Volatility will be a constant in the next decade

Farmers will face increased volatility in the coming decade as market fundamentals adapt to an era of higher global demand and lack of long term investment in agricultural production, NFU President Peter Kendall is expected to say today.

Speaking at an international conference in Wilton Park, Mr Kendall will outline how farmers and growers will be faced with multiple supply challenges in the coming years compounded by dysfunctional supply chains and the effects of extreme price volatility.

’The recent and recurrent price spikes of 2008 and 2010 demonstrate that market fundamentals of global supply and demand are tightening. The economic analysis points us towards a trend of higher global prices across a range of commodities. Yet some commentators would like to single out the role of financial speculators in driving prices high. I am not convinced that speculators are the cause of recent price spikes and I would strongly caution against interventionist approaches in the market place which would limit their market position. We need strong policies which give farmers greater market orientation.

’President Sarkozy has successfully placed agricultural commodity markets on the agenda of the G20 meeting in June. The NFU and others will work within the G20 and EU to ensure that farmers are better able to respond to market signals in the future. There is a strong case for greater transparency and availability of market data to better understand what is happening in agricultural markets, but I am reluctant to sign up to measures which will undermine the operation of derivatives markets and the ability of farmers to hedge their price risks.

’The direct support that farmers receive through the CAP is cost effective risk management that can mitigate increased volatility. But the future CAP should also focus efforts on improving competiveness and business viability so that farmers can increase productivity and intensify production in a sustainable manner.

’Unfortunately, the Commission has set the debate off in the wrong direction on the future of the CAP. We need a CAP reform that builds on the progress made in the past, which further decouples support, and is simpler and more common across the EU. Instead the Commission is advocating measures like ’ecological set-aside’ which will see productive agriculture land set aside at time when global food demand is increasing.

’What we need are measures to improve the market position of farmers in the supply chain, for example, fairer contractual terms and conditions and actions which prevent abuses of power and unfair practices by more powerful actors in the chain. Some steps taken in the UK, such as the introduction of a Grocery Supply Code of Practice and adjudicator, need to be continued and amplified.’