Over in Nuremburg this week the annual Biofach trade fair has taken place. This brings together organic supply chains policy makers and others for four days of information exchange and discussion. Whilst nobody from Organic Arable attended we have our spies!
We have heard that new crop imported wheat is being offered at €400 ex port. Assuming a further £70 freight, storage and margin and a €0.89 rate this would value feed wheat at about £400 ex farm. This would be against a conventional value of about £240 per tonne delivering a premium of £160 per tonne which is higher than long term trends.
A recent Sustain Report "Unpicking Food Prices" analyses the proportion of the retail price of product the farmer receives. For a loaf of bread it suggests the farmer received 8% of the retail price. Working this through would suggest that an organic loaf of bread sold by Ocado could support an wheat price of £400. This seems like a reasonable value and one that would support a long-term supply arrangement.
If a loaf of bread can support a milling wheat price of £400 then a similar value for feed would seem rather high especially if high feed costs are reducing demand from the dairy sector and forcing poultry producers to decertify. Generally milling wheat has traded at a premium of £30- £40 over feed.
At our recent Bean Knowledge Transfer meeting we discussed that beans are about half the protein of soya and this is the basis of how feed companies value soya - at perhaps 60% of the soya price. If soya is now offered at £850 delivered that would value beans at £510 delivered.
Considering these values in a dairy ration (an I'm not nutritionist)
|% of Ration||Price per t||Cost in Ration £||Protein %||Kg protein per t|
|£494||196 or 19.6%|
This seems to suggest that at a cereal price of £370 and a bean price of £510 a 19% ration could be made. Replacing 10% of the soya with wheat gives a 16% ration at £446 per tonne. Add £50 for milling and delivery and it seems that these values provide a dairy feed in the £500 - £550 range which fits with the need for 1 Kg of dairy feed to be the same as a litre of milk.
This initiates consideration as to how we should seek to price the organic grain market. Against a backdrop of falling demand should we continue to expect values close to £400 per tonne or should we be lowering our expectations? The inflationary drivers of last year fuel and labour are not as severe as they were. Diesel is up around 10% on last year but back from the 30% hikes in price that were seen last summer. Labour remains expensive but as inflation falls so labour costs will become more manageable.
It is preferable to price our grain at a level that maintains the profitability of other organic farming sectors in order to help grow the organic sector or should we value our grain at the level of imports? If we value organic cereals at about £350 ex farm the premium to conventional sits at around £110 (longer term it has been about £100) which in a time of low economic growth and so slowing organic food sales feels about right.
It would be great to have your thoughts and ideas as to how we should price organic new crop grain and so I have opened a new forum post - How should we value 2023 harvest organic cereals? and would love to hear from you.