2 June 1995

LLOYDS LIKES WHAT IT SEES

CAP reform, coupled with Britains exit from the Exchange Rate Mechanism, has brought big benefits. Over the past two seasons it has resulted in a general improvement in profitability for most cereal farmers. There is certainly more of a "feel good" factor about than there was in the early 1990s.

The view in Europe is that the CAP reform is robust and can cope with both budget constraints and limits on subsidised exports under GATT by modest adjustments on a year-to-year basis.

The broad structure is seen as being in place until at least the turn of the century. And since arable area payments represent an important part of farm income for British arable farmers, this should mean a period of stability and potential profitability for three to four years at least.

In the longer term the accession of central and eastern European countries to the EU will affect the situation.

Financial results from the 1994 season were enhanced by poor harvests elsewhere in the world and through increasing demand for grain in Far Eastern countries.

However, interest rates have edged higher during 1995 and cost inflation will continue to eat into profits in the years ahead. As a result, farmers need to continue to manage their businesses effectively if the benefits of this period of stability are not to evaporate.

In various commercial situations, we consistently see that it is the business which can produce at the lowest unit cost which has a significant competitive advantage.

The weakness of sterling enables our grain exports to be very competitive against Contin-ental producers. But this situation may not last. Farmers need to continue to run their businesses at optimum technical efficiency.

Over the years, the winners of the Farmer Group Challenge have succeeded in keeping unit costs of production at a very satisfactory level and have pushed profits further forward each year.

Huntingdon Farmers are trying to retain the Black Horse Trophy in 1995. But they face strong opposition from five other groups, each looking to grow the most profitable tonne of wheat.

The Farmer Group Challenge is very much a practical working demonstration, so provides valuable pointers for farmers visiting the event.

As well as having the chance to discuss the crops and the agronomy with members of the groups, there is the added incentive of competing for a tonne of seed wheat. This prize, worth about £300, is waiting for the farmer who can most closely identify the winning crop and the net profit margin it ultimately achieves.

The question of "How to finance" also needs addressing. Although we are currently in a time of good financial returns from arable farming, complacency must be avoided. If arable farmers had to choose one event to attend each year, it would have to be the Cereals Event, the most important technical demonstration on the calendar and sponsored, as usual, by Lloyds Bank.

The range of exhibits, working demonstrations and seminars during the two days provide vital pointers on production efficiency, technical skills and business and financial management.

I hope that as many arable farmers as possible will make maximum use of the opportunity presented by Cereals 95. Together with specialist colleagues from different parts of the Lloyds Bank network of Agricultural Centres, I look forward to meeting you.

Pat Oakley,

Chief Manager, Agricultural Finance, Lloyds Bank Plc.