Pigs might fly....?

For as long as I can remember farmers have complained that they are ill used by the people they supply, whether it's the supermarkets, the processors, the wholesalers. Farmers are and have been under-valued by just about everybody. In many ways they have had some justification for this, and although at times it might seem like synchronised whingeing, it has to be said that the retail environment is very competitive... cut throat perhaps. The main purpose in life of the supermarket buyer is to get the produce his or her bosses sell... from the field to the checkout with the greatest possible profit, or margin possible.

This is what buyers do, this is what supermarkets do... it's capitalism. This would be all fine and dandy if it had been a relationship of equals. It isn't though. The retail sector is dominated by about four major players, with Tesco in the lead, followed, by varying degrees of proximity by Sainsburys, ASDA, Morrison and some of the smaller rivals like the Co-op, Waitrose and in the bargain basement Aldi and Lidl. There isn't a huge scope for choice and it's getting narrower. The Co-op recently swallowed rivals Somerfield.

In the past farmers allege that the supermarkets have had an unfair advantage because farmers haven't had anywhere else to go. But there has been a change, a correction in the balance. Perhaps one of the turning points for this has been the change to the subsidy system which brought an end to the payment of subsidies....sorry support payments..... to farmers according to how much food they produce, but according to the area of land they manage.

This has removed for instance the necessity for farmers to produce a crop on every field. This was the whole idea of the reform of the common agricultural policy. Farmers wouldn't produce every bit of food the can, they would instead produce only what they could sell to the market.

In the case of farmers in England, a range of about a dozen different payments linked to the area they cropped, or the number of animals they have in their fields, was rolled into on Single Farm Payment. Off course the combination of a payment based on the area of land farmed, and a complex computer system to administer that new system was a recipe for disaster, and a cock-up of biblical proportions ensued. That was then, and after a couple of years of chaos, the system has now calmed down a bit.

Throw into the mix a genuine contraction is some sectors, for instance a sizable number of pigs seem to have been lost from production in Holland and Denmark, as has happened here. UK Pig numbers have fallen from over eight hundred breeding sows in 1999 to about four hundred and fifty thousand now... and you have the makings of a shortage of supply.

In the `Good?' old days, all the processors and supermarkets had to do was to wave the `import' stick to get UK prices tumbling. That isn't possible now, and there has been something of a change on the part of consumers. Shoppers now want to see the `Union Flag' on their packets of bacon. The net result is that even if retailers and processors wanted to squeeze the UK farmer, these days when it comes to pigs their options are somewhat limited. The result of this is that the price of meat at the checkout has increased by over 17% according to the latest Consumer Prices index from the Office of National Statistics. Bad news for the Treasury and the Governor of the Bank of England who is now having to write letters of explanation to the Chancellor, explaining why inflation has gone above 2%, so often now that a fresh stationary order will be required.

In the case of Beef, this is complicated even further by the growing affluence of countries in the Far East. There has been a massive increase in demand for instance from China and South Korea, combined with drought problems in Australia, this has increased the demand for UK beef exports. This very interesting graph of prices shows the massive increase in both beef and pig prices year on year. The jump in the price of lamb is more measured. This is partly due to the fact that demand is more sedate, and supply has remained high since the problems with Foot and Mouth disease in 2007. However there could be a price increase next year, after research from the Scottish Agricultural College discovered that there has been a fall in sheep numbers in the Highlands. The other bluebottle buzzing around the ointment is cost. Over the past year there has been a massive rise in all manner of inputs, from oil, to soya, to wheat and barley. Some of those have now stabilised or even come down (wheat and oil)... but other continue to go up. In a way this year's poor harvest conditions may have helped livestock farmers. because so much milling wheat is of poor quality it will have to be sold as animal feed. This will mean the price of feed based on wheat could well fall... See once again the `Farmer's Weekly' graphs.

All of this leaves farmers in an unusual positioin of power. The retailers are desperate to compete with each other on price, but squeezing suppliers isn't an option. In the case of beef the meat could simply end up going elsewhere. The ready supply of Brazilian beef which used to be used as a weapon to keep the price of the domestic product down is bogged down inthe fallout from their foot and mouth problems, and in that sense beef farmers really do have the option to have a much greater influence over the price. Many farmers are reluctant to excercise this muscle as the good times, such as they are, may not last. Many a combine harvester bought in the wake of last year's bumper crop has lain idle this year as the heaven opened.

The bottom line for farmers is profitability, and whether that can be sustained. Lats year pig farmers were losing about £25 per animal. This year it's a profit of £8 per pig. The big question they're all asking if whether that will be enough to re-invest in buildings and equipment, or whether their hand-to-mouth existence will continue to keep their farms on the edge of viability. In other words `Will pigs fly?'