Fight the intervention
In our campaign for a change in this Governments anti-intervention stance, Gilly Johnson finds out why arable businesses are suffering.
APPALLED at the low prices being offered for your wheat? Heres a painful thought: if intervention had been working properly as a market safety net in the UK last season, then domestic wheat prices might have been £10-20/t higher.
Instead, growers operate in the bargain basement marketplace of Europe – a fact that does nothing to help the UK cereal industry. Tough talking from David Balderson, chief executive of the co-operative group, Viking Cereals. And he reckons growers and merchants have only got themselves to blame – by remaining ignorant of how the system was designed to operate in the first place.
Mr Balderson is one of the few determined traders who has taken on the challenge of putting UK wheat into intervention. Of the small tonnage (about 40,000t) that did find its way through intervention doors for the 1998/99 season, his company was responsible for about a quarter. So he knows only too well how difficult the process can be.
His criticisms of the UK intervention system are twofold. First, theres the hassle, expense and delays that traders experience when they attempt to have grain accepted. But more of that later.
More fundamental is his concern that the UK is putting itself at a disadvantage in Europe by failing to understand, and so take advantage of, a system which was set up to put a floor in the market.
For example, if intervention had taken say 100,000t off the market in November 1998, the market would have been tighter and prices would have firmed. Even the suggestion of that scale of offer would have been enough to shake buyer complacency and lift prices, he comments.
Mr Balderson is not saying that intervention is the most sensible mechanism for market support – but its the only one available, and so should be made use of.
Ideally, hed like to see Brussels change tack and abandon intervention in favour of a guaranteed deficiency payments system similar to what existed before the CAP, and mirroring what happens now in the US. But he recognises it would be difficult to sway the Commission.
So hes taking issue with the UK Government instead. He claims that the Governments hidden agenda has been to downplay intervention as a support mechanism. This has resulted in a negative, even obstructive attitude to regulations from the Intervention Board, which is MAFFs executive agency.
"The Intervention Board has seen its role as one primarily for preventing UK grain entering intervention – not as a facilitor to help growers benefit from this support."
Problems started with the way samples were taken initially – "drawn from the top of the heap, which meant moisture readings werent representative" – and went on through delays with payments and testing "taking up to three months", ending with long haulage distances to intervention stores. Following complaints by Mr Balderson and others, the system has been improved slightly, but nowhere near enough, he argues.
One major gripe is that testing must be done on each 500t offered into intervention. Elsewhere in Europe, samples from each lot offered are mixed and one test done on the bulked up sample. In the UK, the test fee for every 500t is about £400, about seven times higher than in France. Some countries do not make any charge for intervention testing.
With 10,000t of wheat in store, the French storekeeper would only need to offer one sample and pay one test fee. The UK trader would need to make 20 offers and pay 20 test fees – with 20 chances of the whole lot failing.
The UK has different testing procedures because MAFF, and so the Intervention Board, has made a more inflexible interpretation of the European rules. This doesnt help UK growers, says Mr Balderson.
In France and Germany, intervention offers can be made in situ – that means merchants can use their own storage, and are paid a realistic rate for the service, which includes haulage costs. Not so in the UK. This leads to the ridiculous situation of intervention grain being hauled hundreds of miles across country to fill official stores in inconvenient places.
"Elsewhere in Europe the whole system is geared towards in-situ storage. At harvest, merchants can set out to fill the store with intervention quality grain, that is tested as it goes in, so its certain its up to standard." Between 3-4m tonnes of extra in-situ intervention storage capacity is currently under construction in France.
In-situ storage means that grain can be kept cool from harvest onwards, and doesnt have to be carted around in lorries where it risks heating up beyond the 15íC allowed at intake (18íC in November).
UK growers are still under the impression that intervention standards are too demanding for their wheat. This is no longer the case, he says. "Today about one third of our acreage is in Group 1 and 2 wheats which do meet the 30 and over zeleny requirement. Some of the Group 3 and 4 biscuit and feed varieties will also pass."
Zeleny can be blended easily – just as protein is for variable wheat samples, he explains. "For example, you can take a low protein sample of Charger which wouldnt make a top milling spec. This has a zeleny of about 45 – so it could be blended with feed wheats such as Buster and Equinox, to give a sample of 30 zeleny."
If the sample passes, then no other technical tests are done on intake other than specific weight and moisture – which makes intervention deliveries easier than delivering to a miller, he says. Protein requirement for intervention wheat is relatively easy to meet at 11.5% on a dry matter basis (about 9.6% at 14% moisture), with a 5% discount applying down to 9.5% on a dry matter basis.
However, the machinability test – which involves dough tests – is more of a lottery for UK grain. "I wouldnt make offers on the basis of the machinability test – its too uncertain," says Mr Balderson.
"There is recognition that the intervention system isnt working in the UK. But growers should not be fobbed off with small changes; a different attitude is required."
The industry hasnt helped, he argues. "End buyers dont have the incentive to make intervention a practical alternative, because they win out when grain is cheap and the market is kept oversupplied."
"Growers must fight this one themselves. Make the system work, and lobby for change. We cant blame Brussels this time – this is one handicap we have brought upon ourselves."