Britain, at least the eastern half of it, is a great place to grow grain. It produces some of the highest wheat yields in the world, with 10 tonnes per hectare common, although the average is more like eight. The country is increasingly able to supply its own grain needs and export relatively large tonnages. Lively discussion of rising world population has meant a shift in focus in the mind of government and industry from environmental schemes and land management to maximizing production.
As the United Kingdom (U.K.) is part of the European Union, agricultural policy comes under Europe’s CAP and farmers receive the Single Farm Payment as part of that system. However, the U.K. does not use the euro, making currency volatility an added concern for the U.K. industry.
The International Grains Council (IGC) puts total grain production in the U.K. in 2011-12 at 21.5 million tonnes, up from 20.9 million the year before. It put wheat production in 2011-12 at 15.3 million tonnes, compared with 14.9 million the year before. Barley production was 5.5 million tonnes, compared with 5.3 million the year before.
The increasing profitability of oilseed rape has triggered a rising trend in production, with the crop at 2.758 million tonnes in 2011, according to the relevant government department, the Department of the Environment, Food and Rural Affairs. In 2010, the crop was 2.23 million tonnes, and in 2009 in was 1.912 million tonnes. It’s not uncommon to find producers using a rotation that goes wheat, rape, wheat, rape, while many produce two years of wheat followed by rape. There are fears that they may be storing up disease problems for the future.
The development of biotech crops has been held back by the slow acceptance of GM varieties in the E.U. Work is proceeding on biotech wheat and the U.K. takes a pro-biotech stance, partly because it is hoping to develop its biotech industry. However, public opposition continues with vocal groups attacking any development of GM crops and that wheat trial was recently attacked.
Jack Watts, senior analyst at the levy-funded Home Grown Cereals Authority, explained what makes the U.K. grain market unusual.
“Compared to a lot of other places, it doesn’t really have any interaction with maize,” he told World Grain. “Obviously we are dominated by wheat with barley as well. Wheat is the real focus. The diversity of the demand is quite good in that it is animal feed, flour milling, exports and, more recently, it is biofuels,” he said.
He also noted the effect of a maritime climate.
“It’s very variable on a year-to-year basis because the harvest weather is very variable,” he said. “That gives variable availabilities of feed wheat and milling wheat.
“We have got this kind of moving feast between the availability of feed wheat and the availability of milling wheat that gives us a very volatile milling premium. In general terms, the U.K. farmer is tending to move toward higher yielding feed-type varieties. That’s where the better returns appear to be in general, although some farmers in the south and east are limited by lighter soils and by rainfall, which means that they are better suited to grow milling wheat.”
“On the feed side our exports are mainly into wider Europe, although we have seen cargoes into the U.S. over the last few months,” he said. “In July to February, we exported 1.7 million tonnes of wheat to E.U. and 244,000 tonnes to non-E.U., third countries. We’ve done a bit to North Africa, Iceland (3,500 tonnes). The main third country destination has been the U.S. — 195,000 tonnes from July to February.”
The U.S. has not been a traditional destination. “That’s quite unusual historically. It’s quite a diverse export market,” he said. “Those export markets are largely focused on the south coast and up the east coast as well, around the main cereal production areas.”
Two big ethanol plants have been built, both in the northeast of England. The Vivergo plant, in the final stages of construction, is planned to produce 420 million liters of ethanol a year, while the Ensus plant has a capacity cited by its owners at “over 100 million liters.”
They plan to use 1 million tonnes of wheat a year.
“We’ve got the emerging ethanol demand in the north of England,” he said. “The exact date of when it will be around is open to interpretation at the moment. It’s Vivergo, which is basically in the commissioning process at the moment. It is expected to come on line over the coming weeks and then we have got Ensus up in Middlesbrough. They started production but ceased temporarily.”
“There’s also the output of the byproduct there which comes back into the animal feed sector,” he noted.
He explained the growing popularity of oilseed rape as a crop.
“Because we have seen now three years of crop issues for the European rapeseed crop, from a U.K. perspective rapeseed is, for a lot of farmers, the most profitable crop on the farm,” he said. “It is no longer the break crop that just gets grown because it’s the best of a bad job. Actually you’ve got to question what the break crop is now.”
Watts also outlined the highly diverse market for barley.
“In England, the main demand is for brewing in exports of malting barley. We also export malt,” he said. “When you get to Scotland, that’s the real export driver, the malting barley market, because we’ve got this very strong and growing demand internationally for Scotch whiskey emerging and also more mature economies such as North America.”
Competitive milling sector
One of the things Watts pointed out was that the U.K. has a highly competitive flour milling sector. According to the industry body, the National Association of British and Irish Millers (NABIM), the U.K. flour milling industry has 32 flour milling companies with 56 mills. They processed 5.1 million tonnes of wheat in 2011 to produce 4.1 million tonnes of flour. That makes the average annual production of a mill 73,000 tonnes.
Alex Waugh, director general of NABIM, told World Grain about some of the concerns that face the industry.
“A lot of the flour that is produced is used for bread-making one way or another,” he said. “We’ve got some concerns about somewhat peculiar diets and negative attitudes toward bread. We have seen declining demand for bread, or at least certain types of bread, over quite a long period. And there are some concerns about gluten intolerance and still the hangover of ‘carbs are bad for you.’ ”
“There’s a lot of negative press that needs to be addressed on the demand side,” he said. “We didn’t suffer so much from Atkins (as the U.S.), although there is a hangover from Atkins. There is a doubt about the value of carbohydrates and there is a bit of a tendency, in our view incorrect, to effectively equate white sugar and white flour as much the same thing.”
“There are people, of course, who are gluten intolerant and they need to be catered for,” he said. “But I think there are also quite a lot of people who are self diagnosing possibly incorrectly. In some ways you might say, there’s no problem with that, let’s just make gluten-free products to meet their demands. But it does have a bit of an overall dampening effect on people’s attitude to products made with wheat.”
Volatility has become an increasing feature of the market and millers have tried to tackle it. “There’s a whole range of things that people have tried to do to assist,” he said. “It is difficult for millers’ customers if prices are bobbing around all the time. It’s not something that works very well in most business models.”
“There have been some experiments with longer-term contracting,” he said. “There is — one way or another — more widespread use of hedging strategies.”
Millers are doing more to advise their customers on risk.
“It’s now much more common than it would have been five years ago for salespeople to take their wheat buyers with them to talk to the customer,” he said. “It’s a collective decision rather than one business all the other taking all the risk.”
“Over a long time, U.K. millers have shifted to basing their businesses on the U.K. wheat supply,” he said. “They used to import it. It is not over the last five years; it’s more a generational thing. It has made a difference.”
Population: 63,047,162 (July 2012 est.)
Religions: Christian (Anglican, Roman Catholic, Presbyterian, Methodist) 71.6%, Muslim 2.7%, Hindu 1%, other 1.6%, unspecified or none 23.1% (2001 census).
Location: Western Europe, islands — including the northern one-sixth of the island of Ireland — between the North Atlantic Ocean and the North Sea; northwest of France.
Government: Constitutional monarchy and Commonwealth realm. Chief of state: Queen Elizabeth II (since Feb. 6, 1952); head of government: Prime Minister David Cameron (since May 11, 2010).
Economy: The U.K., a leading trading power and financial center, is the third largest economy in Europe after Germany and France. Over the past two decades, the government has greatly reduced public ownership and contained the growth of social welfare programs. Agriculture is intensive, highly mechanized, and efficient by European standards, producing about 60% of food needs with less than 2% of the labor force. The U.K. has large coal, natural gas, and oil resources, but its oil and natural gas reserves are declining and the U.K. became a net importer of energy in 2005. Services, particularly banking, insurance, and business services, account by far for the largest proportion of GDP while industry continues to decline in importance. After emerging from recession in 1992, Britain’s economy enjoyed the longest period of expansion on record during which time growth outpaced most of Western Europe. In 2008, however, the global financial crisis hit the economy particularly hard, due to the importance of its financial sector. Sharply declining home prices, high consumer debt, and the global economic slowdown compounded Britain’s economic problems, pushing the economy into recession in the latter half of 2008 and prompting the then Brown (Labour) government to implement a number of measures to stimulate the economy and stabilize the financial markets; these include nationalizing parts of the banking system, temporarily cutting taxes, suspending public sector borrowing rules, and moving forward public spending on capital projects. Facing burgeoning public deficits and debt levels, in 2010 the Cameron-led coalition government (between Conservatives and Liberal Democrats) initiated a five-year austerity program, which aims to lower London’s budget deficit from over 10% of GDP in 2010 to nearly 1% by 2015. In November 2011, Chancellor of the Exchequer George Osborne announced additional austerity measures through 2017 because of slower-than-expected economic growth and the impact of the euro-zone debt crisis. The Cameron government raised the value added tax from 17.5% to 20% in 2011. The Bank of England implemented an asset purchase program of up to £325 billion (approximately $525 billion) as of February 2011.
GDP per capita: $35,900 (2011 est.); inflation: 4.5% (2011 est.); unemployment 7.9% (2011 est.).
Currency: British pound (GBP): 0.6327 British pounds (GBP) equals 1 U.S. dollar (May 21, 2012).
Exports: $495.4 billion (2011 est.): manufactured goods, fuels, chemicals; food, beverages, tobacco.
Imports: $654.9 billion (2011 est.): manufactured goods, machinery, fuels; foodstuffs.
Major crops/agricultural products: Cereals, oilseeds, potatoes, vegetables; cattle, sheep, poultry, fish.
Agriculture: 0.7% of GDP and 1.4% of the labor force.
Internet: Code: .uk; 8.409 million (2011) hosts and 51.444 million (2009) users.
Source: CIA World Factbook