November 2009 Archives

My colleague Mike Abram has recently returned from the British Potato 2009 event in Harrogate, weighed down with story lines from the wonderful world of spuds.

The one that got my business nose twitching was the one about industry representatives calling for a cut in the planted area to try and lift prices.

Of course any orchestrated attempt to achieve this would be highly illegal and attract the intense scrutiny of the competition watchdogs. But the chances are, growers will cut back next season anyway in response to current low prices.

Analysis by the Potato Council proves the point nicely. Buried in the organisation's website - in the Annual Trends section of the Market Information area to be precise - is a report called Production and Price Trends 1960 to 2008.

This shows in clear, graphical form how the volume of potato production and the average price are inextricably linked....

I had my ear bent earlier this week by those nice people from seed breeder Nickerson, concerned that warnings I'd fired off in a previous blog about French subsidies to pea and bean growers could become a self-fulfilling prophecy.

In my blog I'd suggested that "the new subsidy amounts to a massive distortion of competition, based on spurious environmental grounds, designed to lever French producers into key export markets, while artificially boosting the area of protein crops grown" .

OK, so it was a little over-the-top, though I was amused to see that Nickerson has used the quote in their presentation to the seed trade earlier in the day.

Anyway, the message that Nickerson - which supplies over half the UK's pea and bean area - wanted to put across was that this was all a bit of a knee-jerk reaction.

Their analysis suggested that, for peas at any rate, British and French growers were operating in totally different markets, with French producing mainly for animal feed and the Brits growing for human consumption....

Two very different visions of the CAP post-2013 have landed on my desk in recent days - one from a consortium of leading agricultural economists and one from the soon-to-be-replaced agriculture commissioner Mariann Fischer Boel.

The first was actually published a couple of weeks ago on a new website called Reform the CAP It takes the form of a joint declaration signed by 23 eminent economists, including my old lecturer from Reading University, Alan Swinbank.

As might be expected, it contains some pretty radical suggestions. In particular, they argue that the first pillar of the CAP - single farm payments and market intervention - should be abolished. These payments have been unbalanced and have not benefited rural development or the environment, they argue. Market supports also continue to hurt the EU's trading partners, so get rid of them too!

The declaration also calls for a thorough reassessment of all second pillar measures. "Only those policies that promote genuine European public goods and avoid excessive payments should be retained," it says...

I recently came across a cracking little website that dairy farmers everywhere might like to take a look at.

For reasons best known to myself I was trying to work out how the price of milk in New Zealand, expressed in "NZ$/kg of milk solids", converted into a price that British milk producers could understand.

This involved trying to work out how many litres of milk a kilogram of solids equated to, what the exchange rate was and what co-efficient to use to convert from New Zealand milk to British milk.

My estimate that Kiwi milk producers were getting over 30p/litre seemed suspiciously high! But then I was directed to http://www.xcheque.com/  and its purpose-built Global Milk Price Calculator.

At the click of a few buttons I was able to establish that the latest price estimate for New Zealand farmers of NZ$5.70/kg milk solids equates to 18.5p/litre in UK terms, or 20.8 cents/litre if you farm in the Euro-zone, or 27.9 yen/litre if you're in Japan...

At first glance, the planned 9% increase in the potato levy over the next three years seems hard to justify.

For a start, it is coming in a year in which UK potato prices have been under considerable pressure. The last thing any grower needs is another cost increase.

Potatoes are also the only sector to face any levy increase for 2010. Beef, sheep, pigs, dairy, cereals, oilseeds and horticulture are all set for a levy rate freeze.

But what makes it harder to understand is that the amalgamation of all six levy bodies under the one roof of the Agriculture and Horticulture Development Board was supposed to generate cost savings.

In an interview with Farmers Weekly in 2006, AHDB chairman John Bridge was hinting that levy rates could fall as a result of efficiency gains. Earlier this year he was quantifying those savings at about £4m a year following the AHDB's move to Stoneleigh...

Whatever happened to the luck of the Irish?

As an Englishman used to the cruelty of international football, I could share the pain the Irish felt on Wednesday as the previously respected Frenchie, Thierry Henry, picked the ball up and practically threw it into the net.

It brought back painful memories of that short-arsed Argentinean punching the ball into the England goal in 1986, and that looping deflection from a German free kick that cleared Peter Shilton's despairing hand four years later.

And as for that dodgy Brazilian cross that found its way past David Seaman in 2002 and the Beckham penalty that cleared the stands in Portugal - need I go on?

But it's not just football where the luck of the Irish has gone walkabout - farming too it seems has lost its guardian angel....

On first inspection, DEFRA's latest estimate of 2009 UK farm incomes is enough to cheer the heart.

In a year in which many people in the British workforce have had to endure pay freezes, and in some cases pay cuts, those in the farming industry have apparently seen average incomes climb by 25%.

In aggregate terms, the UK Total Income From Farming is being estimated by DEFRA at about £4.2bn. That comes on top of last year's 36% increase.

And in terms of income per person employed in agriculture, the figure is put at about £23,000 - not exactly Premiership footballers' territory, but comfortably above the minimum wage.

But don't get carried away just yet. These figures are merely first estimates and DEFRA's track record of getting it right first time leaves a lot to be desired!

This time 12 months ago DEFRA was suggesting that Total Income From Farming had climbed by 8% in real terms, as higher cereal prices in the first half of the year outweighed the effects of rising input costs...

It's said you can prove anything with statistics. Indeed, you can even prove that the European Union represents good value for money.

Don't believe me? Well yesterday I went to see Richard Ashworth - former chairman of United Milk and more recently a Conservative MEP with involvement in both the agriculture and budget committees - who rattled off some numbers to prove the point.

He was trying to counter claims made by the UK Independence Party that Britain's membership of the EU is costing us £40m a day.

That figure was taken by dividing the UK's gross contribution to the EU budget - about £14bn a year - by 365 to give £40m a day. (OK, so the actual figure is closer to £38m, but £40m sounds better.)

The flaw, says Mr Ashworth, is that this ignores what the UK gets back from the EU.

First of all, there is the money from payments to farmers and the rural economy. That comes to about £3bn. Then there is the structural fund, which pays another £4bn for poorer parts of the UK. And then there is the UK's annual rebate - worth another £3bn.

Taken together, that gives a net cost of EU membership of just £4bn - still a lot of money, but far removed from UKIP's gross figure...

Good to see dairy sector leaders singing from the same hymn sheet - not!

This week saw the second meeting of the EU Commission's new High Level Dairy Group, set up in the wake of the recent milk strikes in Europe and charged with the job of reducing market volatility and improving transparency.

In particular, the group has been asked to consider things like contractual relations between suppliers and buyers, market support instruments and a possible futures market for dairy products.

A statement from NFU dairy board chairman, Gwyn Jones, after the HLG meeting said the key to resolving some of the challenges facing milk producers was better contracts.

The HLG offered a "unique opportunity" to develop a code of practice for milk contracts, he said, "potentially providing a basic legal framework to protect the interests of producers"...

As the debate about the future of the Common Agricultural Policy post-2013 gathers momentum, questions are being raised about what exactly is the role of the single farm payment.

The issue cropped up time and again at a "workshop" organised by the European parliament's agriculture committee in Brussels on Tuesday (10 November).

According to CLA policy director and self-confessed "common agricultural policy wonk" Allan Buckwell, the SFP has many functions. These include income support, compensation for past price cuts, payments for meeting the EU's higher standards, reward for maintaining the environment and a means of improving food security.

All of these apply to some extent. What is not so clear is the relative importance attached to each as the SFP matures as a policy instrument and EU policymakers look forward to the post-2013 era.

Depending on what they perceive as the most important role of the SFP will determine how the CAP is restructured and funds re-targeted. But at this early stage, one or two things already seem clear...

As if to prove my last blog about volatility in the market place, news has emerged that the EU Commission has removed export refunds for a number of dairy commodities in response to fast-firming prices.

Following a decision in October to suspend refunds for skimmed milk powder, last week Brussels took similar action in respect of whole milk powder, condensed milk and cheese. Butter export aids were also cut by 62%.

The market rebound has been more akin to a bungee jump than a yo-yo. Whole milk powder sold by New Zealand co-op Fonterra moved up 13% at last week's auction to average $3437/t. That's an 88% increase in just four months!

World skimmed milk powder prices have also forged ahead to top $3000/t and are now well above year-ago levels, as lower production in New Zealand and Australia starts to bite.

Butter prices have also soared, with world prices jumping $600/t in the past four weeks to $3200-$3500/t. This compares with just $1600-$1700/t for the January to August period.

For all three products, prices are still short of 2007 peak levels, ($4300/t for WMP, $3500/t for SMP and $4000/t for butter), but are seemingly closing fast.

Of course it will take a while for all this to feed through to farmgate levels. But the fact that global markets have turned around so quickly and so dramatically is welcome and alarming in equal measure....

One of the buzz words that seems to be on just about everyone's lips at the moment is "volatility".

No matter which market you look at - cereals, dairy or meat - prices are subject to frequent and, at times, quite violent change. The collapse in many commodity values from the 2007 peak to the 2008 trough was about as dramatic as it comes.

With this in mind, I was somewhat struck this afternoon when I glanced at the London grain futures market and noticed that, for every single contract, the position read "unchanged".

OK, it's Friday afternoon and grain traders are probably still in the pub. But looking back over the past few weeks, the grain market does seem to have been unusually quiet.

Nearby wheat futures have been trading at about £102-£104/t for most of the past month, while on new crop, November 2010 has been around £114-£116/t. One market report to cross my desk today described the trade as "dreary", while another said it "lacked direction"....

When you attend a conference organised by English Farming and Food Partnerships, you expect to hear a lot about collaboration.

And yesterday's "Routes out of Recession" conference, held in the aesthetically pleasing Plaisterer's Hall in the City of London, was no exception.

DEFRA minister Lord Davies was first out of the blocks, stating that "strong working relations and collaborative relations in the food chain are vital". (It was about all he did say.)

EFFP chief executive Sion Roberts was more erudite, claiming that "the unifying principle that the visionaries all share is the drive to strengthen food chain relationships". (Good point, well made, Sion.)

Other speakers were quick to latch on to the theme. Jonathan Warburton described how his bread empire was built on trust and mutual reward along the chain, while NFU president Peter Kendall quoted the examples of the Red Tractor logo and designated supply chains in the dairy sector as examples of the industry working together to extract more value.

And Morrisons chief executive Marc Bolland spoke at length of his strong determination to work with all stakeholders, but especially farmers, to deliver "shared benefit for all"....

At face value, the new policy document from the UK Independence Party on food and farming seems to have much to recommend it.

In a nutshell, it says that British agriculture has sustained numerous heavy blows in recent times and membership of the EU has made matters worse not better. EU regulations act as a straight jacket on farming, while the cost of membership is a rip-off for taxpayers, it says.

The system is biased in favour of the French, it adds, while membership of the EU denies the UK its own seat at the WTO. Meanwhile, the CAP is wide open to fraud, while the EU's "open borders policy" makes the UK more vulnerable to imported disease.

UKIP says that UK farming would be better served outside the EU, where it would set its own policies. This would include establishing a supermarket ombudsman, reducing tariffs to give Commonwealth farmers a better chance in the UK market, and allowing bigger farmer co-operatives, to give more clout to producers.

As I said, a lot of this sounds pretty appealing.

But I'm not convinced. For a start, I've always believed that much of the problem with red tape in this country is not because of Brussels regulation per se, but is down to the enthusiam of UK civil servants in implementing it. I don't see that changing, whichever political party is in power.....