Cereal margins set to plummet, warns Union

By Robert Harris

CEREAL growers face a massive drop in net margins this year, according to an NFU internal briefing released this week.

It predicts that average net margins for cereal farms in England and Wales will slump to about 12/ha (4.85/acre).

That is less than one-eighth of the average figure achieved between 1997 and 1999, which itself marked a sharp fall from the 300/ha (121/acre) achieved in 1996.

“The general perception is that the cereal sector has been more buoyant,” says NFU economist Peter King.

“But recent falls in income, triggered by weakening commodity prices and the strengthening Pound-Euro exchange rate, means the position is now as severe as any other sector – and it shows signs of getting worse.”

MAFF estimates show about a third of cereal growers made a loss in 1998/99, and only about 10% made a net farm income of more than 30,000.

“Thats a small reward given the hours worked,” says Mr King.

The position for farmers is likely to be far more serious this year, following the 7.5% cut in the intervention price under Agenda 2000 and falling area aid payments due to adverse currency movements.

Almost 60% of producers could be operating below break-even in 2000, Mr King predicts.

“A wheat grower who made 150/ha net margin last year on 8t/ha would have to grow an average of 9.5t/ha this year, a 20% increase, just to stand still.”

While other farming sectors have also suffered diving profits, cereal farms have suffered greater income volatility (see graph), says Mr King.

Net farm income - volatility index

“Dairy and pig farmers have been under extreme pressure, but the lines on the graph are flatter.

“Income uncertainty in the cereal sector could lead to further reductions in investment, which could compromise the competitiveness of UK cereal production.”

The cereals sector should, therefore, be considered a prime candidate for the 34m of new agrimoney compensation triggered by this years fall in arable area aid payments.

“I know the government is pushing for the long-term view, but it needs to be aware of the immediate impact on the sectors viability.

“That is why the NFU will continue to press for full agrimoney compensation, estimated at 91m, to help the sector through this immediate crisis,” says Mr King.

That would be worth just over 18/ha (7.28/acre) to an English producer, slightly less in other areas.

Most of this (57m) would have to come from the government, since it relates to the second tranche of compensation paid to offset the drop in subsidy values following the introduction of the Euro.

Brussels is already committed to paying its share.

The remaining 34m, relating to 2000 payments, would be split between Brussels and the UK, but government has made no sign of applying for it.

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