Thursday, 17 June 2010

Crop prices will rise between 16% to 40%!

Fantastic news! It was on the BBC so it must be true! “What’s the catch?” I hear you say, well there are probably two catches if truth be told.

I’m taking the UK as an example here but these trends hold true for farming in general.

If you look at farm incomes over the last four decades there is a downward trend.

The peak in the mid nineties was the introduction of subsidies designed to offset CAP policy changes that was supposed to have reduced the market price, when what actually happened was the global price lifted at the same time farmers received their bung from Brussels. Politicians really should learn to stop meddling in the market place.

The rise at the end of the chart is down to how DEFRA calculate farm incomes which now includes diversification projects i.e. not conventional farming so I suspect the true trend is further down.

So, any rise in prices has to be set against a background of four decades of declining farm incomes.

If further evidence was needed have a look at the farm products index for the last two decades.

Farmers today are essentially getting 1989 prices. And if you look closely you will see that input prices generally keep in line with what you’re getting paid, which is the second catch.

Crop prices will increase it’s a certainty; the law of supply and demand will, well, demand it. But so will input costs – everyone will want a slice of the good times – so margins will remain as difficult to reach with a 16% to 40% increase in prices as they are now.

The farmer as always will take the burden of the work and the risk and the lowest margin out of the supply chain.