Farming with subsidies

[ianben]

Here is a report on UK farm incomes
Business news

Incomes up - but not for all
Source: FWi 31 January 2002

By Robert Harris, business editor

MANY farmers will be worse off this year, despite official figures which show that total income from farming is expected to edge up for the first time since 1995.

Overall farm incomes are believed to have risen by 13% in 2001, according the Department for Environment, Food and Rural Affairs on Thursday (31 January).

But, after a six-year income slump, that still leaves a full-time farmer earning just £7861. That is 72% below the 1995 peak, and one of the lowest figures for 70 years.

National Farmers' Union president Ben Gill said: “While this forecast rise is welcome, farm profitability remains at rock bottom and below sustainable levels."

A closer look at the figures shows that better milk prices are a key reason behind the rise. Milk values rose about 4ppl between autumn 2000 and 2001.

As a result, sales from UK dairy farms rose 17% to £2.8 billion in 2001.

But incomes on cereal, livestock and pig and poultry farms are set to fall.

Cereal output slipped 13% to just over £2bn despite better prices, as the wet autumn reduced winter crop drillings and hit yields.

Foot-and-mouth took its toll on livestock enterprises.

Output of cattle and calves fell by almost 10% to £1.8bn. Sheep and lamb output fell by 35% as market closures, the export ban and movement restrictions took their toll.

Sales from pig units slipped more than 5% to £751m as foot-and-mouth restrictions, pig-wasting diseases and a decline in pig numbers hit output.

Overall, UK farm output climbed just 0.7% to £15.13bn in 2001.

Total input costs on UK farms rose by an average of 2.6% to £8.7bn. Feedingstuffs showed the sharpest rise of 9%, accounting for £2.3bn, and fertilisers by 4%.

Although this eroded some of the milk price rise on farms, provisional figures show the average dairy unit will make a net farm income of £26,500 in the year to February 2002.

That is nearly twice as much as the previous year.

The position is reversed on pig and poultry farms, where income is put at £12,500, a near halving of last year’s level.

Cereal growers can expect an average income of just £4,500, down 18% on the year.

Hill farmers will see earnings fall by 10% to £3500, while livestock producers in the lowlands will dip further into the red, making an average loss of £500.

Net farm income on general cropping farms will rise fractionally to £16,500, with better potato and sugar beet returns helping to shore up the bottom line.

Just trying to show subsidies dont lead to easy street. We all need higher prices which bear some relation to the rest of the economy we operate in.

Returned from a visit to JD tractor factory yesterday where among otherthings we discussed how they "price" a tractor.

Cost of production was one factor but customers ability to pay was also a factor along with price of competition and premium for quality product.
Different prices in different countries based on their ability to pay.

Can we as farmers colaborate to use these options?

[charliep]

Just a comment that a similar situation exists here in Canada. There are winners and losers in the current situation but agricultural revenues in general have been increasing. This has been particularly the case in the past drought year.

The other question is how you get farmers to work together. OPEC is an example that has worked somewhat but with new oil producers on the scene like the Soviet Union, even they are struggling to hold US $20/barrel oil. You have noted airlines as being a group of businesses that will differentiate prices based on customers but they are not profitable. The most profitable airline in Canada (West Jet) is the one that price differentiates airline seats the least and concentrates the most on being low cost the most. John Deere's advantage is they are the major world ag. equipment producer and they can control the market. Their control only exists to the point where world farm managers can afford to buy their product.

I am always on the hunt for success stories for groups that have worked together to achieve a higher price. Are there some of these groups that can be used as an example for agriculture?

[ianben]

Hi Charlie
JD were very aware of the fact that they could only charge what we could afford to pay and insinuated they were selling at below thier bottom line in the UK at the moment because of farmers low incomes.

Most of our customers however in the western world are better off than in the past yet we provide thier food for a smaller slice of their income every year.

JD publish a recomended price and then we ask for a discount but a least a guide to a price is established. Other tractor sellers see this price and price accordingly so everybody knows the guide price.
I think this is important and missing from our marketing stratagies around the world.

If farmers are not prepared to at least give a guide price how is a buyer to know what we want. A seller neededs to know this also so we can all sell a the same price.

Why don't you and people like you round the world try to give us farmers a recomended price based on JD principles of what the customer can afford to pay.

Who knows with this information perhaps we might generate the confidence to get prices higher?

During all this disscusion over the last year real $ prices are rarely mentioned.
This is not the way the rest of the econamy works everything else is priced!! Nobody else leaves the buyer guessing.
Westjet might be low cost but they fix a price.
A bigmac is £2.99 so is a wopper etc. We need a recomended prices
Can you do it?

Regards Ian

[TOM4CWB]

ianben,

I think you would agree that it is easier for John Deere, Burger King and Westjet to know costs and price into the market accordingly.

Even livestock production is less at risk to weather fluctuations (floods and droughts) than grain production.

On Average a large area like the EU or North America can average production to create a more stable production base, but individual farms are at major weather risk that can radically change production cost each year.

As our farms become larger, and more leveraged, our ability to take this risk is exponetially lower!

Diversity in climatic areas farmed in by an operation (spreading the farm over hundreds of miles for weather risk management) may be a key in the future to reducing these risks!

How do we come up with an accurate cost of production before the grain is in the bin?

Then how do we provide an assured price without outside investors to patiticipate in this risk, when a profitable price is avaliable?

Maybe through call options and Deffered delivery contracts, or through buying put options?

[rodbradshaw]

Ianben

How will the Curry report affect your operation? Will it have dramatic implications for UK agriculture.
Many multinationals price their agricultural products on the basis of their customers ability to pay.
Monsanto used to sell Avadex in Egypt for about half of the price that it sold in North America.

It would be nice if we could price our products to our customers based on what we needed to have to make a decent return on investment and risk. Unfortunately there are too many sellers and in the case where farmers have a single desk selling agency (CWB), we don't have them working in our best interests.

[ianben]

Tom I am not wanting to interfere with existing options.
Just feel a guide price worked out like JD might help.
Based more on folks ability to pay and less on cost of production.
JD spend money estimating market demand ajusting prices to customer needs.
As individuals I agree this is impossible but with help from farmer friendly third parties would we not follow common sence advice.
All other industries spend time and money on this exersise. Knowing the other guys costs and price is the way to price not own cost of production.
If the market will stand £2.99 price accordingly charging more for quality.
You moan the CWB does not give the signals you need to produce what is required or achieve you a premium in the market.
Even if it did would the fact that you made a smaller loss than me be a comfort.
Lets talk real prices and realise our marketing power.
The Curry report is recomending more agri-money is directed to the enviroment and away from prodution.
Hard to tell how this will affect me as hard facts as yet undecided.
When they show me the hoops no doubt I will learn the best way to jump through them.
The most pressing problem could be nitrates in water New regulations would mean livstock units having to have enough acres to dispose of manure 100,000 bird poultry unit would need access to over 800 acres.Also bagged nitrogen to be given maximum dose rules which for some crops especially canola is below present optimum.
It would be fertilizer quotas under another name enviroment protection.
All this is fine if I can fix a price for my produce. I do not want to stop you importing either just look at my price and price accordingly.

[charliep]

Ianben,

I find what is happening in Europe very interesting on the organic front/move to less intensive agriculture. How far along is this moving in Europe? Is the consumer willing to pay extra for organic products? Assuming prices are higher, is this filtering back to the farm gate? Could the UK become like Switzerland - more emphasis on having a beautifull country side environment for city people to travel around in and less on commercial agriculture?

[TOM4CWB]

Charlie,

I understand that Canada is going in the same direction!

The "Federal Agriculture Policy Framework" seems on track to be implemented by April of 2003.

This is the merging of crop insurance NISA, FIDP into one comprehensive program with "food saftey" and environmental enhancment at the top of the list of objectives for this framework!

Sounds like "multifunctionality" is in full ahead Canada, and I don't think we will be asked if or how we will like it!

What have you heard Charlie?

[ianben]

Not sure I can answer your questions with certainty but will give you personnal opinion.
Organic is seen by some as our salvation both farmers and some politicians and their advisors.
A bit of research in the supermarket shows small uptake of most organic products especially if price and quallity differ from non-organic. Some products seem easier to grow organically than others and the lower the price better the quality the better they sell.
Supermarkets supporting organic with retoric but think they find shelf life a problem in practice.
Certainly would not support a campagn that 30% food should be organic. Said must be consumer led.
Personnally I think it is being over hyped around the world and unless food scares become reality will go the same way as the dot coms. Organic could even be the next food scare!!!
The EU is a bit like Canada as I have tried to explain
Most ag related decisions are made in EU
but implemented by each member country.
The way our subsidies are implemented thus can become quite different in each country.
Money is supposed to be moved from direct subsidies to the enviroment in the whole of the EU.
In the UK it looks like this may mean we all plant more trees and hedges and have some sort of farming audit on fert and pesticides which now hopfully will not be to hard to meet.ie poorly policed could we be learning from the Italians at last
Demark and Holland will be much harder hit by these rules with higher livestock numbers per unit area. Which I believe is being vigourously policed.
Slurry trucked arond the country and water quality monitored. A government after the green vote.
France on the other hand sees mini/zero till as enviomentally freindly an is subsidising drills. A government after the rural vote

[charliep]

Thanks for your comments. As you can see from other threads, it would appear we are moving to making to having farm support tied to other societal objectives (e.g. must have an environmental plan to qualify for government support, etc). Consumers like to talk organic until they have to get their wallet out - then they vote with their purchases by buying low cost.

[charliep]

Ianben

You are likely busy with spring work but I would appreciate it if you would comment on the fusarium thread. Alberta is looking at a new policy but it would be interesting to see how farmers in Europe deal with this disease.

Charlie P.