Among many positive trends identified in the industry by sector analysis of agriculture and horticulture, the NFU is predicting:

• improved wheat and barley prices are set to continue
• oilseed consumption should remain strong
• the improvement in the beef market is set to continue, thanks in part to a strong performance in export markets
• improved outlook for the pig sector, as a result of increased productivity and expected increases in farmgate prices
• lamb prices are expected to remain stable

NFU chief economist Carmen Suarez said: “There has been a remarkable turnaround in the fortunes of farming, even in the last few months. All sorts of factors are at work, but the most potent seems to be a growing realisation that a combination of world population growth, dietary changes in the fast-growing economies of China and South East Asia and demand for renewable energy means the comfortable assumption there will always be an unlimited supply of cheap food available on world markets is no longer valid.

“The effect is most marked in the cereal sector, where world wheat stocks are set to fall again, for the fifth year in six, to less than 70 days’ supply. Climate change is playing a big part in the overall situation, producing the severe droughts in Australia, Argentina and parts of Europe that have hit supply so hard, and in prompting the shift toward renewable energy, which is increasing demand.”

But it is not all good news. Producer prices for milk are down by around 1p per litre compared with 2005, and with most dairy farmers operating at a heavy loss, the NFU is warning of a further decline in output unless farmgate milk prices increase.

Higher cereal prices are also having an impact on feed prices, and that in turn is affecting profitability, particularly in the poultry sector. The price of feed for table chicken has risen by £13/tonne in the past two months, adding 2.36p/kg, or over four per cent, to production costs. That comes on top of a 13 per cent year-on-year rise in energy and water costs.

The impact of the long hot summer can clearly be seen in the horticultural sectors, with fruit production forecast to be down by five per cent and a shortfall of up to 40 per cent in supplies of peas and broad beans for processing. The report also shows a worrying increase in imports of fruit and vegetables, up by 37 per cent and 75 per cent respectively, over the past decade.

In the sugar sector, world market prices have come under pressure in the second half of the year, although much the biggest factor in determining returns in the UK has been the reform of the EU sugar regime, which will lead to progressive reductions in the price paid to growers.

Across all sectors, high input costs and regulatory costs are expected to continue in coming months.

The report also looks in detail at the potential for biofuel production in the UK. Its analysis suggests biodiesel is just about competitive with conventional diesel without any subsidy at current oil prices, but that ethanol, produced from wheat or sugar beet, is still in need of support policies in order to provide an alternative to petrol.

It concludes the UK is well placed to meet the growing demand for oilseeds for biodiesel and wheat for bioethanol, through a combination of bringing set-aside land into production, improved efficiency in biofuel processing and using feed wheat that would otherwise have been exported for bioethanol production.

NFU President Peter Kendall said: “Overall this report demonstrates good news for the industry and its results are very encouraging. However it is vital profitability returns to the sector after many years of low farming incomes which have hindered investment in the industry.

“Although the general outlook is a positive one, we need to recognise high input prices and regulatory costs will continue to exert pressure on profits in coming months.”

ThePoultrySite News Desk