LONDON, U.K. – Farmers in Britain are being blitzed by prices, pounds and politics.
Low returns from the market are squeezing both grain and beef producers, while a strengthening British pound is hurting all U.K. farmers relative to their European counterparts.
At the same time, there are expectations that farm policy reforms in Europe and the upcoming round of world trade talks will mean further cuts in support payments for cereal growers.
The strong British pound has been the biggest single factor affecting farmers’ income this year, say industry officials.
Read Also
Agriculture ministers agree to AgriStability changes
federal government proposed several months ago to increase the compensation rate from 80 to 90 per cent and double the maximum payment from $3 million to $6 million
The British National Farmers Union estimates the currency rise has taken £425 million (almost $1 billion) out of the farm economy this year, and has asked the government for compensation.
Pinched by the pound
For farmers like Jonathan Tipples, who grows wheat, rapeseed and peas on his farm near Maidstone in County Kent, south of London, the impact of the exchange rate is evident every time he sells a bushel of wheat.
“Because of the strong pound, we have suffered massively this year,” said Tipples.
The feed wheat he grows is selling for about £76 a tonne ($171 a tonne in Canadian funds), down from about £120 a year ago. Economists estimate about £30 of that decline is due to the strength of British currency, with the rest due to world supply and demand.
Support payments have cushioned the immediate impact on producers, but those payments are also declining as the pound rises in value.
“I think the reality of growing wheat at £80 a tonne is going to hit pretty soon,” said Tipples, especially as higher-than-expected stocks prevent the usual pre-harvest price rise.
A drop in the value of sterling in 1992 meant EU support payments were worth more to British farmers. Wheat prices were high at the same time, and, in a rare admission for a farmer, Tipples concedes U.K. grain growers were “overcompensated” for a couple of years.
But sterling has appreciated by 20 to 25 percent relative to the German deutschmark in the past year, reducing the value of the support payments.
“Our currency had been weak, so farmers had been enjoying reasonably good returns,” said Ian Aitchison, of the Home Grown Cereals Authority.
“But now supports are being reduced every year to try and control budgeting as agreed by the WTO (World Trade Organization), and the pound is appreciating, so farmers are caught in a squeeze.”
Since 1992, British farmers have received area-based support payments if they participate in land
set-aside programs. For wheat, the
payment this year is just under
£267 per hectare. (In Canadian funds, that’s $600 per hectare, or about $243 per acre.)
Tony Williams, president of the HGCA, said the arable area payment will come under pressure from two sources when the EU’s common agricultural policy comes up for review, a process slated to get under way later this summer.
If proposed European monetary union goes ahead, the CAP budget will be pressured even more, which could mean less financial support for all EU farmers.
And there’s the issue of “modulation,” a proposal to cut support payments to larger farmers. That would have its greatest impact on farms in the U.K., which tend to be larger than their continental counterparts.
Not inevitable
But Williams said just because there is a formal commitment to CAP reform this summer, it doesn’t mean changes are imminent.
“It sounds exciting,” said Williams. “You think, ‘God, something’s going to happen,’ but all it actually means is somebody’s going to start it. Heaven knows when it’s going to finish.”
He said CAP reform is tied to a wide variety of issues, including the WTO negotiations, the EU budget, European currency changes proposed for 1999 and even the future role of former eastern bloc countries in the EU.
“So you’ve got this pretty imprecise time-table, and usually they don’t act unless there’s a crisis,” said Williams.
Trevor Hayes, director of public affairs for the National Farmers Union, said while his organization’s members support the move toward more liberalized world trading trade rules, the prospect of further subsidy cuts makes them nervous.
“There was a time not long ago, when prices were high, when crop growers felt they could live with world prices,” he said.
“At the present time, it’s not something they’re eager to embrace, but they acknowledge that the next round of WTO could mean further changes.”
While not happy with the current state of affairs, Tipples maintains an optimistic attitude about the future for cereal farmers, based on the need for grain to feed a growing world population.
“People can manage without eating apples or strawberries, but at the end of the day people have to eat grain,” he said.
“There will be peaks and troughs and I’m quite happy for that. As far as I’m concerned we’re in a trough and I have no reason to suppose that in two years time or whenever, the price of wheat won’t be back up around £105 again.”
