Thursday, August 22, 2019

Time for a UK crop marketing board?

May 1, 2019 by  
Filed under News & Business

Expert View: There is little wrong with consolidation among grain traders, says Jeremy Cole.

While sorting through some old farming magazines, I came across a list of UK grain merchants. There were 15 in all – trading up to 6 million tonnes annually. I admit I had a nostalgic tear in my eye as I noticed the merchants and traders no longer with us.

Household names from the 1980s and 1990s have long gone. They include RHM, Dalgety, Kenneth Wilson Grain, UAM, Unwins, Quenby Price, Barnes & Maney, Ramply & Timms, Anglian Ag, Ashdowns and Centaur too.

More recent mergers and acquisitions have seen quite a cry from farmers. Comments in the media have often been on the negative side – voicing concern about lack of competition and lower grain prices for growers.

But is it true? Surely this concentration is the result of Darwinian economics, the survival of the fittest and most adaptable? Grain trading has always been a hard job. I know – I worked for several traders in the grain and animal feed sectors.

Back in the day, merchants often reported a 1% profit on turnover. This was generally because they only transported grain and farm inputs – and sprays – rather than adding value by processing raw materials.

Running to stand still

Sales reflected, to a large extent, the price offered – high or low. The result was thin margins and tight profits. Merchants gave good deals to customers but had to chase greater and greater turnover to make the required income needed to survive.

As a consequence, many couldn’t continue as they were.

The firms that remain are those that developed some degree of added value – some sort of vertical and/or horizontal integration. They have vast capital reserves to fund these developments, far greater than the traditional ‘country merchant’ can access.

I see little wrong in that – it happens everywhere in the business world. Yes, smaller traders can prosper but not on a pure price basis against giant opposition. Niche is how smaller firms thrive rather than survive.

Even if there was only one purchaser in the market, that buyer could not control prices over a week, month or a year ahead. So farmers would still be able to take advantage of any positive price movements.

Market knowledge

They could do this by putting a minimum price on their grain sales, hedging the price over the lifetime of their crop. Futures, options and index-based insurance tools are all available – yet only really used by about one in 10 farmers at present.

This would be the same hypothetical scenario if we dispensed with commercial merchants altogether and set up independent impartial UK crop input and output boards that were government backed with payment guaranteed.

Farmers would know their price, based on a discount to the futures price for any month of movement – and these could be set or amended whenever required like Bank of England interest rate adjustments.

There would be no argument about price, no need to spend time ringing numerous merchants and no need to browse websites for market movements Growers could accept the board’s published price or not.

They could then hedge the price or not – or play the market as most do now. Whatever your view, we are approaching the one-buyer/one-seller solution of commodity cereal and input products. The trend will continue.

Dr Jeremy Cole, BSc Agr Econ (Reading), runs Agricole – an independent grain brokering and marketing service for farmers. For a weekly grain market report, call 01954 719452 or visit
www.agricole.co.uk

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