Welcome to our collection of items of news and interest from the last quarter and review of the previous year.
RPI Summary
The annual movement for overall RPI has crept up slightly during the last quarter (1.6% in June to 2.0% in September) which reflects, apart from the odd blip, a slow but steady rise since October 2015. Despite a significant downward spike of 6% between April and May (-5.5% to -11.5%) pork has returned to a gentle upward incline settling at -4.3% in September but still lower than June. Elsewhere, beef was the only other reported commodity that showed a downward turn for the quarter (-5.2% down from -2.6%) with all others, despite some fluctuations, posting increases. Looking forward, varying degrees of doom are being forecast by pundits across the board. What we can say though, with reasonable certainty, is that there are tough times ahead!
Beef
Beef producers benefited from healthier beef margins from the prior years 2014 and 2015. Prices in the commodities market have been unstable due to the fluctuation of the exchange rate and the herd availability to meet export demand. In response, herds are expanding through consolidation of the rearing and fattening stages. Breeding is adapting to the market demand for uniform meat joint and portion sizes as cost per plate is required to price up meals creating a rethink to market trading. Beef is increasingly being regarded a premium luxury meal choice therefore will see demand drop as organisations opt for more attractive sustainable proteins.
Assessment
The sector is responding with some interesting veterinarian solutions, which may begin to influence the market over the following two years whilst production cycles adapt.
Dairy
Despite some positive signs of an upturn in the milk market (hooray!) dairy farmers are still suffering – with serious cashflow problems and new figures suggesting that net profits fell by up to 25% in the year up to March – and that may not be the last of it. Hardly surprising with farm gate prices still way below the cost of production leading to almost all producers, from top to bottom, finding themselves with a falling turnover and a significant hole in their profits. No immediate improvement for farmers expected either during 2016/17.
Assessment
With consumption of liquid milk decline the widely recognised increases in the demand for butter and cheeses is likely to take up some of the slack but we’ll have to see what the longer term impact on prices will be.
Pork
Pork exports increased once again in May (a 10% increase on the same period a year earlier), driven predominantly by high volumes to China (up 76% on 2015 levels) – perhaps as a result of the ‘Great British Pork Fortnight’ held in Bejing last year! The value of exports rose by 25% to £16.7M for the same period and yet, despite rising pig prices in the UK and EU, the average unit price is some 6% behind the same period last year … interesting.
Assessment
After a turbulent 12 months pig prices have begun a slight recovery but still a way off the average for 2015. Some stabilising anticipated in 2017.
Cereals
Reasonably good yields and quality are being welcomed as the wheat harvest hits its stride providing a stark contrast to the poorer crops of winter barley and oilseed rape. It would appear the sunshine we have all been enjoying during July and early August have helped the winter wheat and spring barley crops with growers reporting good grain quality that meets milling and malting specification.
Assessment
Whilst prices have begun to firm a little over recent months the full impact of Brexit will not be fully understood or felt for a good few months yet. Likewise, the influence of the major global markets should not be put to one side. How the UK farming industry and government responds to its latest challenges will be key to what the future holds.
Fish
With the salmon farming industry’s global output having grown 7-8% each year, consistently since 1997, there was no reason to believe this would not continue into 2016 and output grow to between 2.4 – 2.5 million MT. However, this is now not expected to happen with the total for 2016 looking to decline to nearer 2.2 million MT. Why? Well, put simply, the two largest salmon producers (Norway and Chile) accounting for pretty much three quarters of the world’s output, have had their production impacted by lice and algae respectively. Whilst third placed Scotland (in the salmon output rankings) is expecting an increase in its production for 2016, this will not be enough to bridge the gap left by the top two. All this means is that with demand at unprecedented highs and expected global supply now diminished, the only way for prices is up – the question is by how much and for how long?
Assessment
Fish RPI has produced waves of fluctuation during 2016 and whilst these waves have widened versus 2015 they hardly count as periods of stability. Nothing to suggest that this pattern will not continue into 2017 albeit reflecting the impact of Brexit and the assumed increases in overall inflation.
Other markets
Potatoes
We like to treat any new initiatives from the major supermarket chains with a healthy scepticism but growers seem to warming to the principle behind Tesco’s new long term potato contracts. Underpinning the contracts is an advance guarantee of the volume of crop Tesco will buy for three years (sounds promising …) together with a guaranteed profit (even more promising). We don’t get to see how the costs are calculated but Tesco have said they will pay a price that is linked to their input costs, such as fertiliser and fuel, and one that sees the growers (part of the Tesco Sustainable Farming Group – Potatoes) achieve a margin.
No confirmation of how many growers would benefit or what proportion of Tesco’s demand would be covered by the scheme but, in principle, this all sounds good and very welcome!
Eggs …
The fall out from the EU referendum is already affecting free-range egg producers according to the British Free Range Egg Producers Association (BFREPA). The weakness (or otherwise) of sterling will always bring mixed blessings for any business depending upon its reliance for imported ingredients or its capacity to export. For free-range producers it’s a double whammy, the increase in the price of, for example, imported soya (a key ingredient), coupled with an insignificant export market hits them both ways. Of course, any change in sterling may be temporary and stabilise as the route out of the EU becomes clearer, but wider concerns still remain about potential additional transaction costs associated with our new trading relationships with our European friends.
Chicken …
The words chicken and campylobacter seem destined never to be that far apart and once again they are in the headlines as the FSA are set to introduce a new method of testing chicken for the unwelcome bacteria later this year. In addition, a new campylobacter proficiency-testing scheme is also being encouraged to ensure being detected uniformly and at the correct levels. Disappointing it’s still an issue but good to see a comprehensive and joined up plan to tackle it!
Lamb …
British lamb has moved a step closer to being back on the US menu and could be being enjoyed by our American cousins by as early as next year. Following an import ban on red meats (relating to the BSE crisis) back in the 1990s, British lamb producers have been missing out on this lucrative export market – an extra £35 million for the UK economy, according to the Department for Environment, Food and Rural Affairs (Defra). It’s not a done deal yet but still very encouraging that the US are pressing ahead to lift these long held restrictions.
Greengrocery …
We’ve seen and read a lot about wonky vegetables over the last year or so (spearheaded by TV chef – nay, more campaigner – Hugh Fearnley-Whittingstall) and, despite the Brussels red tape relating to cosmetic standards having ended five years ago, the appetite of the big supermarkets to provide ‘perfect’ specimens abounds. However, the tide may have begun to turn, as we are now seeing previously considered ‘second class’ vegetables being offered by supermarkets and warmly accepted by consumers. It would seem that whilst the buying public still have a tendency to look for the best looking items first – they are more than willing to accept less than imperfect vegetables if offered as an alternative proposition … appropriately priced. This has got be great news for the ‘war on waste’.
In other news …
Ever been frustrated by your printer’s inability to print the simplest of documents? Well, what if this was your dinner? Scientists at Columbia University are developing a 3D food printer which will be fed by frozen ‘ingredient cartridges’ and enable an infinite variety of customised, nutritional and healthy dishes on demand that can supplement our daily intake. They’re still a way off the finished product (one that will cook as well as produce the final dish) but it’s an exciting development with enormous scope for innovative design and construction … perhaps more so for the vegetarian alternatives that can sometimes lack the character of their natural counterparts. How long before we are designing our meals at the restaurant table? Or sending recipes via our phones direct to the printer in the kitchen of our elderly relatives – or kids at university! For the traditional foodie, this is all probably a step too far!
Comment
Having devoted so much time, energy and column inches to the much discussed and much maligned EU referendum debate, it seems only right that we come up for air and begin to put the whole nightmare (for all parties) behind us. Of course, it isn’t that easy. Repercussions are filtering through at all levels – some good, some not so – as we all begin to come to terms with living in a kind of limbo as we prepare for the official breaking of our tie with the EU … some years hence.
With change, opportunities inevitably abound and perhaps now is not the time to be thinking is this all good or bad? Maybe more a time to take stock, review the landscape and look inside ourselves, our businesses, our sectors and industries to see what we can do to make things better – regardless of external influences and pressures.
Indeed, the NFU President Meurig Raymond talks of seizing the current opportunity and building a more sustainable UK platform: “For the first time in 40 years, the UK Government has an opportunity to create policies which will really work for businesses in the UK …”. This isn’t about woeful reflection, this is about developing a more robust future that is built on foundations of what we’re good at. (Cattle Site)
Notwithstanding, there is still much uncertainty (despite recent financial assurances from government) but this only serves to tell us that more innovation, more efficiency, greater collaboration – and all the other many improvements we can explore – need to be researched and exploited to work toward a time when we are less reliant upon such direct support. Not easy … but it’s the duty and requirement of any responsible business.
With this in mind, the Food and Agricultural Organisation of the UN (FAO) has predicted that in order to keep pace with population growth, food production must increase by 70 percent by 2050. In the last century, our relationship with new technologies and methodologies allowed us to grow farm yields enormously to keep up with the growing population’s insatiable demand. This will need to continue if we are to meet the challenges ahead including: limited availability of arable land; global climate change; the growing scarcity of water; the price and availability of energy – particularly from fossil fuels; and the impact of urbanisation on the supply of rural labour. Technology will play a pivotal role but it’s not all about science – the natural and human aspects must be kept in the innovation equation. (Farming UK)
This could mean livestock farmers being encouraged to support their local cereal growers. Allan Chambers, chairman of the Ulster Farmers’ Union cereals committee, said the concept of farmers helping other farmers made economic and market success at a time when the entire agricultural industry is under enormous financial pressure: “Local grain traded between farmers offers good value for money … it cuts out unnecessary haulage costs and often makes a higher quality ration than some imported by products.” Simple, but effective. (Farming UK)
In another development, the company Alltech E-CO2, has developed an assessment tool for farmers to calculate total water consumption for every litre of milk produced. With water accounting for up to 1p/litre of milk produced, dairy farmers stand to make significant savings by footprinting consumption. Using technology to manage our cost base has to make sense (Farmers Weekly) So, ‘limbo’ is rarely pleasant.
So let’s seize the day and crack on with making things better – small or big steps – it matters not … let’s continue our journey towards a more robust and sustainable future!
S T O P P R E S S
A new era has begun – Trump has won! Of course, difficult to predict what this will mean for our ‘special relationship’ but we cautiously welcome early favourable UK trade comments and await what will certainly be an ‘interesting’ time ahead!
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