Competitiveness of Wheat Production
Russia and Romania are two of the cheapest places in the world to produce wheat – but the UK is only a little way behind, notes Carl Atkin, Head of Research at Bidwells Agribusiness.Releasing the results of the Bidwells 2009 Global Cost of Production Challenge – a competition held at Cereals 2009 – Mr Atkin notes that despite the considerably higher cost base in the UK, cost of production per tonne at farm level is only marginally higher in the UK than in Eastern Europe because of the considerable yield advantage the UK has, based on first class soil resources and a maritime climate.
| Australia | Brazil | Canada | Romania | Russia | UK | |
| Yield t/ha |
3.50 |
4.50 |
3.10 |
5.50 |
5.00 |
8.50 |
| Variable costs (US$/ha) |
220 |
250 |
200 |
300 |
250 |
450 |
| Fixed costs (US$/ha) |
400 |
450 |
360 |
370 |
350 |
750 |
| Cost per tonne (US$) |
177 |
156 |
181 |
122 |
120 |
141 |
“Fundamentally, the most important driver of cost per tonne is output potential" notes Mr Atkin – "and the key driver of this is a favourable agroecology (productive soils, suitable climate and stable weather). Western Europe's temperate maritime climate produces one of the longest and suitable growing seasons in the world for wheat; the soils in Eastern Europe and the Former Soviet Union are often of equal or better quality but climatic and weather constraints temper output". In addition, there is considerable yield volatility in many other parts of the world where almost complete crop failures one or two years in ten need to be factored in to the long term average”. Costs are important of course, notes Mr Atkin, but there is often not a proportional reduction between these and output potential in some countries.
"Farm level production costs are of course only part of the story" continues Mr Atkin. What places like Russia gain in farm level cost advantages may be negated by post-farm gate costs – these can be substantial if production is taking place in an area where infrastructure is poorly developed and costs to market are high. Understanding markets is important however – risk management tools are often restricted, there can be significant local market price variation dependent on micro supply and demand factors, and quality premia varies substantially – the latter to the advantage of a country such as Canada.
"Competitiveness changes over time of course" continues Mr Atkin "and so the agricultural production landscape continues to evolve." Costs are rising in places like Russia and Romania faster than in say Australia or Canada, as land prices and labour costs in particular continue to increase, but the introduction of western style farm management practices and working capital means output is becoming more consistent.“
“In addition cost per tonne does not illustrate return on capital or any of the other issues like political or economic risk that farmers and investors should consider – therefore although Russia is marginally cheaper, most of the Central European Countries within the EU such as Romania show the best return on working capital and considerable opportunity for land price appreciation in a low risk environment.”
"The one thing that is changing is the use of policy tools", concludes Mr Atkin. "Generally, with the exception of the US, these are now decoupled from commodity production decisions and thus removed from the analysis of pure production economics – though of course they still remain an important part of farm incomes, for example either through the use of direct payments (as in the EU), the provision of subsidised finance (as in Russia) or subsidised insurance and income stabilisation schemes (as in Canada)"
Bidwells Agribusiness is a leading international provider of consultancy and management services to the farming, food, bioenergy and agri-investment sectors. They provide a holistic approach advising at every level of the supply chain from life sciences and farming to food processing and retail.
Bidwells Agribusiness is active in advising private individuals, family offices, institutions and funds looking to capitalise on the recent uplift in soft commodity prices by gaining exposure to agricultural real estate investments and operational farming opportunities around the Globe.
About three hundred people entered the competition at Cereals 2009 which was won by Mr Patrick McGuiness from County Louth, Ireland.
For further information please contact Carl Atkin, via email or call +(44) 01223 559 539
