The politics of grains

Few commodities are more politicised than grains. They were the first products to be covered by the Common Agricultural Policy. The US has run export subsidy schemes for them in the past. International trading houses like Cargill are involved.

Fear has gripped the wheat market with prices soaring as investors buy against the backdrop of the crisis in Ukraine. Concern about freezing weather in major growing areas in the US has also helped to push up prices by about 20 per cent since the end of February. Ultimately this could boost inflation by affecting prices of goods in the shops.

The so-called Black Sea grain region of Russia, the Ukraine and Kazakhstan accounts for a fifth of world exports. Exports from this area are particularly important in North Africa and the Middle East.

In the longer run, production in Ukraine could be affected by higher prices for inputs because of the weakness of the hryvania and difficulties for farmers in accessing finance. If Russian tanks actually came charging across the steppes of eastern Ukraine, even more disruption would occur. On the more positive side, exports of Ukranian wheat to Europe could increase.

In Britain, 'Nimbys' are using food security arguments to reinforce their case against building on 'green belt' farmland. However, it is important not to panic. Global production forecasts are of 700m tonnes, only slightly down from 709m in 2013/14.

Commodity prices under pressure

Commodity prices in agriculture are facing upwards pressure. It's nothing like the price spike of 2008, but the bearish mood that prevailed at the end of last year has disappeared. The structural pressures of increased demand and little effective increase in supply rate remain in place, even if the rate of growth in Chinese demand has weakened as the economy slows. Stocks are relatively plentiful, but demand from emerging markets is increasing.

In some cases, weather has been a factor. Dry weather has affected sugar production in Brazil, and there are concerns about dryness in India and Thailand, two leading producers. At the same time the sugar reform in the EU has had an effect. Sugar beet producers do not withdraw too hastily as it is a good break crop and they have sunk cost investments in the crop, but a 9 per cent fall in production is expected this year. Farmers in East Anglia have been complaining for some time about reduced margins. Cocoa prices have risen in anticipation of an El Nino effect in West Africa later this year.

Rising global demand is sustaining dairy prices, although the impending end of quotas in the EU may boost production and push them down again. Coffee has seen particularly big rises because of drought concerns in Brazil with prices of higher quality beans up by as much as 70 per cent. These may filter through to consumers by the end of the year.

Any price increase is particularly a concern in developing countries where food forms a much larger part of household budgets, but under conditions of austerity and reductions in real wages, consumers in developed countries are also very sensitive to food price inflation. In Britain, hard discounters such as Aldi and Lidl are undercutting mid-market retailers like Sainsbury's and Tesco. More up market retailers like Waitrose are less vulnerable, while good performance by the food arm of Marks & Spencer has offset disappointing returns in clothing.

Yes, we have no bananas

The famous song of this title dates from 1923: Bananas. Bananas have been a hot topic in agricultural trade negotiations: I have a book on the subject on my shelves. They are an enjoyable fruit which provides an energy boost and are the biggest fruit of the planet in terms of production volume. During the Second World War they were not imported and youngsters didn't know how to eat them when they first encountered them. I can remember them being on ration.

Bananas have been controversial because they are largely produced in the Global South and exported in large quantities to advanced countries (although most of them are consumed in the producer countries or nearby). The trade has been dominated by a few large companies and margins for producers have been squeezed. There are also big fungus disease problems on the horizon, although mainly confined to Asia at present (also fortunately it is not wind borne and scientists are attempting to find means of control). The EU only produces bananas in relatively small quantities in Greece and the Canary Islands.

Now there has been a back to the future deal in terms of a merger between Chiquita of the US and Dublin-based Fyffes. The latter company dates from the late 19th century when it was set up to grow bananas in Jamaica for the British market. After hurricane damage, it was bought by the US-based United Fruit Company, but they got into trouble after their involvement in the Guatemalan coup in 1954. That didn't stop them sending their banana boats to help in the disastrous Bay of Pigs invasion of Cuba in 1961.

United Fruit was taken over by United Brands in the 1970s and changed its name to Chiquita. Fyffes was sold to Fruit Importers of Ireland in 1986. Chiquita has tend to focus on margins and quality, while Fyffes has been more of a mass market brand. Now they have come together in a $1 billion dollar merger designed to address declining profit margins. The new company will be called ChiquitaFyffes.

European retailers are increasingly using bananas as loss leaders and forcing producers and distributors to absorb wholesale cost increases. The Fairtrade Foundation has warned that the merger is like to squeeze producers further, although it will account for only 14 per cent of the world market, but 30 per cent of the European market. No challenge on competition law grounds is thought likely.

Is milk white gold?

There is currently a supermarket war going on using milk as a loss leader. Farmers have been reassured that it will not affect the price that they are paid, but some are concerned about the treatment of liquid milk as a commodity. With the impending lifting of quotas, many EU farmers, not least in the Netherlands, are planning expansion. But in a world that could be awash with milk, despite increasing demand in China, milk could turn out to be 'white gold' but fool's good.

Moreover, any country expanding its production will be up against New Zealand which has an ideal climate for dairy production and years of accumulated expertise in production and marketing. But is New Zealand really the Saudi Arabia of milk?

A recent report in the Financial Times struck a note of caution: White Gold.

The Pink 'Un noted that since 1980, the dairy herd has more than doubled to 6.5m cows while the number of sheep has halved. At least 300,000 hectares of land has been transferred to dairy use from other types of farming and forestry over the past decade, causing a jump in agricultural land prices. The dairy industry is driving the boom in capital investment with NZ$1bn dairy plants under construction along with other spin-off infrastructure projects.

But there are risks in being so dependent on a single sector which now accounts for almost a third of total exports, particularly when it is a commodity. It makes New Zealand look like a modern version of a company town. Some see parallels with Ireland before the financial crash with an economy based on debt and credit, low savings rates and current account deficits. Irish dairy farmers prospered under the CAP, some of them building new mansions with porticos. They survived the crash with the CAP providing a safety net which Kiwi farmers do not have.

Different versions of food futures

Earlier this week I went to a very interesting workshop on future global food systems. As is inevitably the case, two different versions of the future emerged.

One view is that in order to feed a growing world population (of which anything between 1 billion and 3.5 billion are under nourished and 0.83 billion underweight) we shall have to continue to rely on intensive systems of food production and make greater use of new technology.

An alternative view, which was developed rather more in the discussion, was that we were going to hell in a handcart and the present system of production is unsustainable in terms, for example, of the demands it is making on soil and water and its contribution to climate change. We rely on too narrow a range of plant and livestock species and overlook crops which could be safely grown several times in one year (although whether people find some of these crops palatable is another question).

Of course, how one moves to a different system is a more challenging question and it struck me that there was an element of naivety in some of the suggestions put forward. Urban agriculture such as growing mint in a suburb of Rotterdam may have educational benefits, but it is not going to start to feed large cities. If diversity is the enemy of capitalism, as was argued, how is one going to get round that given the structural and lobbying power of big business? How can one cope with the power of supermarkets which tend to make cosmetic changes in their offer to reflect concerns? One answer that was suggested was to convert consumers into citizens in relation to food, but that has its challenges.

I would suggest that sustainable intensification offers a possible way forward. I know that it is greeted with scepticism both by environmental lobbyists, who see it as a stalking horse for GMO, and by farmers who tell me that they don't understand what it is. What it involves is an acknowledgment is that we are going to have continue with intensive farming (although not everywhere) but it has to be done in a more sustainable way by using inputs in a much more careful way. Drone technology, for example, opens up new possibilities in precision farming, making it possible to avoid the over use of fertilisers.

One also has to recognise that business is not a homogeneous entity signed up to a common agenda and that some businesses are concerned about the possible impacts of unmitigated climate change, notably the insurance industry which plays a key role in the Aldersgate Group which is a coalition of businesses, NGOs and others: Aldersgate .

Where I would agree with many of the speakers is that the analysis of power relations is of crucial importance in understanding how systems of food production operate.

So, farewell then, CWS Farms

Faced with a £2 billion deficit, the Co-op is to sell off its farms. The group now regards them as 'non-core' and thinks that they distracted from its other activities. Most of the farms are arable, although there is also some soft fruit production.

Now is a good time to sell as farmland prices are rising and these are good farms in attractive locations which have been well looked after, although there have been some expressions of concern that their arrival on the market may depress prices (but I think that is unlikely). There are still individuals with £30m or more in cash willing to buy farms in the UK. They could be worth £350m, although presumably would be sold separately. Some of the farms are thought to have development value. They are located in Cambridgeshire, Gloucestershire, Herefordshire, Leicestershire and Yorkshire. There are also farms north of the border in Aberdeenshire and Perthshire.

CWS was, I think, Britain's biggest farmer, certainly after Sentry Farming disappeared from view, although there are other contract farming companies, notably Velcourt: Velcourt . Farmers Weekly commented in an editorial that 'The C0pop's exit from farming is in part an acknowledgment of the high capital requirement of modern commercial agriculture relative to the returns.'

The CWS owns 15 farms that cover 19,830 hectares (49,000 acres). Only 2 per cent of production ends up in the Co-op's own supermarkets, with cereals sales to bread manufacturers accounting for 70 per cent of production. The Co-op has owned farms since the 19th century and had argued that they provided an edge over its competitors as consumers were becoming more concerned about the provenance of food (in practice only some consumers).

When I was growing up in London in the 1950s we got virtually everything from the Co-op from milk and bread to clothes. The return for customers was a declining 'divi' whilst the stories failed to modernise as competitors strengthened their offer. The Royal Arsenal Co-operative Society, then the biggest in the country, was known locally as 'Rob All Customers Slowly.'

Transatlantic trade talks hit trouble over agriculture

The US-EU trade talks are running into trouble on a number of fronts, but predictably agriculture is proving to be a particularly difficult issue. The farm lobbies on both sides of the Atlantic are active and influential and the EU feels a need to respond to the concerns of its citizens on such subjects as GM crops and hormone-raised beef. For its part, the US sees this as protectionism under another guise.

Food safety is an area where there is a particular gap with the EU sticking to the 'precautionary principle' which can justify intervention in the absence of much in the way of hard scientific evidence while the US has a more lenient 'risk assessment model' which only bans products if there is a known risk. The EU is about to approve a GM strain of corn/maize, but that is after a decade of debate and six scientific studies. It remains to be seen how much is actually planted.

The fundamental problem is that the public in the two entities have different attitudes on issues of this kind and these are difficult to overcome, particularly when the EU is engaged in a constant search for democratic legitimacy and popular support. Standing up to big US corporations marketing allegedly dangerous products and processes is one way of doing that.

Large farms may abandon basic payment

It is being reported that some large arable farms are considering abandoning the basic payment (the successor to the single farm payment) because of the 'three crop' rule: Three crops

I do think that this rule is a typical example in the CAP of a possibly laudable objective leading to a policy instrument that is deficient. It arose out of a desire to curb the landscape and biodiversity effects of monoculture. However, at one time there was an implicit view in the EU that some parts of member states would be farmed in a way that maximized productivity. Requiring farmers to grow three different crops undermines this and, in my view, is an unwarrantable intereference in their freedom to make their own commercial decisions. I would also question whether it really achieves that much in the way of 'greening'.

Whether farmers would give up the basic payment is an interesting quetion. It can be a very substantial amount for some large-scale arable farmers, but others receive relatively small sums. However, in many cases it is the difference between making a profit and making a loss. The real hope must be that some progress will be made in reducing the impact of this policy instrument.

Adapting farming to climate change

One of the predictions of climate change is that extreme weather events will increase in frequency and although one has to be careful about generalising from a particular weather pattern, there is some evidence to support that hypothesis given the wettest winter in the UK for 250 years. It would seem that additional warmth is being absorbed in the oceans. It is not so unusual for the Atlantic to be a storm factory at this time of the year, but the destination of the storms is changing with the jetstream diverted south.

There is a growing recognition, even on the political right, that denial is no longer plausible and that one needs an intelligent discussion about policy options: Talking about the Climate

In particular there are questions about how one can sustain productive farming under these conditions in such areas as the Somerset Levels. Adapting to the particular features of the local climate is important and here is a good example from the Isles of Scilly: Churchtown Farm

Agri-environmental schemes after 2014

Not everyone's topic, but if you are affected in any way or just interested there is some useful information here, courtesy of the excellent RELU Landbridge project: Agri-environmental schemes

Agricultural policy outside the EU

Whether or not the UK will leave the European Union remains to be seen, but it is a sufficiently serious prospect for it to be worth thinking about its implications for agricultural policy.

What one would probably have is a continuation of a version of the CAP at the national level. One of the constraints here is that the UK would still be a member of the World Trade Organisation and any agricultural subsidies it provided would have to be compatible with WTO rules. Indeed, it could be argued that recent changes to the CAP have been driven too much by the need to provide subsidies in a form that can demonstrate that they are compatible with the 'green box'/non-trade-distorting requirements of the WTO. Hence, the policy instruments may have been influenced too much by that requirement.

Within the discussion of the 'balance of competences' review of the CAP, one issue is how much 'renationalisation' there has been of the CAP. Certainly, there has been quite a considerable amount of recoupling which gives quite a lot of discretion to member states or their regional governments, but the basic principles of the CAP remain intact.

In any case, some would argue that the term 'renationalisation' is an inappropriate or old fashioned one. What has happened rather is the maintenance of a common policy design with national flexibility in policy implementation. Some argue that as the goals of the CAP have become more complicated, and in particular taken on a greater public goods/environmental emphasis, there has been a recasting of the form of the CAP (although it is possible to exaggerate the extent of this). What this requires is policy instruments that allow diversity of implementation in member states (but not to an extent that would satisfy Eurosceptics). It is, however, worth bearing in mind that a lot of policies affecting agriculture are nationally determined, particularly taxation and inheritance law and planning regulations.

It may be that the CAP can be characterised as a means of tackling the market failures associated with land management (but arguably a rather inefficient means of doing so). However, for some member states the occupation of land could be a key objective to prevent rural depopulation and secure the ecosystem benefits of farmed land.

One also comes up against the problem of a low level of competence in effective policy design and delivery. That is not a problem confined to the CAP, but is a general challenge for the EU and for member state governments, but it is particularly evident in relation to the CAP.

Cost of farmland likely to continue to rise

Knight Frank's farmland index reported a 7 per cent increase in prices in 2013 to reach an average of just under £6,700 per acre, and further growth is expected in 2014. Large blocks of investment grade arable land now regularly sell for over £10,000 an acre in the UK. In the past ten years, average values have increased by 22 per cent. This compares with a rise of 58 per cent for the FTSE 100 and 132 per cent for prime central London residential property.

Investors favour farmland because of its stability and tax incentives. A shortage of supply is also driving up prices, while growing global demand for food makes it an attractive long-term investment.

Mind the gap

HSBC head of agriculture Allan Wilkinson has drawn attention to the gap between returns from the market and costs of production, particularly in livestock enterprises. For beef the cost of production is £3.20/kg liveweight compared with a market price of just £2.10 so that only 60-70 per cent of production costs are recovered from the market. It costs £2.30 to produce a live kilo of lamb while market prices are at £1.75-1/85 kg lw. Thus, only 75 per cent to 80 per cent of production costs are met by the market.

These are, of course, average production costs and Mr Wilkinson emphasised the gap between the best- and poorest-performing farm businesses. He warned that unless the gap between the cost of production and returns can be closed, the size of the red meat sector will fall further and the industry will continue to decline.

Once again these figures show how dependent important sectors of British agriculture are on CAP subsidies which are bound to decline in the long run.

What do we mean by food security?

Food security has been a dominant element in recent debates on agricultural policy, not least the recent discussions on CAP reform. But what do we actually understand by food security? There are a number of standard definitions out there, but in fact various actors interpret the term for their own purposes. An important article in Food Policy by Jeroen Candel, Gerard Breeman, Sabina Stiller and Catrien Termeer, identifies six different interpretations or 'framings'.

Not surprisingly, the productionist and environmental frames were dominant, accounting for nearly 70 per cent of uses. Anyone who has followed the CAP debate is familiar with the productionist frame. It is the stock in trade of those who advocate a 'business as usual', 'more of the same' CAP. As the authors note, it 'revolves around a story line that considers food security as one of the key goals of a future Common Agricultural Policy.' World food crises increase the salience of this frame.

The policy conclusion that is drawn is that the CAP should maintain 'a strong first pillar.' Agricultural production and productivity should be stimulated, 'and should be considered as a form of public goods provision, for which a financial compensation is justified.' [Needless to say, I think that this is a spurious argument, but it is certainly widely deployed].

Whilst the productionist frame is the dominant one, the environmental frame accounts for almost a third of all uses. This is of itself interesting as such a prominence would not have been achieved fifteen or twenty years ago and shows how the debate about the CAP has been 'greened'. The provision of environmental services is seen as an integral part of European food production and the emphasis is on long-term sustainability which cannot be achieved by the continuation of current policy.

Interestingly, the third most used frame is the regional one which shows how the notion of food security can be appropriated for a range of purposes. I see this as a very political frame in the sense of securing benefits for a particular set of actors. The argument here is to look after less developed regions which it is argued cannot produce at world market prices. Farmers in these regions perform an important function as caretakers of the countryside. The Scottish Highlands and Islands are a good example. Although a continuation of the CAP is supported, the present distribution of funds is seen as unfair.

The free trade frame argues that food security is best achieved by free trade. The development frame critiques the impact of the CAP on developing countries. The food sovereignty frame offers a radical critique of traditional conceptions of food security and focuses attention on people's right to food. Historically, notions of equity did feature in the debate in terms of closing the gap in the standard of living between rural and urban areas, but this framing covers both consumers and farmers and is underpinned by notions of global solidarity.

Interestingly, the European Commission uses multiple framings, invoking various frames simultaneously. My take would be that various interpretations of food security can be utilised to justify whatever line the Commission has chosen to take. The consequence, the authors argue, is that a clear vision of the relationship between the CAP and food security is lacking and policy makers may need to develop a more coherent vision [although I would add that CAP decision-making processes rarely facilitate clear strategic thinking].

Not only is this article a very useful, empirically based overview of how the term 'food security' has been used in policy debates, it also provokes thought about where we might go in the future.

Farmland attracts institutional investors

There is nothing new about farmland attracting institutional investors. There was a surge of interest in the 1970s when it was seen as an asset that would hold value in inflationary times. However, there is a new wave of interest. The UK's £14.9bn Pension Protection Fund has recently appointed a farmland manager. In the US, TIAA-CREF had built up a $4.4bn portfolio by July 2012, encompassing more than 800,000 acres across four continents.

What's the attraction? It gives exposure to commodity prices as well as the return from production. Demand for agricultural commodities is growing as developing countries become more prosperous while supply is constrained by such factors as the availability of land and an assured water supply. Investing capital in, for example, machinery or irrigation could drive up the value of the asset as well as returns.

The downside is that this is not a liquid asset. Investment has to be for the long term. Yields can be impacted by weather events, the uncertainty and magnitude of which could increase with climate change. There are also political risk issues associated with subsidies, trade regimes and tax structures.

What is required is specialist knowledge of the sector. It is important to focus investments in locations that have good soil quality, reasonable infrastructure and access to the markets where growth is occurring. Many investors have been attracted to Australia for those reasons.

There are also potential ethical problems. Swedwatch has criticised Sweden's national pension fund AP2 for a lack of transparency on its Brazilian farmland investments: Swedwatch . It suggests that there may be serious negative impacts on the environment and human rights. Common problems include high use of pesticides, poor working conditions and a loss of biodiversity.

Can Doha lite succeed?

As trade ministers gather in Bali the question is can a 'Doha lite' agreement be concluded to rescue something from the Doha Round of trade negotiations? Or will agreement once again be foiled by arguments over agriculture?

The developing world will still want the US and the EU to stop export subsidies for their farmers, although those paid out by the EU have shrunk away to a fraction of what they were: Export subsidies . Cotton farmers in Africa will still demand better access to the American market and a reduction in domestic subsidies. Sugar cane growers in Australia and Brazil also want better access for their products.

However, the real sticking point could be Indian insistence on rewriting the rules of the WTO on food security programmes. A 'peace clause' was agreed, intended to give another four years to negotiators to come up with new WTO rules for farm subsidies and the prices paid for staples bought as part of government programmes to supply food to the poor. 70 per cent of the Indian population is covered by such programmes which have recently been extended by legislation and there is a general election due next year. It now appears that India wants the clause to be permanent or at least apply until a final deal is concluded.

Decline in meat eating claimed

A quarter of the British public say they have cut back on the amount of meat they eat over the past year, new research for the Eating Better alliance revealed today. Only 2% say they are eating more.

The YouGov survey of the British public (1) commissioned by Eating Better found around one in three (34%) say they are willing to consider eating less meat, with a quarter (25%) saying they have already cut back on the amount of meat they eat over the last year. Ready meals, and processed meats are most likely to be off the menu. Eating Better says this suggests the public remain wary, following the horsemeat scandal, of cheaper meats that are likely to be less healthy, of unknown origin and poorer quality.

Concern for animal welfare topped the reasons for considering eating less meat, ahead of saving money, food quality/safety and health. The survey found a large increase in awareness of the significant environmental impacts of producing and eating meat from just one in seven people (14%) in a YouGov survey for Friends of the Earth in 2007 to nearly one in three (31%) in 2013.

The most dramatic change has been in young people (aged 18-24) where there has been a five fold increase in awareness from just 8% in 2007 to 40% today. Young people were nearly 3 times more likely to say they don’t eat any meat at all – compared to the survey’s average – with one in six (17%) of young people saying they don’t eat any meat. Despite rising food prices, around half those surveyed said they would be willing to pay more for ‘better’ meat if it tastes better, is healthier, produced to higher animal welfare standards or provides better financial returns to farmers. Willingness to pay more was not restricted to higher (ABC1) social grade groups.

What the survey does not make clear is by how much people have cut back on the meat they eat. However, it is not good news for the hard pressed livestock industry.

The promise of precision farming

It has been estimated that the use of precision agriculture technology could increase yield on any given farm by about 10 per cent, compared with average global annual crop yield increases of about one per cent. Tractors that map fields, drive themselves and precisely calibrate their movements to within inches to minimise wasted fuel, fertiliser or seed are increasingly becoming a standard piece of kit.

Auto steer has been around for about 15 years, but the focus is increasingly on remote sensing and data collection on the dozens of variables, from soil moisture to nutrient levels, that influence success in modern farming. Agricultural companies are trying to make better use of the vast caches of data that farmers generate in areas such as yield and soil mapping, although some farmers have privacy concerns and want to limit the amount they share with big companies.

Monsanto recently spent nearly $1bn acquiring data science company Climate Corporation. Companies clearly see commercial opportunities in relation to climate change, but there is controversy about whether weather derivatives have the market smoothing effect that is claimed for them: Climate data

The final shape of CAP reform

A rural surveyor takes a look at the final shape of CAP reform, noting that, as always, the devil is in the detail with many points of implementation still to be resolved: CAP reform

He also notes the different perceptions between the UK and other member states with the reform being seen as a missed opportunity here and a substantial achievement elsewhere.

Subisdising oil seed rape

The threatened reduction of oil seed rape subsidies for biofuel from 10 per cent to 5 per cent is concerning some farmers who say that it will no longer make economic sense to grow the crop. Of course, one might ask whether such a market distorting subsidy was sensible in the first place which is why the UK and other member states such as the Netherlands would like to see it reduced.

However, for farmers on heavy land in particular oil seed rape has great advantages as a break crop. There aren't that many alternatives. Peas are very sensitive to weather conditions, particularly rain, and the returns on sugar beet are not that good.

Oil seed rape is also favoured by beekeepers as it flowers early in the season and produces plenty of pollen.