UK wheat can compete with rest of world

Russia and Romania may be two of the cheapest places in the world to produce wheat, but the UK is only a little way behind.

Releasing the results of its Global Cost of Production Challenge – a competition held at Cereals 2009Bidwells Agribusiness head of research Carl Atkin says that, despite the higher unit price of inputs in the UK, cost of production per tonne is only marginally higher than in eastern Europe.

“This is because of the considerable yield advantage the UK has, based on first-class soils and a maritime climate,” he says. “Fundamentally, the most important driver of cost per tonne is output potential.”

Western Europe’s temperate maritime climate produces one of the longest and most suitable growing seasons in the world for wheat, Mr Atkin says. While the soils in eastern Europe and the former Soviet Union are often of equal or better quality, climatic and weather constraints temper output.

In addition, there is considerable yield volatility in many other parts of the world, where occasional crop failures need to be factored in. This is partly why UK wheat production costs per tonne are lower than in Australia, Brazil and Canada. “But farm level production costs are only part of the story,” Mr Atkin says. “What places such as Russia gain in farm level cost advantages may be negated by post-farmgate costs. These can be substantial if infrastructure is poor and costs-to-market are high.”

Understanding markets is also important. “Risk management tools are often restricted and there can be significant local market price variation dependent on micro supply and demand factors,” Mr Atkin says.

Competitiveness also changes over time. For example, costs are rising in places such as Russia and Romania faster than in, say, Australia or Canada, as land and labour costs escalate. “But the introduction of western-style farm management practices and working capital means output is becoming more consistent.”

Cost per tonne does not illustrate return on capital or any of the other issues such as political or economic risk that farmers and investors should consider. Therefore, although Russia is marginally cheaper, most of the central European countries in the EU, such as Romania, show the best return on working capital and considerable opportunity for land price appreciation in a low-risk environment.

And then there is the issue of farm support policy, says Mr Atkin. “Generally, with the exception of the USA, farm supports are decoupled from commodity production decisions and removed from the analysis of pure production economics.”

In this more market-led environment, Europe is well placed, being one of the world’s most efficient producers of wheat.

Wheat growing comparisons

 

Australia

Brazil

Canada

Romania

Russia

UK

Yield (t/ha)

3.5

4.5

3.1

5.5

5

8.5

Variable costs ($/ha)

220

250

200

300

250

450

Fixed costs ($/ha)

400

450

360

370

350

750

Cost per tonne ($)

177

156

181

122

120

141