28 May 1999

NEW APPROACH VITAL AS MILLENNIUM NEARS

Crops planted this autumn will be harvested in the new millennium. It is a sobering

thought – and a thought that demands a sober rethink of business strategy, suggests

Ian Stockley of Lloyds TSB, main sponsor of Cereals 99. Charles Abel reports his advice

GROW it well, control production costs and then think about selling it. That has been the UK approach to growing combinable crops for far too long.

According to Ian Stockley, chief manager of agriculture at Lloyds TSB it must change. "The harsh economic climate of world markets and dwindling income support under Agenda 2000 CAP reforms means an alternative approach is crucial."

Nothing short of a full-scale reversal of strategy will do, he maintains. "Market-driven production for the new millennium must replace the technology-driven approach of the 1980s and 90s."

Establishing a new strategy for the development of the arable farming enterprise into the new millennium should be a priority.

To do that growers should first consider the environment in which their business will have to operate. That should include:

&#8226 A competitive world market, rather than simply the UK or EU.

&#8226 A strong currency, equivalent in Deutschmark terms to DM2.90+/£, which is higher than when the UK left the EMU.

Next consider the marketplace:

&#8226 Products rather than commodities.

&#8226 Selecting cereal types and varieties to meet market demand rather than just because they suit you and your farm.

Lastly, any strategic review must consider the farms own business strengths. This should examine:

&#8226 Technical management quality.

&#8226 Financial management quality.

&#8226 The ability to produce profitably within the environment and market-place.

Only then can a strategy be drawn up. Such a strategy should include:

&#8226 The identification of target markets.

&#8226 Management of the business, with performance targets and a plan for achieving them.

&#8226 Technical performance required to achieve the above.

Running throughout all the above is a common theme – the need to grow for a defined market not a general outlet. "It is not just a question of growing wheat well, but growing wheat for a purpose.

"While the choice of group and variety must suit the farm and the farmer, even more importantly it must suit the market."

Such an approach works, says Mr Stockley, taking exports as an example.

Over the past decade the area of wheat rose 3% and yields rose 20%, lifting total production by almost a quarter. But over the same period imports fell 17% and exports rose 30%, albeit with a significant change of emphasis towards the EU rather than the rest of the world.

Increased home use helped, leading to 86% inclusion in millers grists, against 75% before.

HGCA figures show the UK now exports 37% of its cereals – equivalent to 8.5mt. Of that 60% goes as grain and 40% as processed food and drink.

Those exports go to up to 70 different countries. But the bulk goes to the EU, despite the strength of sterling. Spain is the biggest buyer, taking just under half the 4m tonnes total. That is largely thanks to the efforts of British Cereals Exports, which has helped the industry provide the quality specification required.

Such success stems from choosing the right varieties and exploiting the natural advantages enjoyed by British growers, stresses Mr Stockley.

Skill levels, equipment, storage and climate are all strong points the UK arable sector should play to, rather than simply chasing the least cost route which other producers can pursue with equal or greater vigour, particularly given the downside of our persistently strong currency.

Grain type is a good example. UK varieties may not be able to produce strong bread flour. But Group 2 varieties such as Charger and Abbot suit export and blending outlets and Group 3 types have helped build the UKs excellent reputation for biscuit flour.

In a volatile market-place that sort of information is increasingly valuable, helping growers match variety choice to their own strengths and the true demands of buyers.

The need to produce grain for a market rather than a big heap is clearly shown by production statistics for recent years, Mr Stockley continues. Last year the cereal area was slightly down on 1997, being 2% less. But production was down 4% as low barley yields more than offset higher yielding wheats.

However, the total wheat value was down a huge 11% on 1997 at £1.67bn, mainly due to sterlings strength impacting on import/ export opportunities. Barley values dropped even further.

Such statistics and market data should play an important role in the planning of any business strategy for the new millennium.

They also help explain the continuing move to larger combinable crop units, to cope with declining cereal incomes. In 1998 21.3% of cereal holdings had over 50ha of cereal, compared with 18.6% three years earlier. &#42

TALKINGARABLESEMINARS

Wednesday Thursday

11.00-11.30 Unfixing the fixed costs Unfixing the fixed costs

evaluate your power and – evaluate your power and

machinery options. machinery options.

John Bailey, ADAS John Bailey ADAS

12.00-12.30 GMOs and you – the GMOs and you – the

practical implications. practical implications.

Dr Jeremy Sweet, NIAB David Carmichael, farmer

1.00-1.30 Machinery Syndicates. Organics – a viable option

Gary Markham, for you?

Grant Thornton Alistair Leake, CWS Farms

2.00-2.30 Organics – a viable A growing demand for

option for you? organic cereals.

Alistair Leake, CWS Farms Phil Stocker, Soil Association

MILLENNIUMSTRATEGY

&#8226 Shift from production-driven to market-driven philosophy essential.

&#8226 Examine market needs, business environment and strengths of own business.

&#8226 Adjust to match demands of world market and seek premium-earning potential.

&#8226 Exploit UK strengths – variety segregation, technical skill, equipment investment, climate.

Planning a new strategy is just one of the topics experts will be advising on at the "Plan Your Day" feature at Cereals 99. Production efficiency, better marketing and cost control are the other key themes. If you are looking for advice on these topics turn to page S32 for more information on this new feature of the Cereals event.