By Dan Buglass
Higher cereal prices are putting much-needed cash into the pockets of arable farmers, but the downside is that livestock producers are facing the prospect of an unprecedented increase in feed costs.
This situation will be exacerbated by the burgeoning demand for maize and other cereals for biofuel production in the US, according to Billy Davidson, managing director of Davidson's Animal Feeds, a Lanarkshire-based company that supplies more than 3,000 livestock farmers in Scotland and the north of England.
Davidson warns that farmers should steel themselves over the next six months for the most significant rises in the cost of feed for about 20 years.
He said: "Around 35 ethanol plants are planned or are under construction in the US.
"The price of Mexican tortillas has doubled in the past six months as a direct result of this type of development and the demand for maize. Supplies of wheat are tightening and palm, soya and rape oil prices are also rising by 30-50 per cent, due to biodiesel demand."
It seems probable that there will also be a dramatic reduction in the volume of US by-products that would normally be exported for feed.
Davidson pointed out that the increasing number of genetically modified varieties being grown in the US, none of which is approved for import into the EU, is adding to the pressure on feed prices.
However, Davidson reckons there is no need for panic and that the livestock sector should adopt a pragmatic approach. He said: "Farmers should be more discerning when buying feed, and rather than looking at costs per tonne, they must look at the best value, and maximise efficiency through technical progress.
"Key to that will be ensuring they have strong feed suppliers with access to reliable, global supplies to guarantee that they get the best value."
In general, the international markets in grains and other related commodities have been remarkably stable for the better part of two decades. This has actually seen a reduction in feed costs when inflation is factored into the equation, which has subsidised other cost increases in the typical livestock farming operation.
In the UK the trend for arable farmers to switch from growing wheat and barley to oilseed rape for the energy market will almost certainly put further upward pressure of grain values.
Brussels is now giving serious consideration to abolishing the 5 per cent compulsory level of set-aside. An announcement to that effect may come sooner than the 2008 "health check" on the Common Agricultural Policy planned by the EU agriculture commissioner, Mariann Fischer Boel.
But Davidson believes there may well be a positive effect of higher feed costs for farmers. He said: "Buyers of food are now beginning to realise increased costs can no longer be absorbed by producers.
"The silver lining in this for farmers is that there will be greater awareness of the need for food security and, with increasing global demand, consumers will have to pay more for food."
BILLY Davidson, managing director of Davidson's Animal Feeds, visited China last year and was struck by trends in its agricultural industry.
He said: "As the Chinese become more affluent they want to eat better, so I suspect the days of limitless cheap food coming in from South America to Europe are coming to and end as this produce will find its way to the Far East."
"I believe what we are witnessing will be beneficial for British agriculture. We've got very professional farmers who are among the most efficient in the world. I have no doubt that we can compete with anyone in terms of efficiency and quality."