Farmers are known for complaining, but right now they may have a point. Agricultural commodities such as grains and sugar have plummeted on futures markets as global supplies have surged. European farmers are suffering in particular as they contend with high input costs and increasingly competitive global rivals.
Benchmark wheat futures in Paris have fallen more than 20 per cent this year to multiyear lows, dragged down by bumper harvests in Russia, Australia and parts of South America. Meanwhile, speculators are building bets on further price falls, with investment funds adding more than 280,000 new short lots in milling wheat futures in the week to November 21, extending their net short position, according to Euronext data.
For UK growers,
the fall has been brutal. Wheat prices are now little more than half the levels
reached in 2022 following Russia’s invasion of Ukraine. Yet fertiliser, fuel
and machinery costs — inflated during the energy shock — have barely retreated.
For arable farmers in Europe, “it’s not a happy situation at
all,” Ole Hansen, head of commodity strategy at Saxo Bank told the Financial
Times. There is a big gap between “the cheap crop that leaves the farm gate”
and the price of bread “when it hits the store”, he said. While the upcoming
harvest in Norfolk looks promising, the UK’s wheat yields at this year’s
harvest fell after last winter’s torrential rain. But because international
markets are well supplied, that does not translate into higher prices.
The financial squeeze is prompting visible restructuring.
Brown & Co, the UK’s largest dedicated agricultural auctioneer, said the
number of agricultural machines being put up for sale has risen sharply. “It’s
become hard to find a day of the week without an auction,” said partner Simon
Wearmouth. “I’ve never known the calendar this crowded.”
Even as grain markets sink, UK shoppers have seen little
relief in the cost of bread, beer or baked goods. That is because the raw
commodity typically accounts for only a small fraction of the retail price. In
a loaf of bread costing £1.50, wheat may only account for 16.5 pence to 22.5
pence, according to Financial Times calculations based on research by the
Agriculture and Horticulture Development Board, while barley only accounts for
a small proportion of a pint of beer.
Energy, packaging, transport and processing costs and retail
margins are the main components of the final price. Annual food inflation in
the UK was 4.9 per cent in October, up from 4.5 per cent in September. The rise
has been driven by five products — beef, butter, milk, coffee and cocoa — where
supply shortages globally have pushed up prices.
Across the Channel, growers say the situation is similarly
dire. In France, where sugar beet is a flagship crop, producers describe a
sector under existential pressure after global sugar prices plunged almost 50
per cent over the past year.
Concessions for South Africa, Mercosur countries in South
America and traditional cane exporters have added to supply on a market where
European consumption is flat or declining. The result, has been factory
closures, with six sites shutting in France since the end of EU sugar quotas in
2017, with more expected if 2026 prices fail to recover.
Producers on both sides of the Channel emphasise a
structural problem: Europe’s high environmental and labour standards, while
politically popular, make production significantly more expensive than in major
exporting nations. In Brazil and India, cane cultivation benefits from
favourable climates, large vertically integrated estates and looser rules on
pesticides and labour.
