25 February 2000

WHY DOES UK WHEAT COST MORE TO GROW?

A recent Nuffield study

shows the unit cost of

producing a tonne of wheat

in the UK is about 20%

higher than foreign

counterparts. Amanda Dunn

finds out why

THE top 25% of arable farmers in the UK typically spend £83.50/t growing wheat – almost 20% more than their farming competitors in other major grain producing countries around the world.

Deloitte & Touches Pamela Gladwin spent three months travelling in the US, Canada, France and Poland comparing the total cost of producing a tonne of wheat in each country and delivering it to the nearest deep water port.

More than 200 farmers and related professionals were visited during the study. Progressive farmers were generally more willing to talk which could potentially bias the study, so overseas figures are compared with Deloitte & Touches top 25% of arable producers for the UK, explains Ms Gladwin.

"Within variable costs, seed and fertiliser costs per tonne across all countries are amazingly similar," she says. "The only significant variance arises within spray costs. This reflects the different weed, disease and weather problems in the various countries as well as the extensive or intensive farming techniques."

Overheads vary significantly across and even between countries. In the UK labour costs at £14/t account for the majority of the cost difference. That may be partly due to a different growing season and smaller fields and machinery, but even when combining power and machinery costs with labour, the UK still spends £9/t more than the average.

The simple systems employed in North America allow farmers there to manage with family labour only, while machinery investment is kept under control by employing contractors for specialist tasks.

More hands on

There is a lot more hands-on work in the US, much less tradition. Farmers get involved in farming much later, treat the farm as a business rather than a lifestyle and know they have to make a living out of it, says Ms Gladwin.

Canada follows a similar system but manages to reduce costs further, largely through low investment in machinery.

"There are strictly no cosmetic machinery repairs, everything that is carried out is essential. The same applies to property. But how long these reduced costs can be sustained is questionable, eventually machinery has to be replaced."

In France, variables and labour savings make French wheat considerably more competitive than our own. Savings of about £2/t on each of the three variables are seen. More home-saved seed, no charges for royalties, cheaper chemicals and the buying power of co-operatives all contribute.

"The French have been concentrating much harder on cutting costs for longer. The hike in profitability due to devaluation of the pound in 1995/6, probably took our eyes off the ball. Consequently while the French do a lot of things we do, such as low dose spraying or trialling minimal tillage, theyve been progressing it for much longer and have cut costs accordingly.

Co-operation

"They also work together with neighbours to try to maximise the land they farm," says Ms Gladwin. "Labour and machinery is pooled, cropping is changed and the season extended to enable combines to be shared. They work together as a team."

In Poland, cheap labour and minimal machinery investment keep costs down, but it is debatable whether this will remain low. "The overall infrastructure of Polish agriculture has some serious hurdles to overcome to be ready to accede to the EU and costs will change.

"I believe the level of external labour employed on UK farms needs to be seriously questioned together with the investment in power and machinery. As a small country and with relatively low borrowings we do regain some of the competitive edge when considering total costs to port.

"But it is still up to each producer to seriously question his current costs and systems," concludes Ms Gladwin. &#42

UNITCOSTCOMPARISON

&#8226 CANADA £59.43/t

&#8226 Simple systems.

&#8226 Contractors for specialist tasks.

&#8226 Family labour.

&#8226 Low machinery investment.

&#8226 USA £62-67/t

&#8226 Simple systems – minimum tillage, drilling/fertiliser, 1-2 sprays.

&#8226 Contractors for specialist tasks.

&#8226 Family labour.

&#8226 POLAND £66.48/t

&#8226 Cheap labour.

&#8226 Minimal machinery investment.

&#8226 FRANCE £68.84/t

&#8226 Co-operatives cut variable costs.

&#8226 Co-operation for machinery.

&#8226 Family labour.

&#8226 UK £83.50/t

&#8226 Costly external labour.

Source: P Gladwin, Nuffield scholar.

Analysis shows the top 25% of arable farmers are failing to match the

efficiencies of global wheat producers, warns Nuffield scholar Pamela Gladwin.