Wake up, shape up
Trading out of a crisis was the rather apt title for the HGCAs market outlook conference. Debbie Beaton captures the key points
A BUMPER crop and decent grain prices. Both may seem like a distant dream for growers, but the HGCAs senior economist Gerald Mason is fairly bullish about prospects next harvest.
The pendulum seems set to swing back from the 20-year harvest low experienced last season to a record wheat area of 1.66m hectares in the UK. With much of that anticipated area already in the ground, he predicts a 17 to 19m tonne crop next harvest – barring freak weather conditions.
And if eastern Europe, which put an extra 25m tonnes into the market this year, matches or exceeds its production then there will be a bumper harvest across the whole of Europe. A double whammy for prices? Not necessarily, he said: "The market dynamics will be very different with a larger crop but who knows what the demand will be elsewhere in the world; perhaps Australia will produce a poor crop or maybe China will emerge as a big buyer."
EU and world prices and currency will remain crucial market forces, he said. But he added that growers must learn from random events such as those experienced this past season in the shape of weather, foot-and-mouth and terrorism. He urges a planned approach to remove as much risk as possible: "Wake up and shake yourself down from the slumber of price stability. New markets are here yesterday, not today, not tomorrow."
MARKETING oilseed rape has never been more important, said the HGCAs oilseeds specialist Heike Hintze-Gharres. Until now growers have been able to rely on subsidy forming a large part of the final margin for this crop. But with area aid dropping to £264/t last autumn (from £300/t) and to £226 next autumn, the world oilseed price is now a more important element of that equation.
This season prices jumped £30/t (UK spot prices of £160/t) on the back of declining supplies – in total 37m tonnes down on last year globally. She does not predict another price rise despite market forces being similar this coming year – with rapeseed and sunflower supplies down and oilseed demand growing in Asia. To counter, there could be a record US soybean crop and global oilseed supplies are continuing to rise.
So where does this leave rape growers? "Take your marketing much more seriously to protect profitability. Set a budget, cash-flow and storage constraints and costs," she urged.
SUSTAINABLE may be the new in-word, but those involved in shaping the industry towards it have clearly no idea what it means. Farm profitability is never included in the debate – but it should be, according to the CLAs chief economist, Prof Allan Buckwell.
"Sustainability includes economic, social and environmental dimensions," he said. But the elements of policy change on offer in order to achieve a so-called sustainable farming business in this country and Europe have completely ignored farm profitability.
His words are in stark contrast to the statements emerging from government ministers recently that subsidies must go: "Public support is a vital part of current returns, yet its size and shape are subject to huge uncertainty. It is tempting to tell producers to focus on the market and not subsidies, but the policy transfers in the EU and US are too large for us to be able to do so."
SUBSIDIES for American farmers have never been higher, confirmed American economist Prof David Blandford from Penn State University. "Theres $19.1 billion put aside for US farming – and the industry is not far off from reaching it."
The FAIR act of 1996 was designed to unshackle farming – eliminate setaside payments and planting restrictions. Instead, it gave US growers seven years of pre-determined direct payments and kept price support loans. "But things did not go according to plan; market prices plummeted and government expenditure went through the roof as millions of dollars were poured in to emergency aid," explained Prof Blandford.
Will the new administration change domestic policy? "The House of Representatives bill proposes keeping planting flexibility, but the method of calculating payment has been designed to favour maximum profit. A new counter-cyclical direct payment is almost a deficiency payment – and is a return to previous legislation which cost the government billions of dollars."
He quashed the reality of ever having a free world market trade: "When push comes to shove the Americans will protect their domestic farming policy against any international trade obligations. Our trade record on this is not good."
SKYLARK friendly bread, corn bunting beer. These are the initiatives that the RSPBs Graham Wynne believes UK cereal growers should embrace: "No-one is making any money in the food chain at the moment – producers or processors. We need to work together to add value to our food," he said.
Just 1p on a loaf would translate into £20/t for producing bread that had been produced in such a way as to protect skylarks or indeed other bird species, he explained. "Farming needs to build bridges with consumers. Food quality is not just about safety," he added.
His call for quality does not sit squarely with recent findings from the Foods Standards Agency, which reveal that consumers buy on price first. But he added that there were surveys and surveys: "Dont dismiss niche markets; just make them bigger."
The way out of the current farming crisis is to make farming the solution not the problem. "The environment is the solution to farming – and farming is the solution to the environment."
SIZE matters – up to a point, according to the HSBCs head of agriculture Steve Ellwood. "The middle part of the farm structure has economies of scale to make – but more than 1,000ha of cereals and the benefit starts to disappear."
If you want to manage your business better than you will have to measure it, he said. He believed that there is scope to reduce costs per tonne, seek economies of scale by expansion or rent but urged growers to have a plan, write it down and carefully measure their businesses first.
Reducing production costs and protecting against grain price volatility are the key to managing to costs, he said. "And ask yourself who is the best person to meet those needs?"