Cereals 2012: Global figures reveal high cost of production

UK arable businesses are going to have to push at new boundaries to bring costs of production down and deal with the twin risks of lower support and volatile prices.

This challenge was issued at Cereals 2012 by Brown & Co’s Charles Whitaker. While fairly bullish about prospects, the UK was at reasonably high risk with current cost structures, he said.Wheat production costs in the UK had almost doubled in the past five years, making our crop one of the most expensive in the world to grow.

Risk and comfort with current systems often prevented the adoption of new techniques or structures, said Mr Whitaker.

While no-till would be the big switch, getting more out of kit and working shifts, sometimes round the clock, offered scope for taking cost out of the system.

The use of GM would also allow a step change in the UK’s ability to switch to non inversion cultivation which could massively reduce operational costs, he said.

Arable farms were currently profitable before single farm payment, but it wouldn’t take much of a price fall to change that, he warned.

“And if support levels fall – which, given the current turmoil in the eurozone, seems possible – then we have an even bigger problem. We are significantly exposed compared with some of our competitors around the globe.”

“An average yielding crop of feed wheat now costs just over £400/acre to grow in the UK. In Argentina they are growing cereals and combinable crops for about half that amount.

“Labour and machinery are key – in the UK labour and machinery costs average about £200/acre on a stubble-to-stubble basis, and the very best operators still spend about £130/acre. Compare that with Argentina’s £35-40/acre.

Costs in the Ukraine and Russia were lower still, although geared to much lower yields than in the UK.

“The usual argument is that high-yielding systems like the UK’s can support high costs of production,” said Mr Whitaker.

“To some extent that is true. Assuming a 3t/acre crop, our cost of production averages £130/t. But that is before land rent and finance costs and the benefit of support. That works with wheat at £150/t – while prices are good, margins are good. The problem comes if commodity prices fall.

Targets for cost cuts on UK arable farms

• Do less for more – use less diesel, less wearing parts

• Share costs and kit – co-operate

• Embrace new technology and management innovation

• Innovate with cultivation – already started in oilseed rape establishment but scope for progress

• Take on new ways of working – including shifts and round-the-clock working

    Wheat cost of production – pre rent and land finance (£/t)
  UK Ukraine Argentina*
Variable costs 58 68 59
Labour 19 3 5
Machinery and depreciation 31 44 7
Property 10 3 3
Finance and admin 4 16 2
Net farm income 28 7 62
* Wheat and soya. Source: Brown & Co

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