Agricultural Bulletin - A Briefing For Farmers And Land Agents

In this issue, we look at how high grain prices have led to

a food crisis in the developing world. But how will this affect

UK farmers? We also provide an update on the fortunes of the UK

dairy industry and discuss crop forecasts for the upcoming

harvest.

THE GLOBAL FOOD CRISIS - A DISTANT RUMBLE?

In the face of a looming food crisis, we look at how

shortages elsewhere might affect UK farmers, if at

all.

The head of the International Monetary Fund cautions that

rising food prices could lead to war, the president of the

World Bank warns that hundreds of millions of people will be

pushed into poverty, and Gordon Brown convenes a food summit.

Seldom in recent years has food featured so prominently on the

political agenda. But why are people only talking about a food

crisis now when prices started rising last summer?

The reason is because grain prices didn't increase much

during 2007 - unlike with wheat. Here in the UK, we tend

to focus on wheat prices. Wheat is the largest crop for

producers and, as consumers, bread and other wheat-based foods

are the staples of our diets. So with wheat prices taking off

in early summer 2007, the UK has had time to adjust to the

market situation.

But, rice and maize are the main grains consumed around the

world. And, since Christmas, grain prices have raced away. This

is particularly true of rice, for which prices on world markets

have doubled. In some local markets the increases have been

even higher.

In 2005, UK spending on food was only 10% of gross income.

So a small percentage increase in food prices will not cause

much hardship for the vast majority of British consumers.

However, if you are spending half or more of your income on

food (as the majority of the developing world does), any

increase, no matter how small, will have a serious impact.

So how do we deal with the impending crisis? Some countries

have introduced emergency measures, such as banning rice

exports. But this means prices go up even more in those

countries that have to import a large proportion of their food.

To compound the problem, the buying power of aid agencies

decreases with price increases, but the queue of hungry people

gets longer. So what does this mean for UK farmers? One answer

might be: "Not much". Being somewhat heartless, the

crisis is a long way from here. Higher prices should eventually

stimulate greater output and politicians will move on to the

next topic. But the UK isn't isolated from the global

economy.

A variety of problems such as water shortages, small farm

sizes and a lack of credit make it difficult for farmers in the

developing world to increase production. Therefore, in the

short term at least, the burden of feeding a growing world

population will fall on agricultural sectors in the developed

world. This may sound like a recipe for continued high grain

prices - to the benefit of UK farmers - but there

is no guarantee that lurid headlines will translate into strong

markets.

Farmers in the developed world have already planted a

greater area of crops this year. Also, those hit hardest by

rising prices are unlikely to be the type of consumers who can

pay high prices - they are effectively outside the global

market unless governments and aid agencies intervene. Thus it

is in the policy arena that the largest changes may occur.

Incentives for biofuels will be hard to explain politically

when there is a world food shortage (even if 'fuel versus

food' is a massive simplification of complex markets).

Perhaps Europe will even weaken its stance on genetic

modification if food production becomes an increasingly

important policy goal.

So how does this affect British farmers? We're yet to

see. But, at the very least, perhaps it is just good to be

involved in an industry that matters again after years of being

virtually ignored by policymakers.

DE-CAPPING THE CAP - AN UPDATE ON THE HEALTH CHECK

The EU Commission's latest proposal bins

capping...