What a huge difference a year makes

Published on Wednesday 24 June 2009 22:42

AS THE Royal Highland Show prepares to open its gates this morning it is worth reflecting just how much has changed over the past 12 months. I recall being introduced on the Friday evening of last year's event to Sir Tom McKillop, then chairman of the Royal Bank of Scotland, the event's main sponsor.

I found him to be pleasant company and he assured me that all was well with RBS: little did we know that it was all to go pear-shaped in a matter of months. Bankers should, like farmers, be prepared for the unexpected.

Last June, oil prices were rocketing towards $150 a barrel which put a considerable strain on the costs of agriculture – especially for arable growers. Fertiliser costs also took a hike towards 500 per tonne for some compounds and blends. Some product was necessary for the sowing of autumn crops, but many farmers just simply sat back and refused to be held to ransom. They were proved correct and now both fuel and fertiliser prices are back to more reasonable levels.

The summer of 2008 proved to be a miserable and largely sunless affair that dragged on through a difficult autumn that saw arable farmers struggle to harvest their crops. Prices for all cereals were down on the previous year and made some pragmatists wonder if they might not be better off leaving land fallow.

In any event, getting autumn crops into the ground proved testing in the extreme and the area of oilseed rape was much reduced as a result of the appalling conditions. Much the same held true for winter wheat and even now patchy crops can still be seen all around the country. Yields may well be lower come this year's harvest. However, there are some signs that prices will improve, though the expectations for malting barley, which is Scotland's most important arable crop, are not set at a high level. This is a partly a reflection of the downturn in beer sales.

But farmers tend to be optimists – they have to be in this era where price volatility is evident to a degree not witnessed for many years. If there is one truly critical day in the farming year it has to be 30 September. This is the day on which the calculation is made for the single farm payment – the subsidy worth in excess of 400 million annually to agriculture.

The calculation is based on the prevailing rate of exchange between sterling and the euro. With the pound around 14 per cent lower in value than 12 months previously, farmers gained handsomely and most banked appreciably larger cheques than they had anticipated only a few weeks earlier. Perhaps that bonanza was responsible for the 10 per cent increase in tractor sales last year.

The weaker pound has proved to be a real winner for most sectors of agriculture. Exports of beef, sheep and cereals became highly competitive on the international markets. The price of prime beef on an ex-farm basis in June last year was 25 per cent higher than at the same date in 2008 and the trade has remained firm ever since.

Allowing beef from cattle aged over 30 months, always provided they were born after 1 August, 1996, back into the human food chain has also put a lot of cash into the beef sector. These older animals are mostly cows at the end of their productive life. From being worth little more than 400 the best cows are now frequently making up 1,200 per head. If farmers get money in their hands the natural inclination is to spend it. In recent months the price of store cattle – younger animals destined for finishing – has reached extraordinary levels. Some of these expensive cattle may not leave a big margin when they are eventually processed.

Sheep numbers have been declining steadily over the years and in the last decade Scotland has lost in the region of one million breeding ewes. Last autumn's round of store sales provided breeders in the hills and uplands with little cheer and it is a certainty that more will disappear. I have a catalogue in my desk of the great sale of Cheviot lambs at Lairg in Sutherland for Wednesday 15 August, 1956. Many of the farms and estates listed in that battered document no longer have any sheep at all.

However, the farmers who purchased store lambs last autumn have made small fortunes with many doubling and more in value. Here again the weakness of sterling has been a massive benefit to the export trade.

I admit to never having thought the day would come when the best prime sheep would make over 100 per head. It is to be hoped that some of those profits will be recirculated this autumn and that hill farmers will receive a decent reward for their efforts.

Pig producers have enjoyed a better year, but the same cannot be said for dairy farmers. The storm clouds began to gather last autumn and since then there has been a steady succession of price cuts, but not, that I have noticed, in the supermarkets. It remains one of the great mysteries of the retail sector as to how a litre of mineral water can be more highly valued than the same volume of milk. One day, and it may not be too far off, consumers will wake up and discover that there is simply not enough milk to go around.

Land is the basic resource of agriculture: without this commodity no crops or livestock can be produced. Over the past five years Scottish values have increased dramatically, but that trend has now slowed considerably, but prices are not in decline and the very best acres can still command as much as 10,000 each. Strange as it may seem Scottish arable land is tending to be worth more than the equivalent acres in England. There is still a lot of cash out there and land remains a safe investment: they don't make any more of it.

On the political front the industry remains well served by NFU Scotland and its youthful team of staff. Jim McLaren is proving to be a very effective president of NFUS with a real grasp of all the important issues.

Meanwhile, the Scottish government largely finds favour with the industry. Richard Lochhead, Cabinet secretary for rural affairs – ably supported by his juniors Mike Russell and latterly Roseanna Cunningham – is a good listener and has delivered most of his promises, not least of which was to ensure the prompt payment of subsidies. However, his ambition to vastly increase the size and worth of the Scottish food and drinks industry may be more difficult to realise unless the trend to lower production can be first halted and then reversed.

Farmers have been talking of the need for adequate food security for years: politicians are now also using that terminology. That is a hopeful sign for the industry.