22 March 1996

WEST GERMANS TRY TO MATCH EASTERN PROMISE

West German arable farmers face sharp competition from their east German neighbours. Mike Stones reports on how one grower is meeting the challenge

BREAKING down the Berlin Wall was bound to bring change for German farming. But few expected that rapid progress in the east would force west German arable farmers to break down their barriers to change.

Seven years on, such farmers are finding that their businesses are exposed to the chill wind of competition blowing from the east. One grower who is ideally placed to comment on the new climate is Harald Isermeyer.

Farming both in the west, at Eicherhof near Brunswick in Lower Saxony, and in the east, south of Magdeburg, Mr Isermeyer has been astonished at the progress made in the former east Germany. "East German farmers are now leading the countrys arable sector. Farms in the west are trailing behind," says Mr Isermeyer.

"Big farm sizes, left over from the old Communist regime, give benefits we cant match with our smaller farm sizes." That advantage, combined with massive investment of finance and technological support in the east, has given their farms a cutting edge which is drawing blood in the west.

Simply watching the progress made in the east was not enough.

Mr Isermeyer, and farmers like him, was forced to act. His response has meant profound change for the Eicherhof farming business.

"When we saw the improvements in east German farming we knew we had to co-operate or go out of business. There was no other choice." That decision led Mr Isermeyer to pool all his farms resources with those of four neighbours.

The group shares machinery and farm buildings and jointly buys inputs and markets the farms output as well as offering a contracting service to other farmers in the area. Contracting ranges from ploughing to a complete farming package providing everything from primary cultivations to harvesting.

Called Agrarservice, the company uses the Eicherhof farmyard as its base and employs one permanent worker and seasonal workers at busy times.

The Eicherhof farmstead has been equipped to cope with farming 850ha (2100 acres). That has involved setting up a workshop, agrochemical store and grain storage facilities. Meanwhile his partners have converted their farm buildings into flats which they rent out to generate extra income.

All five farmers are shareholders in Agrarservice which grows mainly cereals and sugar beet in the areas predominantly sandy soils. They receive an hourly rate for work put into the company and a share of the profits from the sale of farm produce and from contracting.

Each of the five directors is encouraged to develop outside business interests. That reduces the companys management costs and their need for capital drawings. It also helps to keep their contract rates competitive, says Mr Isermeyer. His other business interest is a farming partnership with a family near Magdeburg in east Germany covering 1500ha (3700 acres).

Growing crops with the lowest possible cost per tonne is the key to unlocking arable profits in the new Germany, says Mr Isermeyer. "At Agrarservice we have a simple business philosophy. If you want to make money from arable farming, you have to use as little capital and labour as possible and make them work as hard as you can."

Production costs for winter wheat, including rent and labour are about £796/ha (£322/acre). Of that the machinery and labour bill account for about £333/ha (£134/acre).

Despite the companys contract farming businesses, Mr Isermeyer is anxious not to overspend on farm machinery. "We dont want very large machines but versatile models that can cope with a range of jobs."

The company always chooses machines, such as CASE IH tractors, that have a ready secondhand market. "Reliability is an important factor for any farmer but particularly when you are contract farming. We need machines with high service life, not ones that break down every 100 hours."

Tractors have high utilisation rates and are kept for between three to five years before being sold to buyers in Turkey or North Africa. Supplying the global secondhand machinery market avoids relying on fickle home markets.

Farm buildings have been converted to store up to 3000t of grain on the floor at minimum cost. Only grain with a moisture content of less than 18% is put into store. The grain is stored up to a height of 4m (13 feet) and dried with outside air.

"Low storage costs are a big advantage," says Mr Isermeyer. "Most grain merchants made heavy investments in handling equipment when grain prices were high. When we started in 1991 we based our thinking on low grain prices. Since handling and conditioning costs are low, we can buy grain from the field. So farmers who sell us their grain dont need a combine or tractors and trailers."

Nor do they need grain handling and storage facilities, which allows them to significantly cut their fixed costs compared with their better equipped neighbours, he says. Some farmers who at first just sold their grain to the company now rely on it for a complete range of contracting services.

Dealing with Agrarservice can also bring benefits when marketing wheat, explains Mr Isermeyer.

Many farmers in the region sell their wheat after the sugar beet harvest. Marketing large quantities of grain allows Mr Isermeyer to gain a better price by selling some grain in August and September when home supplies are not so abundant. Although French wheat is available then, its higher transport costs give German wheat a competitive advantage.

But wheat prices last autumn were disappointing at about £122/t at 14% protein. Nor has the strengthening Deutschmark helped profitability with wheat prices now standing at about £127/t. Then again, wheat yields last harvest at 8t/ha (3.2t/acre) were good compared with the average of 7.6t/ha. This year sugar beet yielded 42t/ha (17t/acre).

But could Mr Isermeyer and his colleagues dispense with IACs cheques and survive on high yields and well-timed grain sales alone? A firm No is the answer. "At the beginning of CAP reform we could survive without subsidies but now we need the money because the cost of land is rising," he says.

"In the short run, we like to take the Brussels money. But in the long run, it worries us. Subsidies make farmers more dependent on the politicians. The longer Brussels supplies subsidies, the more some farmers lose their entrepreneurial thinking and the more they become dependent on subsidies," he points out.

Increasingly, a generation of German farmers no longer farm – preferring to rent their land out to organisations such as Agrarservice. "Its almost like the old Communist regime which separated ownership of land from those who grew the crops," says Mr Isermeyer. "But theres one crucial difference. Since the wall came down, our system has been voluntary." &#42

One last rinse of the filling jug and Agrarservices Dammann trailed sprayer is ready to apply a winter wheat herbicide at Eicherhof farm.

Harald Isermeyer had to co-operate with his neighbours to compete with east German farmers. This tractor shed (above left) doubles as a grain store. Sharing machinery such as this cultivator (right) helps cut costs.

Ready for spraying at Eicherhof farm, Brunswick, west Germany. Tough competition from the east has forced farmers to pool many of their resources.