Steps out of the commodity trap

Breaking out of the commodity trap through consolidation or re-organisation, and better marketing were key to the future survival of UK arable farms, an industry analyst told farmers at the Cambridge Arable Technology conference.

Despite having a hospitable growing climate and rich consumer market, the UK also had some of the highest labour and land costs in the world, Carl Atkin, Bidwell’s director of rural research said.

“That means there aren’t any production advantages for commodities here.

And by their nature, commodity markets have low returns, high volatility and a long-term downward trend.”

In the short term, growers should look at consolidation or re-organisation of their farming businesses, he suggested.

“That may mean reducing cropping areas and changing rotations, as well as giving thought to enterprise activity.”

Business expansion, which tended to only work on a marginal costs basis, was another short-term option.

“But there’s a danger of giving away 75% of the financial benefit as rent if you’re not careful.”

Collaboration allowed participants to “ring-fence” savings, while specialisation could also be used to create closed-loop supply arrangements.

“These short-term solutions all involve increasing output, reducing costs or differentiating to add value.

Many growers have already gone down one or more of these paths.”

Benchmarking was a good first step to identifying areas for improvement.

“It seems that 85% of farm businesses don’t do it,” Mr Atkin said.

“But technical efficiency must be taken as read in the decoupled support environment.”

Medium-term business solutions included adding value to basic agricultural products, recapturing more value through improved supply chain relationships and diversification.

“Adding value allows growers to cash in on the rising demand for premium food of known provenance.

It opens up regional food markets, as well as foodservice and export opportunities.

“Branding is a new concept to farmers, but one they need to be familiar with.”

Supply chain management and relationship marketing would also be important, he suggested.

“Growers are starting to secure premium and local contracts, which is leading to the formation of specialist supply groups who can differentiate how they supply.

“Having a longer term relationship-based agreement removes some of the market volatility,” he concluded.

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