2012-02-03 15:48:00 - United Kingdom Agribusiness Report Q1 2012 - a new market research report on companiesandmarkets.com

On grains, spring droughts have not caused as much damage as previously expected, and as the harvest is of excellent quality, we expect UK farmers to take advantage of elevated prices. On sugar, we believe the EU decision to abolish production quotas by 2015 should help UK sugar output to fall by less than previously anticipated. On dairy and livestock, we believe farmers´ already low competitiveness will be affected by EU reforms of the Common Agricultural Policy and more specifically of the direct payment system.

Key Forecasts

- Wheat production growth to 2015/16: 7.7% to 16.0mn tonnes. This growth will come as average growing conditions are maintained and as new biofuels plants are made operational by 2014.

- Beef consumption growth to 2016:

 

 

7.1% to 1.3mn tonnes. This will come on the back of economic recovery, as well as population growth and the continued popularity of Sunday roasts.

- Milk production growth to 2015/16: 11.7% to 8.6 tonnes. This will come on the back of proposals from the European Commission to allow farmers to collectively negotiate prices with retailers, as well as to authorise the Department for the Envirinment, Food and Rural Affairs to allocate a special financial assistance package in crisis situations

- Real GDP Growth: 1.1% y-o-y in 2012 (stagnating compared to 2011) - Consumer inflation: 2.9% y-o-y in 2012 (down from 4.5% y-o-y in 2011).

Industry developments

UK grain merchant Openfield signed a major contract in November to supply feed wheat to the US after domestic corn prices rose sharply. In fact, industry sources reported that the shipment could be up to 45,000 tonnes, which is historically significant as the UK last sold 71,889 tonnes of wheat to the US in 2009/10. We believe this shows how well supplied the global wheat market is set to be in 2011/12 compared to the corn market that year.

We have revised up our forecast for EU-27 sugar production by 2015/16 on increased out-of quota output and in anticipation of the abolition of sugar production quotas in 2015 which is part of the reform of the Common Agricultural Policy (CAP). This is because of recent measures taken by the European Commission (EC) to increase out-of-quota sugar exports, encouraging farmers to increase sugar plantings in 2011/12. Also, decreased winter wheat plantings because of wet soil conditions enabled sugar beet plantings to increase significantly for 2011/12 to 1.6mn hectares (ha), compared to 1.5mn ha in 2010/11.

Finally, sugar yields have been generally higher in the main sugar producing countries, such as France, Germany and the UK.

The proposals presented by the EC in October 2011 to reform the direct payment system part of the CAP could significantly affect UK dairy farmers. In fact, the EC wants to move away from the different payment schemes from which farmers receive subsidies in the EU. In fact, it has been established that different farmers in different regions or member states receive different financial assistance, mainly according to their competitiveness and the time of their country´s entrance in the union. The harmonisation of this system would make UK farmers vulnerable, as they have been badly affected by the economic crisis and as they have historically had low margins.

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