12 May 2000

Malt contracts all change?

By Edward Long

MALTING barley growers should have contracts set up before sowing so the whole production system can be geared to a particular outlet.

But if contracts are not available, planning for a specific market is the best way to ensure crops fetch best prices.

That was the message from Norfolk farmer Marie Skinner, who chairs the HGCAs Market Information group, at a British Seed Houses conference last week.

"In the modern market we have to live with volatile prices and currency fluctuations with no agri-money compensation to help cover the lows," she said. "It is not such a strange world. Industry has been living like this for years.

"But it has a serious implication. With security gone, the old ways of pricing the crop are no longer acceptable."

A fixed price contract provided certainty and locking in was fine if costs were covered. But in a volatile market, growers could be locked out if prices rose or sterling collapsed, she explained.

"A contract based on a premium over feed is more effective if growers take control of when the base feed price is fixed. It is no use having a wonderful premium if the feed price is fixed at a distressed harvest level when loads rejected for malting are dumped on the market depressing returns."

Contracts based on a premium over futures were potentially fair. But those based on the HGCAs average malting barley price at time of delivery or trust contracts were the worst possible options, she said. "Growers cannot determine prices but they can decide when they are fixed. Waiting for a harvest fix is nonsensical and much too passive. Growers must get serious, take control, and establish a bottom line.

"They should establish a premium to feed that is satisfactory. Many already do this. But they must go the next step and build in the ability for the grower to fix the base feed price at his call."

When signing contracts growers must know what they can deliver and only agree to conditions reflecting the abilities of their farms, she added.

"Misplaced optimism is fine in the pub, but no good in reality, as it can lead to expensive rejections. To minimise the risk of loads being turned away, barley going into store should be accurately and efficiently sampled to ensure it meets market specifications. Joint sampling when loading out reduces the chance of rejection."

Ms Skinner believed the old system of merchants contracts with maltsters, which differs from farm contracts, was over. A change of culture was required with everyone in the malting chain working together.

"There is no room for deals that are not open, clear and transparent, and traceability of grain right back to the producer is essential." &#42

MALTING CONTRACTS

&#8226 More volatile markets.

&#8226 Old pricing systems outdated.

&#8226 Growers to fix base feed price.

&#8226 Avoid misplaced optimism.