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CEREALS

24 September 1999

CEREALS

worth £164m to the combineable crops sector and agreed before Mr Browns announcement, will help to alleviate some of the pain. Further, but reduced, compensation will be paid by Brussels over the next two years which could be matched by Westminster. Meanwhile, poor milling wheat and malting barley quality will encourage cheap imports putting more pressure on domestic prices.

To help weather the currency-driven price slump, government should ensure all imported grain matches UK standards.

Grain traders and users should work together more closely to clarify what the market needs and to structure contracts more clearly to protect growers against unforeseen pitfalls.

The last thing beleaguered growers need is a pesticide or energy tax. Far more beneficial to the environment will be 10m set-aside alongside watercourses. The next step must be to allow 10m set-aside along all field margins.

Route to recovery

&#8226 Weaker £.

&#8226 Grain imports to comply with UK standards.

&#8226 Closer co-operation between grain traders and users to specify demand.

&#8226 Ditch pesticide and energy tax plans.

THE viability of rural economies in the uplands is under threat as never before. Incomes have fallen by two-thirds over the past two years, averaging a mere £5300, and many farmers are trading at a loss.

Farmers in the LFAs, which cover more than 50% of the total UK agricultural area, are receiving some of their lowest ever sheep returns.

Cull ewes are almost worthless thanks largely to processing costs and the need to remove the spinal cord which many regard as an arbitrary and unnecessary rule. Lamb prices are down 27% on last year. Beef prices are 24% lower than pre-BSE levels.

The collapse in the world market for sheep skins and the strong £ which is hampering exports, have also depressed hill incomes.

Many producers have witnessed the value of their assets fall to such a depth that they can no longer afford to retire. Thats a poor reward for farming in one of Britains harshest environments and maintaining a countryside of unique charm and beauty.

The governments £60m HLCAtop-up will provide a lifeline for hard-pressed producers but more structural assistance is needed.

Help for new entrants and a retirement scheme are required urgently.

Also needed is an early announcement about the impending switch from headage payments to area payments included in the Agenda 2000 reforms.

The governments decision to waive the costs of of cattle passports and SRM inspection charges will prove welcome but a long-term strategy for survival is needed to restore confidence.

Route to recovery

&#8226 Smooth transition to new support system with no loss of income.

&#8226 Slaughter scheme for cull ewes at no cost to farmers.

&#8226 Realistic retirement scheme.

&#8226 Provide incentives for young farmers and new entrants.

&#8226 Recognise the full contribution farmers make to the well-being of the countryside.

THE premature end to the calf processing aid scheme has made matters worse for dairy producers. Under EU law it could have continued until the end of November to take account of the autumn calf crop. But the government terminated it at the end of July.

Markets have been flooded with poor quality dairy-bred calves, whose value dropped from more than £50 a head under the scheme to nothing.

Longer term, some producers may shun more extreme dairy genetics to produce calves with beefing potential. But this wont help shift the current crop of calves.

Re-opening live export markets, under carefully controlled conditions to overcome BSE-induced restrictions, would take the bulk of the surplus. The UK did, after all, export up to 450,000 calves a year before the beef ban. The government needs to push Brussels as hard as possible to re-open this market.

Meanwhile, many farmers are trying to help themselves, by presenting calves in the best possible condition at market. Others may rear bull beef on contract to replace imports of manufacturing quality, though this will account for a few thousand at best.

Most have no choice but to shoot and bury calves on farm. Government should think again, and take a leaf out of the Welsh Assemblys book to restore the scheme for the autumn period.

The least they should do is offer a national disposal scheme for calves. While it would not put money into farmers pockets, at least it would cover the cost of getting them dispatched.

Faced with such problems, removing the £7/hd cattle passport charge is small comfort.

Route to recovery

&#8226 Weaker £.

&#8226 Restore live exports.

&#8226 Restore CPAS.

&#8226 National disposal scheme.

FOR more than three years, the beef industry has struggled to cope with the crippling ramifications of BSE. The disease, mainly a problem in dairy herds, has wiped out beef profits even in herds, which have never had any cases of BSE.

Compounding the effects of losing our export market and tumbling domestic beef consumption, producers have also had to cope with vastly increased paperwork and lower prices as a result of Meat Hygiene Service charges and specified risk material legislation.

Producers will welcome the governments belated plans to shoulder the £22m annual cost of SRM inspection charges for cattle and sheep carcasses. But farmers will still have to pay for the cost of their removal.

Although domestic consumption is increasing, producers are forced to compete against foreign imports produced under conditions far less stringent than those imposed in the UK.

The new date based export scheme is also a stumbling block. Its conditions are so rigid that only one abattoir has signed up. The strength of sterling is also crippling any efforts to start exporting again.

For the UK beef industry to recover, we need producers to be able to compete fairly with those importing into the UK. We need to stop countries from banning our beef at a whim. Ending plans to introduce a £7 fee for cattle passports, at a cost of £18m/yr, is welcome but the industry also needs far less bureaucracy.

Route to recovery

&#8226 Level playing field.

&#8226 No country bans.

&#8226 Less bureaucracy.

&#8226 Government support for MHS.

&#8226 Realistic date based export scheme.

&#8226 Lifting ban on beef on bone.

THE number of UK sheep producers is falling almost as rapidly as their income. More government help is needed desperately before it is too late.

Hill sheep producers incomes are expected to fall to about £5300 in England, according to the NFU. Producers and their families cant survive at that rate; a level well below the national wage, however hard they work.

Not just upland producers are at risk. When hill sheep farming goes into reverse, lowland supplies of breeding sheep dry up threatening the foundation of what was a successful industry.

The culprits have been the strong £ and needless amounts of SRM regulations following the BSE crisis. The result is a crash in prime lamb prices – down by 25-30% in the past year.

Hill producers breeding ewes have also taken a similar drop in price and cull ewes are worthless. Producers will be encouraged by the governments decision to waive £22m-worth of SRM inspection charges for sheep and cattle for at least the next two years. But more help is needed.

Government should subsidise Meat Hygiene Service charges, so that abattoirs are forced to pass fewer costs down the line to producers. It should also set up an aid scheme to pay for the slaughter and disposal of worthless cull ewes. Without radical and imaginative solutions to alleviate the crisis in the sheep sector, this vital part of UK farming faces rapid and terminal decline.

Route to recovery

&#8226 Weaker £.

&#8226 Government subsidies for MHS.

&#8226 Cull ewe scheme.

MEAT inspection costs and a raft of red tape are crippling UK abattoirs and undermining the industry they serve. Typical of the needless costs is the requirement to have vets in full-time attendance from ante through to post mortem at all abattoirs. Fortunately that policy has now been reversed in low-through-put abattoirs.

Farm minister Nick Brown is currently studying the MLCs EU-wide report on abattoirs and meat hygiene services. Its findings should reveal how countries outside the UK meet MHS regulations and confirm that the costs involved are met by government and not imposed on farmers and abattoirs.

Without compromising food safety, it is important that the UK is not disadvantaged by self-imposed over-regulation compared with other EU states. The costs of meat inspection should be regarded as a matter for the public health purse and not as the responsibility of the farming sector.

For too long the cost of inforcing SRM regulations, totalling about £20m this year, has been levied at the production end of the red meat sector.At last it seems government has recognised this as a food hygiene cost and is prepared to foot the annual cost of SRM inspection charges for cattle and sheep charges for at least two years. But sadly not the cost of their removal. The farm ministers call for an EU-wide review of meat hygiene legislation is welcome.

By-product removal charges of £115/t for SRM and £95/t for other material is equivalent to an extra charge of 5p on every pound of meat handled by an abattoir. These costs are unsustainable by the abattoirs which have borne the full brunt of the governments commitment to maintain consumer confidence.

Route to recovery

&#8226 Permanently transfer meat inspection costs from farmers and abattoirs to government.

&#8226 Transfer SRM costs from farmers to government.

&#8226 Simplify rules and red tape covering abattoirs.

UK PIG production will soon be a rarity if the market does not recover rapidly.

Producers who have managed to survive two years of appallingly low prices are saddled with debt and depressed about their future.

Supermarkets and processors have forced producers to comply with tighter welfare codes. But, the temptation of cheaper continental pork, produced under inferior welfare conditions, is too great for them to resist.

The meat and bonemeal ban, which followed the BSE crisis, costs UK producers nearly £6 a pig – a cost not borne by continental producers.

Government has an important role to play in ensuring fair trading conditions. The meat and bonemeal ban should be applied evenly throughout the EU, or UK producers should be compensated.

Retailers should be encouraged to label product more clearly with the country of origin. Busy consumers would then be able to see at a glance what they are buying. Marketing support worth £1m may help. More details are needed.

With no rush to join the euro and the continuing strength of sterling, all producers want is a chance to compete fairly without one hand tied behind their back.

Route to recovery

&#8226 Weaker £.

&#8226 Uniform welfare standards.

&#8226 Clear labelling.

THE UK poultry industry has suffered from low prices and losses for the past two years; the longest depression in living memory.

The main culprits are the strong £ and the world surplus of meat and eggs.

That has caused further rationalisation within the industry, and the closure of several businesses particularly in poultry processing and egg production. But, with the constant threat of imports simple cuts are not enough to restore profitability.

In a highly mechanised and efficient industry there is little room for further reducing unit costs.

Other survival routes focus on moving away from low commodity prices by developing added-value poultry and egg products by the bigger operators. Meanwhile, smaller-scale producers are developing niche markets, such as free-range.

Such markets have also attracted new producers seeking to diversify to sustain incomes.

Their marketing is usually done by the major packers and processors who are tending to contract for their supplies and to move into the food industry and away from land-based production.

Poultry producers should benefit from some of the £1m earmarked for marketing support.

Route to recovery

&#8226 More support from UK retail and food service customers.

&#8226 Lower interest rates.

&#8226 Weaker £.

&#8226 Retirement scheme.

&#8226 Import protection against countries with lower food safety and animal welfare standards.

POTATO producers are under the cosh. The potato market has always been cyclical and this months £75/t is almost half the £135 seen at the same time last year. But its still ahead of the £67/t paid two years ago.

Over-planting and good yields are only partly to blame. Imports, driven by the strong £ and damaging rejection levels, are also playing a role. Better co-operation between producers, processors and retailers will help the industry to survive, if not thrive, in the competitive world market.

Less easily remedied is the strong £s effect on imports. Prices will remain low until the £:k gap closes. While that persists, government has an extra responsibility to protect growers from other damaging influences.

Appointing agricultural attaches to check for unfair support for overseas producers helps. The government should also drop its plans for a pesticide tax. That alone could knock 14% off potato gross margins, with little prospect of environmental benefit. Ensuring imported produce complies with UK production standards is also vital. Finally, the government investigation into supermarket pricing should focus on potatoes. Too often, like milk, the crop is sold as a loss leader.

Route to recovery

&#8226 Weaker £.

&#8226 Police import standards.

&#8226 Check for unfair aid overseas.

&#8226 Ditch pesticide tax plans.

&#8226 Better co-operation between growers, processors and retailers.

GENETICALLY modified crops promise much to farmers, consumers and the environment. But until they are fully researched and the right traits become available they pose a big public relations risk.

The government is right to allow trials, while delaying commercialisation. Striking the right balance between protecting the publics interest and keeping companies enthusiastic is not easy. But squandering the technology in a frenzied rush to satisfy company shareholders would serve no ones interests.

The government should stand by its reliance upon robust science, insist on labelling and resist North American GM imperialism. Although that may spark a trade war, the alternative is far worse.

The long-term impact of losing consumer confidence in food production, in general, and in this valuable technology, in particular, is simply not worth the risk.

Route to recovery

&#8226 Continue detailed trials.

&#8226 Maintain education process.

&#8226 Rely on robust science.

&#8226 Resist US imperialism.

A WEAK world market coupled with a strong £ have sent oilseed rape prices sliding from £154/t last year to £110/t; aid payments are down from £430/ha to £250/ha causing margins to slump. They could fall even further following the introduction of the Agenda 2000 reform proposals.

Consequently, plantings are set to slump this autumn, despite the crops strong rotational benefits. Agrimoney compensation (see page 18) will be welcomed by growers.

Protecting the crops prospects demands a robust defence of market share in the face of vigorous competition from North America. Allowing lower-cost GM vegetable oil and meal grown in North America to under-cut UK produce must be halted.

As with other crops, input taxes must be avoided. The result would be cost-cutting, poorer crop quality and lost reputation in world markets.

Potential industrial uses of oilseeds should receive significant financial backing. Much of the development work has been done in the UK. It makes no sense to allow other countries to derive the financial benefits.

Route to recovery

&#8226 Weaker £.

&#8226 Halt GM crops under-cutting.

&#8226 Protect UK market share.

SUGAR beet almost always provides a good return. Many arable farms, especially those on light land, rely on it to keep their businesses afloat.

Now sliding world prices have hit domestic prices, over and above the effect of the strong £. So it is vital that the UK fights for every tonne of quota possible within Europe. British growers are highly efficient and deserve a fair share of available quota.

Arbitration in the NFU/British Sugar battle over the inter-professional agreement is needed urgently. Delaying a conclusion would be just as damaging as a less than ideal outcome.

Proposals for an energy tax also need rethinking. It would hit beet processing hard. Unlike other industries, there is little alternative to the current relatively energy-intensive method of sugar extraction.

Finally, rhizomania regulations need to reflect the endemic nature of the disease. Although growers whose land is infected can rent their quota out, the remedy should be for such growers to be permitted to grow tolerant varieties.

Route to recovery

&#8226 Weaker £.

&#8226 Ditch energy tax proposals.

&#8226 Secure more EU quota.

&#8226 Settle NFU/BS wrangle.

&#8226 Rethink rhizo rules.

&#8226 Encourage industrial use.

PEAand bean sowings are

set to slump this autumn as growers shy away from these risky crops which fail to attract respectable prices. Stiff competition from overseas protein sources is the main reason.

The government did well to help secure a protein supplement for future aid payments. Without that these crops would have been dead. Now it should help promote pulses as a user-friendly, environmentally-benign protein source for users keen on non-GM alternatives. That applies to both livestock rations and human food processors.

Help in maintaining an increasingly narrow range of pesticides approved for use on the crops is also needed. So, too, is a rethink on the pesticide tax, which could render products too costly to use on these lower margin crops and force growers to abandon them.

Route to recovery

&#8226 Weaker £.

&#8226 Promote pulses as a valuable break crop.

&#8226 Promote pulses as a GM alternative.

&#8226 Ditch the pesticide tax.

BIG improvements have been made in environmental protection in recent years. A genuine interest in protecting the countryside, produce assurance schemes and environmental payments have driven the transition.

Sophisticated crop monitoring and forecasting, combined with registered, responsible advisers and a strict pesticide approvals system mean the vast majority of applications meet government guidelines.

Further improvements can be made only if arable and livestock farming are profitable. Unless that is the case corners will be cut. Incentives like narrow headland set-aside strips to buffer field margins, coupled with and support payments for major environmental works, will achieve far more than a pesticide tax which has no scientific basis.

Route to recovery

&#8226 Ensure viable farming industry.

&#8226 Develop imaginative solutions such as headland set-aside.

&#8226 Ditch pesticide tax.

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CEREALS

26 December 1997

CEREALS

A SLUGGISH first half to this seasons export campaign has limited the prospects of a cereal price recovery in the second half.

Despite a 1m tonne lower wheat crop of 15.1m tonnes, and a 25% reduction in the export surplus to 3.4m tonnes, trade estimates of the amount shipped to the end of December are well down on last year at 1.2m tonnes. Barley exports have been even slower, especially for Third Country business, with Brussels missing several opportunities by not granting export licences.

The problem has been exacerbated by high carryover of old crop stocks and an increase in the predicted level of imports. Total cereal availability, says the Home Grown Cereals Authority, is only 500,000t less than last year, which was itself a record year.

Relatively high prices for wheat in the early part of the season, (of up to £85/t), were purely the result of farmers starving the market of grain. But this was only delaying the inevitable and the past six weeks have seen a lot more coming forward, pushing prices back down below £80/t. Trade estimates put the volume shifted off farm so far at 60%.

Quality has also limited price expectations, with 30% of the UK crop below 72kg/hl specific weight. The net effect has been an increased supply of feed grain, says the HGCA, with UK suppliers having to discount themselves considerably to compete with higher quality French and Danish material. This has been passed back to growers.

The expectation now is that things will not get any worse – in grain trade speak, there is very little "downside".

On the quality front, the feeling is that the worst is already out the way. The further farmers dig back into their barns, the better is the quality that comes out as they reach the earlier cut samples. And some farmers have done a good job grading and blending their grain to raise specific weights.

More importantly, sterling appears to have peaked, settling back down at about 2.90DM compared with a top value of over 3DM in the summer. This has halped the competitive position for UK grain.

Predicting future movements is foolhardy, with rates ranging from almost 3DM to 2.88DM in the past three weeks alone. But it does seem that the worst is over, with economists widely predicting a slowdown in the UK economy, no further interest rises and a gradual weakening of sterling during the course of 1998.

Whether it falls enough to trigger green £ devaluations remains to be seen. But at least it seems that further revaluations, cutting intervention support and area aid, are unlikely. Sterling would have to rise above 2.99DM and stay there for two months for this to happen.

Another reason for guarded optimism is trade suggestions that official wheat estimates put out in September may overstate the actual crop. And combined with the fact millers have been reducing their estimates of their import requirement, (from 1.3m tonnes to 1.1m tonnes), while animal feed usage is up, the domestic market starts to look a bit tighter.

But that does not escape the fact there is still about 2.2m tonnes to export and some of that will have to go to Third country destinations. Brussels is expected to maintain its tight line on export subsidies and that grain will have to fight hard on price to secure a home.

World prices are not expected to stage much of a recovery in 1998. Contrary to earlier expectation, the El Nino weather pattern has not disrupted Australian and Argentinean crops too much, and these are now being harvested. Plantings of winter wheat in both Europe and the US are also up, pointing to another big crop mid-1998.

At best, farmers can look forward to a gradual improvement in prices for wheat. But for barley, intervention, which so far has taken 100,000t, looks like being the main outlet, unless Brussels has a rethink on its export policy.n

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CEREALS

27 December 1996

CEREALS

IN skiing parlance, the drop in grain prices since May (see graph) can be likened to a "black run" – uncomfortably steep and fraught with danger if tackled recklessly.

Whether it leads to cancelled skiing holidays is open to question. But certainly there will be some farmers staring at markedly lower profits so far this season.

Reasons for the price slide are well understood. Three stand out:

&#8226 UK cereal production up 12% in 1996 to 24.4m tonnes.

&#8226 EU cereal production up 16% to 204.7m tonnes.

&#8226 World cereal production (1996/97) up 9% to 1.46bn tonnes.

This supply pressure has been compounded in the UK by the rise in sterling which has accounted for nearly half the fall in prices since May.

But at least the market appears to have bottomed out, trading in a range between £90/t and £95/t ex-farm for several weeks. Any increase has been seen as a "sell opportunity" by farmers, who have released more grain until the market has been satiated and prices dropped.

Where the market goes from here is open to debate. As ever, there are "bears" and "bulls".

The bears point to a significant tonnage of grain still on farm – with 35% to 40% still to be sold.

There is also the prospect of another green £ revaluation in January, which is set to knock £3 off intervention prices, taking February down to £97/t – equivalent to about £92/t ex-farm. (Only barley currently qualifies for intervention in the UK, though there is some hope that feed wheat may be accepted if the price falls to 5% below barley.)

The southern hemisphere is also ready to hit the market, with big crops in Australia and Argentina. Currently, Argentinian feed wheat is quoted at £81/t, compared with £93/t and £87/t respectively for French and UK after subsidy.

There is still a lot more grain to be exported from the continent and prices are expected to have to fall, as Brussels tightens the export subsidy purse strings. This is not supportive to the UK, given its higher freight costs and strengthening currency.

But there are reasons for optimism. Despite trade claims that UK farmers are behind with their sales, this is disputed by farm management companies who say most farmers are well ahead of last year.

Combined with a successful export campaign so far, grain supplies off farm could get relatively tight as the season progresses.

Trade estimates put the volume of wheat shipped to the end of the year at almost 2.2m tonnes out of an export surplus of 4.5m tonnes, and for barley at 1.4m tonnes out of 2.3m tonnes. Most wheat has been sold into the EU and Poland, with most barley going to Saudi Arabia.

Encouragingly, a number of new export buyers have emerged in the run-up to Christmas, notably India which is looking to cover in 2m tonnes of wheat to replace grain it sold when the market was at a peak in May. And Iraq is also a buyer again, now that it is generating cash from oil sales. Saudi Arabia is also expected to want more grain in the new year, which should further support the barley market and keep it out of intervention.

Brussels has been more generous with its export subsidies in recent weeks. With about 8.5m tonnes granted so far this season, the EU export programme is now ahead of last year, and is well on the way to clearing the 17.5m tonne surplus.

Domestic demand is also reasonably buoyant, with compounders switch into wheat. Animal feed use for wheat is expected to be 14% up this year, but 5% down for barley.

Finally, the bulls point to the continuing low level of world stocks. The International Grains Council forecasts a 7% increase for wheat stocks to 102m tonnes. But this is still well down on the 141m tonnes held four years ago and could accentuate any price rises in the months ahead.

Clearly the market is delicately poised and, as ever, much will depend on currency and Brussels. As one trader put it: "Prices will not travel in a straight line between now and the end of the season. There will be ups and downs, and it is possible prices will reach three figures again if something dramatic happens on the world scene."

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