15 March 2002

Take action now to guard against global pressures

By Robert Harris

FARMERS intending to survive the next decade must act now to cope with increased exposure to global competition and falling subsidies, says Lloyds TSB.

The bank has outlined the challenges farmers will face and how it believes they need to react in six new reports*, part of a series of business guides to help customers make better informed, longer term decisions.

"Business has never been so tough for British farmers," says head of agriculture Tim Porter. "Where a farm business is planning expansion, specialisation or any investment, good information can help build a case for it."

But time is short. The EU relies on exports for all commodities except sheepmeat. By 2005, the European Commission puts cereals output at 115% of consumption, pigmeat at 105%, poultry meat at 109% and beef at 101%.

But last Novembers WTO talks in Doha paved the way for further tariff cuts, less support and possible elimination of export subsidies. The Lloyds TSB guides highlight radical change in 2006, with much support decoupled from production when the Agenda 2000 agreement runs out.

The reports also predict most commodities will trade at world prices by 2010. Cereal prices are already exposed to this volatile marketplace.

"Farmers must know what price they need to make a profit, and when futures offer that price they must secure it for a proportion (or all) of their crop."

Arable farmers should also aim to make money without subsidies. "Although direct subsidies may remain in some form for 10-15 years, the objective should be to reduce costs to survive without them." Only the very best growers can do so now, says Mr Porter.

Dairy farmers have two options, say the reports – high output with moderate costs or moderate output with low costs. "There is no room for producers in the middle ground."

But UK farmers may not have to screw down costs to match the lowest global levels. Cereals and livestock producers should receive some subsidy element, if only to compensate for higher environmental or welfare standards.

Although New Zealanders can produce milk at 10p/litre or less, this does not mean there is no future for UK dairying. "The 50% of UK milk consumed as liquid is always likely to be produced in the UK." Less dairy commodity production and more value-added products would also help.

Nevertheless, once support is decoupled from production, commodity producers will have to strive for ultra-low costs, says Mr Porter.

Other farmers may choose to produce niche goods, while some will retain a high proportion of income from public funds by delivering attractive landscapes, recreation and biodiversity. Others will diversify using grants to become rural businesses. Some will use a mix of the above, the bank concludes.

&#8226 Lloyds TSB Business Solution Guides are available to the banks customers either at www.lloydstsb.com/success4business or through a local Lloyds TSB business manager.

The first six of 13 guides to be released by June 2002 focus on globalisation, UK farm competitiveness, collaboration between farmers and the food chain, EU farm support and quotas. &#42

Farmers need good information to make the right business decisions, says Lloyds TSBs Tim Porter.