Beet price cut refocuses need for industry partnership

After all the ground made last year in seeking a better, fairer deal for sugar beet growers for their share of the return from the UK crop, it is impossible not to feel more than just “disappointed” over the 24% price drop agreed for the 2015 campaign.

At £24/t, the 2015 beet price is in stark contrast to the current price of £31.67 – and refocuses the need to construct an agreement based on a true partnership between processor and grower if the industry is to prosper.

Cereal and oilseed commodity prices globally have crashed in the past four months, and November 14 Liffe wheat at £121/t is now more than 45% less than April 11 (£217) and November 12 (£225). World sugar prices have also dropped, and – faced with what looks to be an excellent crop for the 2014 campaign and at last a sensible, or at least half-sensible, price for 2014, which met with fierce resistance from the processor – perhaps the extent of the drop is hardly surprising.

The 2014 crop looks as though it may be a record one in terms of yield, which could produce the largest yield times price return to growers that we have seen since 2004 and the highest cost to the processor.

However, we should not forget just how stubbornly the beet price was held back, despite record price rises (doubling from the pre-2010 lows) in other commodity sectors in the 2011-13 period. And this was at a time when world sugar prices were also high – nearly double their current level.

It’s all very well facing a significant reduction to share the pain when the sugar market is under pressure and I suspect all growers understand that. But we need a better and fairer solution to share the gains in times of plenty. We spent three unsatisfactory years fighting for that between 2010 and 2013; I suspect this year is the first for a long while when the average grower has been reasonably satisfied with the price result.

We all appreciate that in given years, yields vary and indeed in 2013, an unexpectedly high yield certainly made up for what at the outset appeared to be a disappointing price. In fact, beet was probably the crop of the year on many farms in 2013 as it will be in 2014. We should not perhaps be surprised that British Sugar, with their own shareholder objectives to meet, doesn’t want to pay a penny more than they have to.

Why should they? However, if we want an industry that is competitive and can react to market pressures and opportunities, then growers and processor need to work together and invest together. We need to find a better way of working on price than merely squaring up for an annual argument as both sides seek to extract a maximum value position.

If British Sugar is having such a hard time making a margin on the crop and indeed selling sugar, why are we not in an open-book processor and grower margin-share arrangement? That way, growers could share the pain and difficulty with moving sugar into an increasingly competitive market, but only if they were given the opportunity of sharing the gain of the upside as and when it comes (which it will) when we see a swing back in global commodity prices.

Such security will be increasingly vital. Climate (heat and drought) has been the single biggest factor that’s driven the spikes in commodity prices we have seen over the past decade. These have been significant and sizeable (2003 Central and Eastern Europe); 2007-08 Argentina; 2011 Russia; 2012 USA), driving changes in supply and demand along with other worldwide drivers that flex according to the impact of commodity prices on both consumers and producers around the globe.

The impact of renewable energy demand for maize and sugar cane globally also looks as though it will remain a key element of demand on global production – and perhaps closer to home as beet for AD starts to impact locally.

So we can’t ignore the competing land use margins and if we want a stable and efficient industry, we need to find a better way of sharing pain and gain with British Sugar in the style of partnership rather than adversaries.

As we face the end of quotas in 2017 and more competition in the sugar market, surely what’s needed is an open book and much more joined-up approach to working out what growers should expect as a return from their crop from a single, monopoly processor of the crop in the UK.

The current stand-off, whereby the processor is seeking to maximising shareholder return and seeking to pay as little as possible for the crop in any given year, while growers seek the opposite, will surely end in tears against a background of extreme volatility in other crop markets and increasing land use alternatives.

We need change – and “yes we can” would be the message I would send out to both processor and grower.

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