Learn to live with farm crisis Andersons

By Robert Harris

FARMINGS crisis has become reality and, with little upturn likely in the next few years, the industry will have to learn to live with it.

This is the stark message contained in the latest Outlook report from farm business consultants Andersons.

“Currency and world markets have conspired to deepen the farm income crisis,” says partner Francis Mordaunt.

“Looking ahead to 2000 and beyond, it is difficult to see the fundamental economic conditions changing significantly. There will probably be a bigger shake-up in the next 12 months than in anyones working lifetime.”

Total farm income next year will remain at or near £2 billion, Mr Mordaunt forecasts.

“Depression in the agricultural sector is increasingly at odds with the wider economy.”

The economy is growing again, with unemployment falling and inflation staying low, says Mr Mordaunt. But interest rates will continue to rise to prevent a boom and keep inflation to the Chancellors 2.5% target.

“UK base rates could rise next year to 6%, but should then fall as the UK economy converges with the Eurozone.

” However, with the UK unlikely to join the single currency before 2004, Mr Mordaunt forecasts only a gentle weakening of the Pound.

He predicts the Euroe will be worth 67p at the end of next year, and perhaps 72p by 2002.

The outlook for cereal growers remains tough. Next years 7.5% cut in the intervention price means that even if the k strengthens to 67p, intervention would open in November 2000 at £74/t delivered.

Thats the equivalent to an ex-farm feed wheat price of £64/t, says Mr Mordaunt. But if the pound remains strong (1=64p), values would fall by £3/t.

“With another intervention price cut in 2001, escaping further price falls will require a stronger world price and/or a weaker Pound” he adds.

On the dairy front, milk prices will continue to remain under pressure as the “Milk Marque triplets” struggle to come to terms with the market.

But direct sellers may be relatively worse off due to big cuts in historic premiums over MM prices. “The gap is now closing,” says Mr Mordaunt.

The balance between supply and demand will be critical for beef farmers fortunes, with the first intervention price cuts starting next July, in line with the Agenda 2000 agreement to a 20% cut over three years.

Headage payments will increase in Euro terms, but the strong £ means UK farmers are likely to receive less.

A more normal supply of cull ewes and a hoped-for ending of carcass splitting could firm prices.

But Sterlings strength, weak skin markets and cheap competing meats are likely to maintain pressure on lamb prices, says Mr Mordaunt.

Survivor businesses will continue to trim rents, pushing for reductions of about 30% by March 2000.