milk quota to Italy and giving the UK the "green light" for environmental set-aside.

The "ugly" referred to the Article 68 provision, which allows national governments to take up to 10% of some farmers' single farm payments and target the funds at other groups of farmers or regions, especially where there is an environmental gain.

This was condemned for three reasons. First, it would enable certain governments to continue offering "coupled" or "production linked" supports at a time when the majority of the EU was moving in the opposite direction.

Second, it would lead to distortions of competition between similar producers in different member states. And third, it would amount to "robbing Peter to pay Paul", creating immediate winners and losers....

Latest data from DEFRA on the size of this year's grain harvest contain few surprises.

The whole farming industry has known for months that the UK has produced less wheat and more barley. The only question has been exactly how much less and how much more?

With official planting and yield estimates now to hand, it is little surprise to discover that UK wheat production is down by 18% at 14.2m tonnes, while barley is up 10% at 6.7m tonnes. Tweak the figures for oats, and the official estimate points to a 10% lower overall grain crop of 21.8m tonnes.

This revelation has hardly set the grain trade alight. Indeed, London futures prices have moved by less than £1/t across all positions.

But that's not to suggest that the scene is now fixed for the rest of the season...

By Robert Harris, FW arable editor

Both the NFU and British Sugar are, apparently, "pleased to inform you" that they have agreed a price of £26/t for 2010/11 beet.

So they state in a letter that went out to growers after this week's conclusion of the protracted price talks.

British Sugar is right to be pleased - very pleased. It has refused to budge on its price set almost two months ago. It will pay farmers £1/t less for beet than it did last year, and will only pay an additional £1/t on the transport allowance if a framework for a longer-term agreement is reached in the next few months.

But what right has the NFU to be pleased? It has had to backtrack all the way, ever since it's initial, wildly optimistic £34.50/t punt back in April. It has done nothing for growers and damaged its credibility as a negotiator.....

Economics is undoubtedly a complicated subject.

It's been a long time since I studied it in any formal sense, but I can just about remember the theories of opportunity costs and marginal gains, even if the detailed econometric formulae I could once rattle off have long gone.

But as a former student of economics, I was somewhat dismayed by a comment from Barclays Bank agricultural specialist Martin Redfearn at today's (Tuesday's) HGCA outlook conference in London.

According to Mr Redfearn, "if you could teach a parrot to say the words 'supply' and 'demand' you could give it a mortar board and call it a professor of economics".

The remark seemed somewhat dismissive of all the years I spent studying the subject, though it has to be said, he does have a point....

The uneasy truce between continental dairy farmers and European legislators in Brussels looks like being short-lived.

For while there has been plenty of discussion in Brussels today (Monday) about ways of sorting out the crisis in the dairy sector in the medium term, no ground has been given on some of the key demands of Europe's protesting farmers.

No moves have been made to cut quotas, no increases agreed in intervention prices and no new subsidies for dairy products to be used in animal feed or pastry.

Instead, the EU Commission said it was poised to launch a new High Level Group to look at "medium term issues affecting the dairy sector". Mariann Fischer Boel also confirmed she would soon be tabling formal proposals to boost state aids and tweak the rules on milk quotas.

But none of these are likely to satisfy the European Milk Board and a fresh wave of milk from the back of continental muck spreaders is to be expected by the end of the week...