CHEAP EAST WHEAT THREAT…
CAN you grow wheat for £55/t? Producers in eastern Europe are already doing just that and UK growers must mirror their efficiency if they are to remain competitive in world markets.
So says John MacGregor, managing director of agricultural consultants Laurence Gould Partnership in Edinburgh. "Generally, UK farmers are grossly over-kitted, over-staffed and paying far too much for extra land," he says.
His comments are based on years of advising and establishing new farming businesses in countries from Estonia to Hungary and Poland to Ukraine.
Growing a tonne of wheat on well run, big cereal farms in many such countries costs significantly less than in the UK, he says. Resulting profits are almost £20/ha (£8/acre) better at current wheat prices, even after UK farms have been paid area aid.
Although east European wheat yields are just 6.2t/ha (2.5t/acre) total costs of £345/ha (£140/acre) mean a break-even figure of £55/t.
A typical UK farm spends £765/ha (£310/acre) producing 8t/ha (3.2/acre), leaving a break-even cost of £96/t. Adding area aid of £242/ha (£98/acre) to the UK budget still leaves a unit cost of £65/t.
East European variable costs are typically £90/ha (£36/acre) below those in the UK thanks to cheap £55/t ammonium nitrate, farm-saved seed and fewer sprays in a climate of harsh winters and hot summers.
Fixed cost savings are higher still. "Labour costs are less than half those of the UK. Although there are typically at least twice as many workers, wages are very low. The bigger workforce also helps reduce power costs," notes Mr MacGregor.
But the biggest saving is rent. "We are negotiating to take on a large farm in one of the Baltic states at £10/acre for a 25-year lease, with scope for a back-to-back deal to provide a 49-year term."
By contrast UK growers continue to compete for additional land, holding Farm Business Tenancy rents close to £250/ha (£100/acre). That is well beyond the level most farmers should be paying, Mr MacGregor argues.
"We have had some good times and farmers are now facing their legacy through excessive land costs as farmers who think they are getting economies of scale from extra land continue to compete with each other."
Mr MacGregor believes many of the savings are an illusion. Too often extra land adds to power and labour requirements, leaving producers no better off, he says.
"Fixed costs tend to be rather lumpy, coming in the form of another whole machine or another man. Growers need to look at smoothing those out by sharing power and equipment and using contractors more, rather than simply trying to acquire more land."
Key to such a strategy is gearing machinery and labour to a farms minimum workload, not its peak, he says. "That means the farm manager will need to be more involved with practical operations at key times and make more use of students and casual labour."
It is an approach farms are starting to consider, claims Mr MacGregor. "One 800-acre all arable farm we advise on recently changed from three staff to just one man, with the farm owner and his son getting more involved at peak times. That meant losing a little contracting income, but it brought a near 100% improvement in efficiency."
UKfarmers could learn a lot
from East Europe, especially
when it comes to keeping
East European Challenge – low cost tackle and cheap labour can produce perfectly acceptable cereals in eastern Europe (inset). When combined with ultra-low rents £55/t wheat is quite possible. UKgrowers take note, warns John MacGregor of Laurence Gould.