OSR RIP?
OSR RIP?
Agenda 2000 is being blamed for the imminent demise
of oilseed rape as an EU crop. But is that really likely?
Marie Skinner investigates
OILSEED rape rest in peace, your days are nearly over. Cereals will cover the land and oilseed rape will be a curiosity grown only in heritage parks.
That is the depressing outlook of those who feel the introduction of a single rate of area payment for arable crops, as proposed in Agenda 2000, will kill off oilseed rape in the UK in favour of wall-to-wall wheat.
"There will be no reason to grow oilseed rape when area payments are reduced," insists Rad Thomas, chairman of the NFU oilseeds and proteins committee. "The fall in gross margins will make it unprofitable compared with cereals and growers who want a break crop will be better off using voluntary, annual set-aside."
Under Agenda 2000, oilseed area payments will fall by over £100/ha from 1997 harvest levels (a 27% drop). By contrast cereal area payments will increase by over £80/ha from 1997 harvest levels (a 20% increase).
NFU comparisons of oilseed rape and wheat gross margins support the view that, in the most likely scenario, oilseed rape will produce a significantly lower return than wheat in the year 2000.
So, why grow oilseed rape?
There are at least four good reasons why it will still be worth growing.
World market
Oilseed demand is rising more steeply than that for grain and a strong growth in world-wide trade is expected. World stocks for all vegetable oils are now under 8% of use and prices are firm," explains Steve Thornhill, head of market information at the HGCA.
There is a genuine, commercial, world market for oilseed rape. World-wide there is expected to be a shortage of all oilseeds, such as rapeseed, sunflower, soya, groundnuts and palm kernels over the next seven years, according to a recent supply and demand estimate from the United States Department of Agriculture.
"Rape oil has unique properties which ensure it is saleable and makes the medium-term outlook for prices better than for cereals," says Mike Bearman, PBI marketing manager for Oilseeds. However, the outlook for cereals is more uncertain. "What will happen to all the wheat? If everyone is growing feed wheat and feed barley, where will it go? Who will buy it? And at what price?"
There are currently six rapeseed crushing plants in the UK, with over 100 crushing plants in mainland Europe. Chris Pardey, account manager for crushing operations with Cargill expects rationalisation to occur within the crushing industry. There will be fewer, bigger, more efficient plants than at present and some smaller units will close. But considerable crushing capacity will remain within UK and Europe, he predicts. Even, if home production declines, the plants can be used to crush imported oilseeds.
Rapeseed accounts for 25% of world oil production, with other oils coming from crops such as sunflowers, soya beans, cottonseed and peanuts. China is the largest producer of oilseeds in the world (29%), followed by the EU (25%), then Canada (18%) and India (18%).
Higher world prices will encourage the planting of soya and this, in turn, could depress the prices available for oilseed rape. But rapeseed, along with sunflowers, has the advantage of being a high oil-yielding crop, giving 40% oil compared to soya beans giving only 20%.
Agronomic reasons
Oilseed rape is usually grown as part of a crop rotation. The benefit of a break crop is considerable. In his, 1998 Farm Management Pocketbook, John Nix estimates a fall in gross margin for second feed wheats of £70-£80/ha compared to first wheats, with even greater reductions for third wheats.
A good break crop boosts cereal yields in the following year. Wheat grown after oilseed rape benefits from yield enhancement through early drilling and reduced disease pressure. Oilseed rape also provides an ideal crop for cleaning out grass weeds and is second only to potatoes in increasing residual soil nitrogen reserves, so reducing the amount of applied nitrogen required by a following cereal crop.
There is a view that, under Agenda 2000, growing oilseed rape purely for rotational benefits will be a luxury growers cannot afford. Voluntary set-aside could be used to provide a break and seed dressings could be used to give protection against take-all, the main reason for decreased yields in continuous wheat situations.
However, caution is necessary. "Seed dressings currently available do not give total resistance to take-all," warns Doug Stevens of Morley Research Centre. They suppress the disease and are unlikely to provide season long control."
Financial reasons
The relative profitability of oilseed rape compared with cereals only partly depends upon the size of the area payments. The other major factor is the price of both cereals and oilseed rape.
Under Agenda 2000, support prices for cereals will fall by 20%, almost certainly leading to a fall in EU cereal prices. Oilseed rape, however, does not have a price support system and will not be subject to price cuts under the proposals. In fact, changes in world supply and demand could result in higher world prices, which would be reflected immediately in the price of oilseeds within Europe.
Future prices are difficult to predict as many variables exist. The strength of the euro and £ against the dollar is important. But most international commentators put US wheat prices in the range $120-150/t, as against rapeseed at $250-300/t in the short to medium term.
An improved crop
One of the major factors affecting the gross margin of oilseed rape is yield. For the past 10 years yields have remained fairly constant with an average of just below 3t/ha in the UK, whilst the EU currently produces about 3.2t/ha.
Much 1-1 improved hybrid varieties are expected to raise yields significantly within the next five years. New types of genetically modified oilseed rape are also becoming available. Apart from herbicide resistant oilseed rape, a new generation of genetically modified varieties will contain specific quality traits which enable oils to be produced for predetermined markets.
The genetically modified varieties will almost certainly be grown only on contract. This will provide growers with a definite outlet for their crops. It will reduce their individual freedom to trade, but will provide more secure returns at a time of uncertainty.
So there are arguments for rape production to continue post-Agenda 2000. But who will grow oilseed rape?
The reduction in area payments will lead to most of the crop disappearing from marginal land, whether in the UK or within Europe. Lower area payments make good yields more critical than in the past.
Chris Green, managing director of Semundo, does not believe it will remain viable to keep growing oilseed rape in Finland, Austria and Sweden. Most of the crop there is spring sown. He also feels that some of the oilseed rape production in Scotland will disappear. But production elsewhere, particularly in the Midlands and south-east, will be fairly secure.
Frank Oldfield, chairman of HGCA oilseeds R&D committee, is of the personal opinion that oilseed rape will remain in most growers rotations on heavy land. He thinks oilseed rape at £160-£180/t will be an attractive option compared with wheat at £70/t, particularly if input costs are lower than for wheat.
He does not expect to cut back on the 280ha (692 acres) of rape he currently grows. He has consistently produced over 3.7t/ha in recent years and, now anticipates yields nearer 5t/ha with new hybrids.
"Oilseed rape performs well and there is a demand for the crop. We should be looking to research to solve the problems that currently reduce profitability, such as poor establishment and pigeon damage," he comments.
Growing oilseed rape, in addition to cereals, is a way of managing risk at farm level. It helps the movement and selling of part of the harvest early in the marketing year, assisting orderly marketing of combinable crops and improved cash flow, he adds.
In case Agenda 2000 still seems a long way away, it isnt, as Barry Barker, national seed business manager for Dalgety Agriculture knows. "I am having to decide now how much basic seed to put in the ground this autumn. It is this basic seed that will be drilled by farmers in autumn 1999 and will be harvested after Agenda 2000 under the new regime."
The panic reaction to falling area payments for oilseed rape is to stop growing the crop. Opinions on the reduction in land in oilseeds range from 5-75%, depending upon the degree of pessimism of those predicting the future. The actual figure will mainly depend on the relative profitability of wheat versus oilseed rape at the time when cropping decisions are made.
One silver lining to the black cloud over oilseed rape concerns aid capping. If oilseed rape had retained a higher area payment than cereals, capping of direct payments would have made it impossible for large farms to keep growing the crop, without suffering financial penalties. Under the reformed regime, oilseed rape can find its rightful place alongside cereals, generating profit through crop value rather than losing it through aid capping.
Despite current Agenda 2000 proposals oilseed rape looks set to remain an important crop within the UK. So stop worrying about the funeral – oilseed rape is not going to die.
AGENDA 2000 CHANGES
• Reduction in area payment to a non-crop specific £270-300/ha depending on the green rate.
• Set-aside rate the same as cereals/osr if applied.
• Area payments delayed and paid between January and March.
• Freedom from Blair House Agreement – no penalties imposed if production increases or prices rise.
Is the oilseed rape crop dead already? Not likely, say crop experts. World markets, new varieties, improved agronomy
and rotational benefits all mean the yellow flowered crop has a future on UK farms.
Props courtesy of Stamford Shakespeare Company, Stamford Lincs.
New variety developments offer more scope for yield rises and cost savings in the oilseed crop than cereals, say crop experts.
OSR FUTURE
• Reduced aid closes gap with cereal margins.
• Big area cuts forecast.
• Market price, agronomy, better varieties and strong demand will help.
• Dont dismiss the crop.