Time to invest if you're serious about farming
Farm businesses must decide whether they are serious about continuing to play a role in the agricultural industry and invest for the future, Steve Ellwood, HSBC's Head of Agriculture, has told Framlingham Farmers Members.
Sounding a tone of 'cautious optimism', Mr Ellwood said his view of the agricultural industry is founded not on the recent short-term uplift in cereal prices, though welcomed, but on rapidly increasing global demand for resources. The fact that farmers control a large percentage of the land on which these are produced, combined with an increasing need for local delivery to the point of consumption, are likely to mean that farmers become more valued than they have been in the past. He commented:
"The agricultural industry has been through significant restructuring and CAP reform has resulted in the complete transfer of market risk from Brussels to farmers, who are now more exposed than ever before to increasingly volatile world markets. Steadily rising global demand for wheat and a significant decline in ending stocks to historic low levels, mean that Supply and Demand are in a delicate balance, which will result in greater price volatility and financial risk.
"Farmers and the agricultural industry have traditionally been weak sellers, but in a decoupled environment where the market matters, farm businesses will need to be bigger, fitter and stronger to survive. It is therefore critical that they understand exactly where their costs occur, identify where savings can be made - possibly through collaborative ventures such as sharing machinery - have policies in place to manage marketing risks and, above all, invest in their future."
In the UK, where potential growth is being driven more by climate change considerations than fuel security issues, a thriving bio-fuel industry should generate clear benefits for farmers, said Mr Ellwood. However, he emphasised that they must appreciate that the prices of oil and feed stocks (wheat and oilseed rape) for bio-fuel plants are unrelated, that no production facilities currently exist in the UK and most of those that are planned would be sited next to deep water ports, enabling the owners to switch to imported feed stocks if UK-produced materials became uncompetitive.
Underlining the need for the farming industry to invest in its own future, Mr Ellwood pointed out that while UK consumer spending on food has increased from £52 billion to £112 billion during the last 15 years, gross output from UK agriculture has remained static at £14 billion, the same level as in 1991. Consumers have chosen to spend their money on higher-value brands, brand differentiation, improved packaging and greater convenience. The fact that agriculture has not invested in generating that additional value has meant that farmers have not benefited. Amongst those who have are farmer-owned businesses in Europe - particularly in Denmark and Sweden - which despite operating from a higher cost base have been able to infiltrate the UK market with added-value products that deliver higher returns to their farmer members.
Emphasising the need for a substantial injection of intellectual and financial capital into UK agriculture by farmer-owned businesses, and those companies which want to work with farmers in the future, Mr Ellwood underlined the commitment made by his own company. In 1989 HSBC became the first bank to form a specialist agricultural team to work exclusively with farmers and agriculture-related businesses. Principal sponsor of the Cereals Event, Dairy Event and Welsh Winter Fair, HSBC recently underlined its contribution to minimising the effects of climate change. By reducing waste, using products made from renewable sources and offsetting co² emissions through investment in projects such as biomass regeneration, wind farms, composting and waste-into-methane projects, Mr Ellwood said HSBC has become the world's first carbon-neutral bank.
