Weaker Pound and better yields will boost cereals’
By Robert Harris
BETTER yields and a weaker Pound will produce a dramatic turnaround in UK cereal farmers fortunes, leaving them well-placed to take advantage of a freer market, says a leading economist.
However, to become more competitive growers will need a more integrated supply chain and must adopt novel production methods.
“Ironically, it is the ability of the industry – or more specifically, the better-managed, generally larger cereal farms – to withstand the current economic blizzard that convinces me that the industry is world-class and potentially capable of prospering under free trade,” writes Sean Rickard of Cranfield School of Management, Bedfordshire, in a report released this week on cereal farming prospects.
He believes that the continuation of set-aside and limits on exports arising from last-minute changes to the Agenda 2000 package at the Berlin summit was a bad deal for UK farmers.
Mr Rickard expects the mid-term review of the CAP reforms, due in 2003, to be more radical.
“It is hoped that the review will consign set-aside to history, and that EU farmers will be operating at world prices. This will help UK producers to exploit developing world markets and rising world prices.”
Plenty will be able to do so, he believes, despite a poor financial showing in the 1998/99 year, when the average UK cereal farm made a profit of just £165/ha before interest payments. This equates to a loss of £68/ha if area aid is removed.
The main reason for the slump (an average farm made a profit of £444/ha in 1996/97) is mainly due to a 25% drop in cereal prices and a 10% fall in wheat yield (18% for barley).
However, the fall in yields is an aberration; underlying growth is strong at 2% a year, says Mr Rickard. And the reduction in prices is mainly due to the steady strengthening of Sterling.
“Current financial difficulties are not the product of internal weaknesses.
“Costs are under control and this increases confidence that a return to trend growth for yields and a weakening in Sterling – both events highly probable over the next two years – will see a dramatic reversal in the sectors financial position.”
Although larger farms are generally more profitable, business management is probably more important than scale, he adds.
The top 25% of farms achieved yields almost a third higher than those in the bottom quartile, as well as a 12% price premium due to better marketing.
The overall result was a 37% improvement in the value of output.
Key to medium-term prosperity is a fall in the value of Sterling, says Mr Rickard. “If the Pound returned to its trend value, UK cereal prices would rise by some 15% and cereal margins would almost double.”
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Assuming a more realistic value and a return to the trend for wheat yields, average incomes look set to rise (see graph, right). “Putting all these factors together, the outlook is promising for world-class producers.”
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Such partnerships are likely to involve clusters of cereal farms, working as a team to solve problems and lever competitive advantage, says Mr Rickard.
This will come about through better prices reflecting quality, reliability and traceability, greater and more timely information, and more rapid uptake of best practices and new technology.
The latter, he adds, should include genetically modified crops. “The rest of the world is forging ahead.
“The UK has a world-class agricultural sector. If it is to remain competitive on the international stage it must continue to adopt, and adapt to, new technology.”
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Cereal Farming is the latest in a series of reports entitled Challenges and Prospects – UK Agriculture at the Millennium. The series is sponsored by Lloyds TSB. Further information on 0117-943 3114.