International prices are on the up in a trend sparked by the much reduced output in Russia and Eastern Europe, the International Business Monitor fourth quarter report on the UK agribusiness says.

Domestically, the UK has ambitious plans for expansion of biofuel production, with the three plants scheduled to be operational by 2014 expected to use a fifth of the country's wheat output.

The knock-on effects for other feed grain prices will make the economic scenario tougher for the country's livestock and dairy producers through the forecast period. Milk and pork production are expected to continue their recent declines.

The wheat harvest in 2010/11 is forecast to come in at 15.1mn tonnes, down on earlier forecasts, after very hot weather followed by rains delayed harvest of the spring crop. Barley production is expected to fall to 5.48mn tonnes for the same reason.

Poultry production has surprised on the upside so far in 2010. We now expect production to come in at 1.54mn tonnes, up by a healthy 5.3% year-on-year.

Milk production is expected to fall again in 2010 after six years of consecutive declines. We forecast production to fall slightly to 13.21mn tonnes from 13.24mn in 2009. Over the forecast period, consolidation should improve efficiency but the decline is likely to continue. We forecast production in 2014 of 12.21mn tonnes, down by 7.8% over the forecast period.

Falling domestic demand and an EU free trade agreement with the Caribbean are likely to cause declines in British sugar production of 16 per cent over the forecast period.

An EU high level group has released its recommendations for improving the prospects of the union's dairy industry.

While British farmers have been quieter than their European counterparts about the issue of farm gate milk prices, it remains true that retailers are often paying less for milk than it costs to produce.

Some of the group's recommendations, particularly on strengthening the collective bargaining power of farmers and improving labelling about produce's place of origin, may help to alleviate the situation.

The European Commission is considering relaxing the rules on feeding animals to animals. The proposals, if they are implemented, will have positive effects for the livestock industry across the EU.

At a time when feed costs are starting to rise in response to soaring grain prices, allowing some other types of animal feed should help to push margins back in the right direction.

Three new biofuel plants in the UK are due to be fully operational by 2014. They are expected to use one fifth of British wheat output and this will almost certainly encourage a sizeable increase in food prices and wheat planting.