Recently in Recession Category

The fall in annual inflation to 4% last month has surprised many financial gurus, but the most surprising thing from a farming viewpoint was that lower food and drink prices were the cause.

In fact, the Office for National Statistics said the 1.4% decline was the “largest ever” monthly fall in food and non-alcoholic beverages prices, with the most significant drops in the fruit and bread & cereals categories, down 4.7% and 2.6% respectively.

Coming at a time of generally firmer commodity prices, especially for wheat, the ONS said supermarket discounting was largely responsible for keeping a lid on shop prices.

That may be good news for shoppers, but it highlights the growing disconnect between what happens at the farmgate versus the tills. Times may be tough, but I dearly hope farmers aren’t left to pick up the bill for this supermarket discounting.

The global share of private/ own label food products is set to double over the next 15 years to 50% of the retail food market, according to a Rabobank report.

A number of factors will drive this growth from the current 25%. In particular, the report said there would be continued industry consolidation in developed retail markets of Western Europe, US and Australia, combined with adoption of modern retail in developing markets such as Russia and Turkey.

It also highlighted consumer acceptance of own brands following the recession, further growth of the hard discount segment, and professionalization of private label supply.

But while major “A-brands” were predicted to hold their market share, the growth in private labels could put the squeeze on smaller, often local, “B-brands”, Rabobank said.

Earlier this year I took part in a focus group with Andersons farm business consultants, as part of their research into a study they were doing for DEFRA.

That study - on the impacts of the recession on agriculture - has now been published and contains many pertinent observations.

On balance, it says, there has been little overall negative impact on agriculture from the changing conditions in the wider economy.

“In fact, the greatest effect so far, albeit indirect, has been a positive one as the recession has prompted a realignment of exchange rates that has greatly benefitted UK farming.”

The report goes on to highlight the reduction in borrowing charges, the lower cost of farm inputs and the benefits for businesses that have invested in holiday lets from the increased number of people who have holidayed in the UK...

It’s the last day of June and a little bird, (well, an electronic alarm on my mobile), has just reminded me that six months ago I made a few predictions about the price of various farm inputs and outputs.

It has to be said that betting has never been my strong point, so it’s just as well that there was no money involved in this little exercise.

But for the record, at the end of 2009 I suggested that the following prices would prevail by the middle of 2010:

Feed wheat (FW ex-farm price) £107/t
Nitram (GrowHow price) £205/t
Finished lambs (R3L carcases) 440p/kg
Red diesel (FW IPM price) 49p/litre
Bank of England base rate 0.75%
Euro:Sterling exchange rate 86p

The reality, it has to be said, is somewhat different. Today’s “actuals” are as follows:

Feed wheat (FW ex-farm price) £95/t
Nitram (GrowHow price) £215/t
Finished lambs (R3L carcases) 420p/kg
Red diesel (FW IPM price) 53p/litre
Bank of England base rate 0.25%
Euro:Sterling exchange rate 82p

So on just about every measure, (with the exception of the bank base rate), the reality has been worse for British agriculture than predicted at the start of the year...

“Tough, but could have been tougher.”

That seems to be the verdict of most commentators on Chancellor George Osborne’s first “austerity budget”, which saw a mixture of tax increases and spending cuts announced as he tries to balance the books.

For agriculture too, the “could have been tougher” response seems to be about right, with gains and losses identified in equal measure.

On the downside, the reduction in the annual investment allowance from £100,000 to £25,000 from 2012 will certainly hurt farmers investing in plant and machinery.

The increase in VAT to 20% will also impact on cash flow for farm businesses - most of which are zero-rated, but still have to claim back the now higher rate of tax...

Yesterday (Thursday) I had the pleasure of attending one of the Andersons spring seminars at Salisbury racecourse on Opportunities in a Changing Agriculture.

Surprisingly it was the first of these annual events I'd been to - and sadly one of the last that well-known agricultural consultant and analyst Francis Mordaunt would be giving before his impending retirement.

Explaining complicated issues in simple and engaging terms is a gift, and one that Francis has in abundance.

In just 30 minutes he gave a crash course on the current state of British agriculture, encompassing most of the external factors affecting it, giving an assessment of the health of the industry and providing some useful pointers as to where we might be heading.

The key points were as follows:

* UK farming has weathered the recession better than most sectors. Total Income From Farming (TIFF) in 2008 and 2009 came to over £4bn each year - well up on the £2-3bn seen in the previous eight years.

* At this level, TIFF was finally in excess of direct payments, showing that farming is making a small profit even without subsidy...

Farmers Weekly's publisher Trevor Parker approached me at the start of the week and asked me to come up with a current "state of the industry" assessment for a presentation he is giving.

It was a good opportunity to take stock and have a think about where we have come from in the past 18 months and where we might be going. The following is what I told him:

UK agriculture was the best performer in the European league table of farm incomes in 2009. EU farm income figures from Brussels show that the UK is just one of four member states to have seen an increase in farm income in 2009 - thanks in large part to the weakness of sterling. Provisional figures put us up 14%, compared with a 35% decline for Hungary, 25% decline for Italy and 20% declines for France and Germany. DEFRA predicts an 8% fall in UK farm income in 2010, but it will still top £4bn - the second best result in a decade...

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...

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"....

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....