Sunday, June 28, 2009

UK can compete - so does it need subsidies?

Russia and Romania may be two of the cheapest places in the world to produce wheat, byt the UK is only a little way behind. Releasing the result of its Global Cost of Production Challenge, Bidwells Agriculture head of research Carl Atkin, said that despite the higher unit price of inputs in the UK, cost of production per tonne is only marginally higher than in eastern Europe. 'This is because of the considerable yield advantage the UK has, based on first-class soils and a maritime climate.'

Western Europe's temperate maritime climate produces one of the longest and most suitable growing seasons in the world for wheat, Mr Atkin explained. While the soils in eastern Europe and the former Soviet Union are often of equal or better quality, climatic and weather constraints temper output. In addition, there is considerable yield volatility in other parts of the world, where occasional crop failures need to be factored in. This is partly why UK what production costs per tonne are lower in Australia, Brazil and Canada.

Moreover, post-farmgate costs needed to be factored in. These can be substantial if infrastructure is poor and costs-to-market are high, as is generally the case in Russia. Costs are rsing in places such as Russia and Romania faster tham in, say Australia and Canada, as land and labour costs escalate.

If UK wheat can compete on world markets, do large-scale arable operations in East Anglia really need subsidies to be viable? Of course, re-directing CAP payments elsewhere could simply subsidise efficiency. Introducing a measure such as a cap on payments to large farmers would disadvantage the UK relative to other member states. But this analysis does raise questions about whether blanket subsidies are still required.

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