Looking ahead to the challenges facing farming industry in 2013

ONE issue, above all else, continued to dominate relationships between the agri and retails sectors in 2012. The reality is that farmers still want full disclosure from the supermarkets when it comes to determining the retail prices set for products such as beef, pork, lamb and milk.

Despite numerous attempts made by a range of public and private sector bodies, no one has yet been able been able to explain why there should be such a significant differential between farmgate and supermarket prices, across the range of foodstuffs produced on local farms. Take milk as a case in point. The average farmgate price paid for milk in Northern Ireland during 2009 was around 20 pence per litre. The equivalent price in the supermarkets was at least 60 pence.

Admittedly, there are a range of factors which come into play when determining farmgate milk prices, the fact that we export 85% of our dairy output in the form of butter, cheese and milk powders being one. However, even across the water in GB, where the majority of the milk produced goes to the liquid market, the same principle holds: supermarket prices are at least a factor of three times larger than the farmgate equivalent.

This was a point emphasised recently by MEP Jim Nicholson, who has called on the European Commission to get tough on supermarket buying policies. But let’s be clear about one thing: farmers do not want supermarkets to reduce their prices per se; their clear objective is to get a bigger slice of the overall retail cake. They are totally frustrated at supermarkets’ ability to make whopping great profits while they continue to struggle, simply to keep their heads above water.

But supermarket pricing strategies are by no means the only issue to be considered when one considers the complicated arrangements that exist between farmers, retailers and those all important middle men – local food processers.

It may stick in the craw of the farming industry but the reality is that the food processing sector in Northern Ireland is likely to become more reliant rather than less dependent on the UK supermarkets as we move into the next decade. The logic behind this is quite simple: Northern Ireland Plc exports 80% of the food produced here and we live cheek by jowl with a neighbouring island which is home to some 60 million people. What’s more, these potential consumers all use the same currency (Sterling) and, ostensibly, they speak the same language.

The trials and tribulations experienced by Northern Ireland’s redmeat processing sector over recent times illustrate these points perfectly. Throughout the ten long years of the beef export ban, local meat plants had no option but to do business with Tesco, ASDA, Sainsbury et al. This meant meeting their specifications for the different cuts with the result that only certain grades of cattle secured a premium price. As a result, heavier, lighter or less well conformed cattle were discounted.

Significantly, all of this has come back to haunt the factories over recent months as farmers have found they can send all of their finished cattle live to Scotland and get a better price by taking this option. Beef cattle numbers are currently at an all time low. So it will be interesting to see how all of this plays out during 2013. The factories need stock to process – otherwise they have no business.

The dairy sector also has its eyes set on doing more business with the UK multiples. David Dobbin, the man at the helm of Dale Farm, has made no secret of the fact that he wants to see his family of brands featuring in the cold cabinet of every supermarket chain in the UK. And, in his opinion, this will be achieved on the back of a commitment to product development and adding value. He may be right.

In the short term, however, locally produced milk may well find itself ending up in GB shops because of the current shortfall in dairy output across the water. But will this become a sustainable trend? Only time will tell!

All of the big retailers play a very canny game when it comes to dealing with Northern Ireland’s agri-food sector. At one level they are telling processers that the credit crunch is now a reality and that all suppliers must respond accordingly. Meanwhile, the same people are telling producers that they care passionately about the countryside and the rural way of life.

Obviously, farmers want a better return for their endeavours. But they would also like the supermarkets to explain why the total retail take is so large and why they, the people at the start of the food chain, gets such a small share of this total spend.

At the end of 2007 global food prices took off in the wake of commodity shortfalls in the likes of New Zealand and Australia. But the good news for farmers here was very short lived. By mid 2008 the same commodity markets had crashed, leaving farmers to pick up the pieces against the backdrop of withering fertiliser, fuel and other input costs. As one can imagine, the impact on farm incomes of this ‘double whammy’ effect has been disastrous.

Many leading economists are now predicting that the days of cheap food are over. The world’s population is set to increase dramatically over the next 50 years and it will be up to farmers around the globe to feed all these extra mouths.

At first glance, the principle of the local food industry doing more business with supermarkets seems sound. For one thing, farmers want to get off the merry-go-round associated with the ups and downs of the world’s commodity markets. But the question remains: are the supermarkets prepared to pay farmers a sustainable price for the food they produce?