Why use wheat for ethanol when there’s a food shortage?


Phil Clarke reports that hundreds of farmers in Britain are signing up to supply wheat to a new bio ethanol plant.

Presumably they are responding to market signals and getting a better price for their crop than they would if they were selling it for milling or stock feed.

However, given the shortage of wheat internationally it’s difficult to understand how that can be.

The drought in Russia last northern summer, China, the United States and drought and floods in Australia will all put pressure on supply which ought to result in better prices.

Something must be out of kilter if farmers get more for selling crops for fuel when there’s a growing shortage of food. 

Could it be a Green plot to reduce world population by starving people to death by eco-extremists who have talked about population control as a planet-saving measure?

EU to sell off dairy stockpile


Just as we’re beginning to relax about the outlook for dairy prices Phil Clarke reports that the European Union is inviting tenders for the skim milk powder and butter it stcok-piled when prices fell.

Currently there are some 76,000t of butter and 257,000t of powder in EU stores. First tenders have to be submitted by traders by 1 June, with a decision by the management committee on 3 June (two weeks today).

The EU insists it will fix the price and volume to be released “taking into account the market situation”.

Stockpiles eventually get sold and unless it’s done very carefully it will depress the price.  In whch case the emasre  measure designed to soften the blow of falling prices will delay the return to higher ones.

Too much weather


The problems cold, wet weather pose for holiday makers when it’s supposed to be summer are minor compared with the freezing conditions in Britain

While most news reports focus on the impact on people, Phil Clarke looks at the impact on agriculture.

However, he notes it’s not all bad news for business – sales of UHT milk are booming.

Back in New Zealand,  although it’s been unseasonably cold, Northland, the east coast and some inland areas are very dry.

We were happy to get 12 mls of rain in North Otago yesterday. Farmers in Central Otago also welcomed steady rain but the ODT reports that orchardists weren’t so happy.

There’s too much winter in Britain and not enough summer in New Zealand – altogether too much weather.

Sugar beet silliness


Phil Clarke blogs on sugar beet silliness in the EU.

Good weather has led to a bumper crop of beet and the EU as a whole is expecting to produce about 2.4 million tonnes. But that exceeds the 1.37m it’s allowed to export under a WTO ruling.

That was based on a complaint by Australia, Brazil and Thailand which had argued that the EU was “dumping” its surpluses on the world market.

But that was in the days when world prices were way below EU levels. The situation is very different today, with the global shortage of sugar leading to a doubling in prices in just 12 months.

The response suggested by CIBE is for the EU to increase the export ceiling for 2010, so that, instead of having to stockpile about 1m tonnes of surplus sugar, processors can sell it to the world market and help relieve the global shortage…

What could be more sensible? Global prices would come down a bit, the EU sugar industry would earn a bit and consumers the world over would save a bit.

But that’s not the way Brussels sees it. It maintains that “it is not possible to export out-of-quota sugar in excess of the WTO limit” and suggests the only option is to carry over any surplus into next season.

The EU could make a request to the WTO to lift the export ceiling.

 It certainly seems unlikely that the likes of Australia, Brazil and Thailand would complain, since their consumers are feeling the impact of high sugar prices too.

The more likely outcome, however, is that the EU will do nothing. As a result, each member state will have to put its extra sugar into storage this winter, with all the cost that involves, and carry it forward to next season.

And that will mean further reductions in EU growers’ 2010/11 contract tonnages – even though prices are sky high and the world is crying out for sugar.

I presume the reason the WTO is involved is because the sugar beet production is subsidised.

The market might not be perfect and it means accepting the lows which inevitably occur but this illustrates how silly subsidies are when they prevent producers from benefitting from the highs.

It’s not good for consumers either. They’ll have been taxed to pay for the subsidies when demand was low and now there’s a sugar shortage they’ll be paying higher prices.

EU removes dairy subsidies


Break out a celebratory bottle of milk, the European Union has removed subsidies on dairy products.

Trade Minister Tim Groser said:

“International dairy prices have shown a marked improvement across the board in the last three months, reflecting a more positive outlook in international dairy markets.

“In response to this market improvement, the European Union has been gradually scaling back its export subsidies since late October. The removal of remaining export subsidies sends an encouraging message to the international dairy market and I welcome that.

“I will continue to make the point in my international contacts that it is important not to revert to subsidies as a response to market conditions.

“All countries with dairy industries have an interest in a healthy international market. This is a positive development toward that end,” Mr Groser said.

That is very good news. However, let’s not forget the dairy produce which the Eu stockpiled when prices fell.

Releasing it will increase the supply which could dampen prices.

Phil Clarke sees this from the British point of view:

One thing that will be crucial is the rate at which butter and skimmed milk powder stocks are released from intervention in the EU. Last week the commission only went so far as to say it was following things closely and would not do anything to hinder recovery.

But EU dairy body Eucolait is worried that, if the commission leaves it too late, many food processors will switch out of dairy fat and into vegetable oil – and the opportunity to reduce stocks will be missed.

It’s a difficult balancing act, but one the commission has to get right if the dairy sector is to enjoy any kind of stability.

It’s tempting to say the sooner they get rid of the stockpiles the better, but flooding the market with dairy produce which has been stockpiled would depress prices.

No crying over this spilled milk


Farmers can’t turn the milk off at the cow but they can stop it getting to market and that’s what they’ve done in at least eight European countries.

Anger at low prices has spurred farmers to spill their milk. They’ve poured it down drains and spread it over fields and blocked roads with tractors.

Phil Clarke has the story here and more pictures here.

Fonterra’s 8th birthday not as happy as 7th


It was eight years ago yesterday that farmers voted to form Fonterra, New Zealand’s biggest dairy company.

If the company has a cake it will be more modest than the one it might have had a year ago when the milk payout was at its peak.

The new season’s forecast is a much more modest $4.55 per kilo of milk solids.

The freezing of executives’ pay  may be a symbolic gesture but it does send a signal to the industry that the white gold has lost some of its lustre.

Adding to concerns is the Reserve Bank’s warning in its May Financial Stability report that agricultural lending has increased steeply and may not be sustainable.

The reintroduction of subsidies in the USA and EU hasn’t helped matters and will slow the recovery. However, even with subsidies dairying in Britain isn’t healthy.

Phil Clarke notes a DairyCo survey conducted in February and March which showed:

The sharp decline in dairy commodity prices in 2008, which has now filtered through to farmers milk cheques, combined with rising input costs, has led to a radical reversal in this year’s Farmer Intentions Survey.

The latest document shows that just 18% of producers now plan to increase output, while the number looking to quit the industry has shot up to 13%……

According to DairyCo, the quitters will outweigh the expanders considerably in volume terms, leading to another 5% drop in UK milk output by 2010/11.

The situation gets even worse if further price falls are factored in. If prices drop another 2p/litre, then the percent who would leave the industry doubles again to over 30%, while only 6% would increase production.

The implications for the future of British milk production are frightening. Even at current prices we are going to see another significant fall in milk output and a sharp rise in our import dependency.

That bad news for British dairying may provide an opportunity for New Zealand because if Britain can’t produce enough to satisfy domestic demand for dairy produce we’d be ready and willing to fill any gaps on their shelves with ours.

Ag outlook brighter than other sectors


The outlook for agriculture is brighter, or at least less gloomy, than for most other sectors according to the EU Prospects for Agricultural Markets  which covers the period from 2008 to 2015.

 The global financial crisis will have an impact in the short term but the medium outlook is more positive with a gradual recovery in commodity prices and:

  • the growth in global food demand,
  • the development of the biofuel sector and the
  • long-term decline in food crop productivity growth.

 The report points to lower production of milk and meat in the EU which means less competition for New Zealand produce. 

While yesterday’s announcement that our gross domestic product declined .9%  in the December quarter is sobering, agriculture outperformed other sectors:

SNZ said primary industry activity increased 1.6 percent in the December quarter, while activity in goods producing industries fell 3.6 percent.

A rise in agriculture production was mainly driven by increased dairy production. For the December year activity in primary industries increased 0.9 percent, compared to an increase of 3.6 percent for the year to December 2007.

 The role meat and milk will play in our economic recovery was noted by AgResearch chief executive Andy West when he stressed the importance of research and development.

He cautions that R&D spend should not be curtailed as credit facilities dry up around the world.

While he doesn’t see any evidence of a decline in pastoral R&D spend in New Zealand, he agrees that it has come under pressure during the economic crisis.

. . . It is the single most important sector that will help us get out of the economic crisis,’ he told Rural News. ‘We have to export our way out and the dairy and meat sectors need all the assistance they can get.’

If the South Island field days are anything to go by, agriculture is not just the most important, it’s also one of the most positive sectors.

The Press reports that opening day numbers were up and while farmers were showing caution, they weren’t mentioning the r word.

And TV3 said that  recession was a dirty word among the farmers they spoke to.

It’s possible they only interviewed the optimists. No-one is saying that farming is booming, but the mood in the paddocks does seem to be more cautious than depressed and the EU forecast suggests a brighter outlook in the medium term.

Hat Tip: Phil Clarke’s Business Blog

Fence jumpers boost flower business


Illicit encounters aren’t the sort of topic normally raised on Phil Clarke’s Business blog, but a recent post  reveals that people who have extra-marital affairs in the UK spend about 60 million pounds on cut flowers.

Apparently that amounts to over 2.5% of the £2.2bn fresh cut flower market, with men who take mistresses spending an average £120 a year on flowers. That compares with just £41 for those who are not having affairs.

He doesn’t say whether the flowers are for the wives or the mistresses, or both.

But he reckons the fact that the flower buying fence jumpers are typically “high-powered businessmen with a great deal of expendable income” rules out most farmers.

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