11 February 2000

Grain supply not keeping up with growing demand

In our latest article looking

at arable farming prospects

we consider the booming

demand for organic produce

– will it continue?

Suzie Horne reports

DEMAND for organic grain is more than double the domestic supply, leading to high premiums for growers.

That situation seems set to continue for the foreseeable future, as growth in organic livestock production outstrips arable area increases, according to the Soil Associations 1999 Organic Food and Farming report.

While the area of land with full organic status rose by more than 30% in the year to April 1999, organic arable area rose only 19%. Less than 40% of the UKs requirement for organic grain is supplied by home-grown crops, a figure that has changed little in recent years despite the increases in production.

Besides feed demand, expanding bakery and other cereal food sectors and a growing interest in organic beers has sent buyers chasing every parcel of organic grain on the market. Prices are currently up to three times their conventional counterparts (see panel).

Much of the increase in demand for organic feed grains seems set to come from pig and poultry sectors. These are being stifled by a lack of grain and proteins, according to Andrew Armstrong, technical manager of Somerset feed manufacturer Bowerings where 30% of the feed volume is organic.

"If I was an arable farmer going organic today, I would be confident of 10 very good years," he says.

His view is echoed by John Bailey of Devon meat processor Lloyd Maunder. Lack of organic feed at affordable prices means some organic stock is being lost to conventional markets and organic feedstuffs will continue to command substantial premiums for 6-8 years, he says.

"The key to the expansion in organic pig and poultry production will be the availability of organic grain and pulses and the lack of suitable organic land to put those stock on."

Most organic grain is traded on a spot basis, but growing contracts will become more common as the area of cropped organic land expands, says Brian Wilburn of grain merchant Gleadell Banks.

He is reluctant to predict demand or premiums for growers who are considering conversion because there are too many variables. Competition from eastern and central Europe is increasing and despite production having doubled last year, the market easily absorbed the increase, he says.

"On the processing side, people have been saying they could be interested in up to 25,000t a year. The more of that that can be sourced from the UK the better."

Even in Europe, where organic arable production is greater than here, premiums are high, says John Norton of John Norton Grain Marketing. "In most of Europe, organic prices are still probably double those for conventional grain."

The Soil Association is bullish about the growth in arable organic crops in the next five years. Wheat, barley, rye and triticale sowings will increase seven-fold, as will peas and beans, it says. Oats are tipped to increase to eight times the 1999 crop area by 2005 and potato and carrot plantings will advance even faster.

Yet the UKs organic grain market will be under-supplied for at least the next three to five years, says Nic Lampkin, senior lecturer at the University of Wales, Aberystwyth and author of the Organic Farm Management Handbook.

He says beyond that, demand and premiums will depend on how far the major processors and supermarkets go down the route of shifting some of their main brands to organic only. "Organic arable production is hugely profitable at present, but no one will recognise it."

Field scale vegetables, such as potatoes, carrots and onions, can substantially improve returns, and supermarket demand is tempting conventional packers and large-scale growers into this sector, Mr Lampkin says.

In fresh potatoes and carrots, Sainsbury has already exceeded the 5% of sales target it set itself three years ago for 2002. In other vegetables it expects the 5% mark to be reached comfortably by then. "Beyond that, it is difficult to predict growth," says technical manager for organic foods, Robert Duxbury. "Whatever issues keep organic foods in the headlines may have a good deal to do with demand levels."

At Waitrose, organic produce accounted for 13% of fresh fruit and vegetable sales, up from 7% a year ago. It predicts a 20% market share a year from now and says there is good potential for growth.

But Waitroses senior agronomist Alan Wilson warns growers not to plant without a market. "We are going to face a number of technical challenges to increasing the share of home-grown organic produce, such as variety choice in potatoes, to extend availability beyond the early New Year." &#42

ORGANICFACTSFOR 2000

&#8226 540,000ha (1.3m acres) in UK registered organic – UKROFS latest figures.

&#8226 Two-thirds still in conversion.

&#8226 Only 16% in arable crops.

&#8226 Five-year conversion aid in addition to AAPS.

&#8226 Conversion normally takes two years.

&#8226 Annual UK organic growth – demand 40%, supply 25%.

&#8226 UK organic grain use only 40% home grown.

&#8226 By value, less than 1% of food sales are organic.

&#8226 Soil Association forecasts market to quadruple to £1.5bn in three years.

ORGANICCHANGESAHEAD

Feb 18, 2000 MAFF consultation period for review of Organic Farming Scheme ends. Review expected by late spring.

December 2001 Derogation allowing non-organic straw for organic mushroom growing ends. Current use 15,000t/year.

December 2003 Derogation allowing non-organic seed use where organic seeds are unavailable ends.

2004 Derogation allowing 20% non-organic feed intake ends – further increases in demand for organic cereals and proteins.

Rooting for organic arable growers – more livestock farms turning to organic production should ensure that premiums for organic grain for animal feed continue for years to come.