Brexit: Future Relationship White Paper

(Compiled 16th July 2018)

Following on from last week’s negotiating proposals supposedly agreed by the Cabinet at Chequers, the UK Government published, on 12th July, its long-awaited White Paper setting out its detailed vision on the future UK-EU relationship.  The 98-page document has received a cautious welcome by the EU-27 who are mindful of the deep divisions within the British Government.

In the White Paper, the UK Government is essentially seeking an ‘association agreement’ with the EU of unprecedented scale and depth so that the UK can achieve a ‘principled and practical Brexit’ which respects the referendum result and simultaneously acknowledges the deep trading relationship between the two parties.  The key points from an agri-food perspective are set out below;

  • Frictionless trade for goods: at the border between the UK and the EU.  This encompasses the establishment of a free trade area for goods as a means to protect the deeply integrated supply chains and ‘just-in-time’ processes developed over the past 40-plus years.
  • Common Rulebook for goods including agri-food: would seek to avoid customs and regulatory checks at the border but would only cover ‘those rules necessary to provide for frictionless trade at the border’.  The White Paper identifies three broad categories of rules relevant to agri-food and fisheries:
    • Sanitary and Phytosanitary (SPS) rules – would be included in the common rulebook.  Linked with this, the UK would ‘make an upfront choice to commit by treaty to ongoing harmonisation with the relevant EU rules, with all those rules legislated for by Parliament or the devolved legislatures.’
    • Rules relating to wider food policy – this would include marketing rules that determine how agri-food products can be described and labelled.  As these do not need to be checked at the border they would not be included in the common rulebook.  Geographical Indicators (GIs) (e.g Stilton cheese and Melton Mowbray Pork Pies) would also be included in this category and the UK will be establishing its own GI scheme after Brexit in accordance with WTO rules.  As part of this, the UK would open its GI scheme to both UK and non-UK applicants.
    • Agricultural and Fisheries Policies – as previously communicated, the UK will leave both the CAP and the Common Fisheries Policies, thus enabling it to pursue domestic policies which best serve the UK’s interests.  Thus, these rules would not be included in the common rulebook. For fisheries, the UK is proposing annual negotiations with the EU on access to its waters.  Some EU Member States will have significant concerns about this.
  • Facilitated Customs Arrangement (FCA): would seek to ‘remove the need for customs checks and controls between the UK and the EU as if they were a combined customs territory’. The Government claims that it would enable the UK to control its own tariffs for trade with the rest of the world. For businesses this would mean;
    • where a good reaches the UK border, and the destination can be robustly demonstrated by a trusted trader, it will pay the UK tariff if it is destined for the UK, and the EU tariff if it is destined for the EU. This is most likely to be relevant to finished goods; and
    • where a good reaches the UK border and the destination cannot be robustly demonstrated at the point of import, it will pay the higher of the UK or EU tariff. Where the good’s destination is later identified to be a lower tariff jurisdiction, it would be eligible for a repayment from the UK Government equal to the difference between the two tariffs. This is most likely to be relevant to intermediate goods.

The UK Government claims that up to 96% of UK goods trade would be able to pay the correct or no tariff upfront, with the remainder most likely to use the repayment mechanism. This is in effect combining the Customs Partnership and ‘Max-Fac’ proposals in the last year’s paper, both of which were rejected by the EU. There was an acknowledgement by the UK that this system would become operational in stages as both sides completed the necessary preparations. Given where the infrastructure is currently at, this process could take several years. The UK Government has already stated that it envisages the UK remaining part of the EU Customs Union for a year after the end of the Transition Period. This may well get extended. It is unclear what ability the UK will have to strike Free-Trade Agreements (FTAs) with other countries whilst it remains within the Customs Union.

  • Rules of Origin: agreement not to impose tariffs, quotas or routine requirements for Rules of Origin on any UK-EU trade in goods.  This would allow EU content to count as local content in UK exports to its FTA partners for Rules of Origin purposes, and UK content to count as local content in EU exports to its FTA partners.  ‘Diagonal cumulation’ would allow UK, EU and FTA partner content to be considered interchangeable in trilateral trade.
  • Trade with non-EU countries: the UK’s claims that the FCA will enable it to strike Free Trade Agreements with non-EU countries as the UK will have its own schedule with the WTO.
  • Participation in EU agencies: UK would seek continued participation in agencies which facilitate goods being placed on the EU market but conceded that it would not have voting rights.
  • State Aid: the UK would continue to apply the EU’s State Aid rules via a common rulebook. Although elsewhere in the document, the Government is seeking to reserve its right to make its own arrangements regarding tax. As highlighted in a recent article, there were questions about whether there would be limits on the UK implementing agricultural policy tools such as tax deposit schemes (e.g. similar to the Australian Farm Management Deposit Scheme) which do not comply with EU State Aid rules. This is an area that will require clarification, potentially via the Agriculture Bill due later in the year. 
  • Maintain high standards in environment, employment and consumer protection rules: includes ‘non-regression provisions’ to ensure that current high standards are maintained by the UK.
  • Northern Ireland/Ireland: taken together, the UK Government believes that its proposals (including the points set out above) would see the UK and the EU meet their commitments to Northern Ireland and Ireland through the overall future relationship.  It claims that this would preserve the constitutional and economic integrity of the UK, honour the letter and the spirit of the Belfast (‘Good Friday’) Agreement and ensure that the ‘backstop’ solution of the Withdrawal Agreement will not have to be used (i.e. Northern Ireland remaining in the Single Market).  The Irish Government in particular has responded positively to this as it is also seeking to resolve the frictionless border riddle via the overall UK-EU relationship.  However, the UK Government’s proposals are arguably narrower than what was envisaged in the December Joint Report which contained commitments on protecting the all-island economy and North-South cooperation. The latest UK proposals are very much focused on goods trade only (i.e. services are omitted). 
  • New Joint Institutional Arrangements: these are required to manage the future relationship in key areas such as the common rulebook, including a clear process to update relevant rules in a manner that respects the UK’s sovereignty and provides Parliamentary scrutiny.  This will include regular dialogues at leader (PM) and Ministerial levels.  There would be a Joint Committee to discuss and interpret regulations as well to resolve disputes which may arise.  At times, such disputes could be resolved via a binding independent arbitration.  These bodies would have oversight by the European Courts of Justice (ECJ) as the interpreter of EU rules, but only the UK courts (whilst giving regard to EU case law) could give judgements on rules which apply to the UK.  Here, the UK is effectively conceding that in areas where it commits to adhering to the common rulebook, the ECJ would (indirectly) hold sway. 
  • End to Free Movement: however, the UK proposes introducing new frameworks which would enable ‘UK and EU citizens to continue to travel to each other’s countries and businesses and professionals to provide services’.  In agri-food, the provision of services associated with the supply of input equipment for example, is an important consideration and whilst the UK proposals imply that such arrangements could continue along much the same lines as present, questions remain about the extent to which this will be the case. 
  • Mutual recognition of professional qualifications: including for those working in the veterinary and agri-food sectors.  The extent to which this includes low or unskilled workers remains to be seen and is unlikely to be clarified until the Migration Advisory Committee (MAC) publishes its report in September

The white paper is available via: https://www.gov.uk/government/publications/the-future-relationship-between-the-united-kingdom-and-the-european-union

Whilst there has been a polite initial response from the EU, the proposals are likely to raise several objections from their side including:

  • Indivisibility of the Single Market:  the EU will fundamentally object to the UK wanting to remain in the Single Market for goods, without accepting the EU’s rules on freedom of capital, services and movement.  This separation, combined with the potential for divergence in areas not covered by the common rulebook, could give the UK competitive advantages in years to come and could undermine the rationale for EU membership by others.  This could potentially include the protection currently afforded by GI designations to EU-27 brands (e.g. Parmesan cheese) sold to the UK if the UK decided not to continue with existing GI legal protections.
  • Trade with non-EU countries: whilst the proposals focused heavily on tariff-free access between the UK and the EU, the UK wants to reserve its right to do free trade deals with other countries, potentially including agri-food products.  Whilst the UK’s participation in a common rulebook for agri-food trade would limit the scope for cheap imports, there is still a possibility that such trade could significantly displace EU exports to the UK, if third countries met the standards required.  This would have an onward impact on domestic prices in the EU-27.  The EU is expected to push-back strongly on this to curtail any potential displacement.
  • Complexity and cost: the UK’s proposals amount to an elaborate set of mechanisms to replicate its current access to the EU across a wide variety of areas.  To some, it is akin to the arrangements between the EU and Switzerland which Brussels is keen to rationalise.  Therefore, the EU is likely to have serious reservations about the creation of new frameworks adding yet more complexity to what is already and intricate tapestry.  There is little detail in the White Paper as to how much all of this will cost, but one can anticipate that the EU will expect the UK to bear a substantial proportion of any funding involved.

Whilst many questions remain unresolved, the UK Government’s White Paper provides a credible starting point for the substantive negotiations with the EU to take place. These need to be urgently accelerated as there is a huge amount of ground to cover between now and the autumn. For the agri-food sector, the commitment to ‘ongoing harmonisation’ via a common rulebook for agri-food trade should provide some welcome reassurance for the industry generally, particularly those which are heavily dependent on EU export markets. Furthermore, given President Trump’s claim that the UK proposals would likely ‘kill’ the prospect of the US-UK trade deal, this may also be seen as a positive by those concerned with the potential for cheaper imports to undermine UK farming. That said, a lot of uncertainty remains especially given the principle that ‘nothing is agreed until everything is agreed’.

Articles such as the above are posted on Andersons’ AgriBrief website on a regular basis. If you would like further information please visit; www.agribrief.co.uk

Andersons’ Greening Factsheet 2018

Greening will remain a key part of the BPS until the scheme ends. Andersons’ 2018 Greening Factsheet is accessible by clicking here.

The 2018 scheme year has seen a number of rule changes that applicants need to be aware of. These include; 

  • Restrictions on applying Plant Protection Products (PPP) on Ecological Focus Areas (EFA) land, and also restrictions on some field operations on EFA fallow
  • Removal of the 30Ha limit on Greening derogations
  • Weighting of Nitrogen Fixing Crops (NFC) for EFA increased to 1.0 from 0.7
  • An extension to the period Catch Crops must be in place

More details on these are given in the 2018 Greening Factsheet.

Enigmatic Russia continues to set records

Guest article by Brendan Dunleavy, Russia and Ukraine expert

At the outset of World War II, Winston Churchill observed that “Russia is an enigma, wrapped in a puzzle, enclosed in a maze. But there is a key: That key is Russia’s national interest.” He could just as easily have been speaking about Russia today, particularly as far as its agricultural and food markets are concerned.

As recently as five years ago, Russia was still importing the vast bulk of the country’s food & agricultural commodity requirements. However, next year (2018), Russia looks set to produce a record grain crop for the fifth year in-a-row. Precisely how Russian farmers can reach this target on a national wheat yield that tends to be in the region of 3 tonnes per hectare, is a puzzle for many.

 

That said, farming in Russia is a very high-risk and unprofita-ble occupation. Climate extremes mean a very short growing season in most regions. Specifically, over most of the country, soil temperatures do not support agricultural seed germination and plant growth until mid-May to early June.

Current reports suggest that the country is again on-track to surpass last year’s record grain harvest. Total wheat area is pro-jected to be 25.2 million hectares with 12 million hectares of this being winter wheat. In autumn 2017, Russian grain crop sowings were estimated projected to produce up to 130 million tonnes from the 2017/2018 crop. That is well above this year’s (2016/17) record harvest of 114.2 million tonnes. Wheat is fore-cast to account for 80Mt of this total, a 10% increase on this year’s harvest (72.5Mt). However, it needs to be emphasised that statistics which estimate Russian grain production have fre-quently been unreliable and there is a cultural tendency to over-estimate.
That said, on the above basis, Russia is expected to have 41.8Mt of grain available to export next year, a new record. This will be well up from the 2017 Russian grain export of 36.2Mt. Feed wheat accounts for almost 77% of total grain exports.

Russian grain exports are boosted by four main factors:

1. low Russian land prices & land rental rates
2. weakness of Russian Rouble
3. low farm management & labour rates
4. low prices & applications of fertilisers & agrochemicals These factors combine to ensure that Russia’s has the lowest costs of producing grains in the world; the current cost of Russian grain production is as low $80 per tonne.

This extraordinarily low cost of production is likely to hold for many years to come. It will also continue to put enormous pressure on American, Cana-dian, British, and other European grain producers, particularly in animal feed markets.

10-year license renewal for glyphosate?

The EU Commission stated that it will propose extending its approval for glyphosate by 10 years, having taken into account the recent ECHA study’s view that glyphosate should not be classified as a cancer-causing substance.

The Commission decision has drawn criticism from both environmental groups and crop protection companies which were seeking a longer approval. No date has been set for when discussions with Member States will start. It also remains to be seen how the new French government will react to the proposal as green activist, Nicolas Hulot, has been appointed as environment minister. From a UK standpoint, although EU decisions will become less important from March 2019 onwards, any decisions taken before that date will be transposed into UK law via the Great Repeal Bill. Therefore, the renewal agreed at EU level will also be applicable to the UK, assuming a decision is made before 2019 of course…

RICS/RAU Rural Land Market Survey

The latest survey results covering H2 2016 indicate a further softening in farmland demand, a trend which started to emerge in the latter half of 2015. The RICS/RAU report also suggests that anecdotal evidence from survey respondents highlight Brexit and future farm support uncertainties as well as declining agricultural profitability due to poor commodity prices as key headwinds.

The report also forecasts a further price declines over the next twelve months although it notes that respondents’ sentiments are less negative than the last survey, conducted at the time of the referendum.

The survey uses a combination of transaction based measure of farmland prices (which includes a residential component where its value is estimated to be less than 50% of the total) and an opinion-based measure (a hypothetical estimate by surveyors of bare land prices). The transaction-based measure suggests an average price of £10,233 per acre which is 7% lower than a year ago. The opinion-based measure, although 3% lower than last year, was broadly flat in comparison with H1.

RICS/RAU Rural Land Market Survey H2 2016 – Key Results

(£ per acre unless specified) H2-2015 H1-2016 H2-2016 (p) % change
Farmland: transaction based1
Weighted average price 11,049 10,952 10,233 -7%
Bare land: opinion based
Weighted price 8,306 7,975 8,062 -3%
Arable 9,304 8,911 8,982 -3%
Pasture 7,308 7,040 7,143 -2%
Rents: weighted average per acre
Arable – AHA 86 79 78 75 -5%
Arable – ATA 95 (FBT) 151 142 135 -11%
Pasture – AHA 86 56 60 53 -5%
Pasture – ATA 95 (FBT) 103 96 94 -9%
Yields (%) 1.8 1.6 1.5 -17%

(p) provisional subject to revision; includes residential component (less than 50% of value) Source: RICS/RAU

The report also estimates that average arable FBT rents are 11% lower than a year ago whilst pasture rents are down by 9% on a year-on-year basis. AHA rents have also declined although as one might expect this is not as pronounced given they are set at a lower level to reflect their longer term duration.

Average land prices since 2003 (£ per acre)

Source: RICS/RAU

Yields on investment land are also lower. During H2-2016, it is estimated that 63% of buyers were individual farmers whilst lifestyle buyers accounted for just under 25%.

In Ireland, the Irish Farmers’ Journal Land Price Report estimates that average land values decreased by 1.6% on 2015, a second consecutive fall. The average value of Irish farmland is estimated at €8,771 per acre (£7,455).

Looking ahead, with UK farm profitability and incomes picking up and Sterling likely to remain weak in the foreseeable future, it is possible that farmland prices could stabilise and possibly even rise during 2017/18, especially given the low interest rates and potential effect of inflation which has driven land prices upwards in the past. Longer term, Brexit remains the big unknown and the period of relatively robust land prices over the last 15 years could end if the exit terms and future farm support are unfavourable. Brexit will also become more of an issue for rents, particularly FBTs as 2019 draws closer. It is likely that ‘Brexit clauses’ or clauses to review rental values in the light of a significant change in support for example will become a more common feature of rental agreements.

Brexit Position Papers: Customs and Ireland

The UK has started publishing a series of ‘position papers’ on its approach to Brexit.  This, at least partly, is to counter the impression that it is ill-prepared for the negotiations compared to the EU.  It is believed that a dozen will be produced before October.  This is when a European Council Summit will decide whether there has been enough progress on the three key ‘divorce’ issues of citizens’ rights, Ireland and the Brexit bill, to move on to talk about the future trading relationship between the UK and EU.  The papers produced this month cover Customs arrangements and the Irish border.  Both papers tend to be somewhat vague on the detail of what is being proposed. 

The Customs paper reiterates that the UK will leave the existing EU Customs Union (CU) upon Brexit.  Confusingly, it then goes on to state that there should be a transition period before new arrangements come into force with ‘a new and time-limited Customs Union between the UK and the EU’.  Having a CU with the EU would limit the amount of upheaval and new procedures need at ports etc., but would also prevent the UK implementing trade deals with other countries.  It is unclear from the paper which is the Government’s priority because, despite its aspirations, the Government can’t do both. 

Longer-term, after the transition period, two options for a permanent customs arrangement are put forward.  Both are light on specifics and seem quite reliant on technological ‘fixes’ – worrying with the Government’s record on IT projects.  The first option would be for the UK and the EU to have a ‘normal’ customs border, but with the UK simplifying and streamlining where possible to make the arrangements ‘frictionless’.  The second option is a vaguely-defined ‘customs partnership’ which would see the UK ‘align’ its approach to that of the EU resulting in there being no need for a UK-EU customs border.  The paper itself states that this would be ‘unprecedented and challenging’.  Under both options the UK would be free to strike its own free-trade deals with other countries.  The paper can be found at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/637748/Future_customs_arrangements_-_a_future_partnership_paper.pdf

On the issue of Ireland, in the position paper the Government commits to protect the Common Travel Area (CTA) between the UK and Ireland (which predates the EU) and to uphold the Belfast (‘Good Friday’) Agreement.  As part of the latter, it is affirmed that those in Northern Ireland will continue to be able to claim citizenship of Britain, Ireland, or both.  In terms of the border, the paper states a desire to have ‘no physical infrastructure’ whatsoever.  This suggest both people and goods will be able to freely cross the 310 mile border.  How this would be squared with leaving the Customs Union and having to police imports and exports is unclear.  The paper suggests that regulatory equivalence in agri-food measures should be maintained between the EU and UK to facilitate cross-border trade and minimise disruption to existing supply chains.  Although this would be welcomed by many in the Irish food industry, it may not go down well with Brexiteers wanting to escape ‘EU red-tape’.  It may also make agreeing trade deals with third countries more difficult.  The Irish paper can be found at – https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/638135/6.3703_DEXEU_Northern_Ireland_and_Ireland_INTERACTIVE.pdf

In a further development, the Times has reported that the UK will allow Visa-free access to EU citizens.  This would people to travel to the UK, live, and even look for work without restriction.  However, those wishing to take up jobs will be required to have a Government-issued permit.  The number of permits would be vary by sector.  Assuming the number of permits was adequate, this approach might serve to allay some of the fears the food and farming sector has around access to labour after Brexit.

Precision farming

Last month, Defra published statistics on the utilisation of precision farming techniques (i.e. soil mapping and use of satellite technology to guide fertiliser application) by farm businesses in England.

The results show that usage on cereal and general cropping farms have increased steadily with uptake by farm businesses estimated at 44% and 50% respectively. Uptake is less prevalent in dairy and mixed farms where uptake is gauged at 20% or less. Defra noted that usage was more common on very large farms. It also tends to be greater for higher economically performing farms, although after allowing for other factors such as farm type and size, the difference between performance groups is not significant.

Defra also estimated that the usage of soil nutrient software packages (soil mapping) for fertiliser applications stands at 23% across all farms, uptake is substantially higher amongst cereals farms (43%) and general cropping farms (60%).

Uptake of precision farming techniques by farm type, England, 2012/13 to 2015/16

Source: Defra

The fact that precision farming techniques are becoming increasingly common is no surprise. Much of the new machinery coming on to the market (e.g. tractors, combines etc.) now comes with these technologies installed as standard. Recent research for The Andersons Centre concurs with the Defra findings and shows the uptake of auto-steering has grown strongly since 2012, although the uptake of variable rate application and telematics lags. There is little doubt that some precision farming techniques are becoming mainstream. The trickier question is whether all precision techniques are worthwhile. By its very nature, precision farming will vary from farm-to-farm and it is seen by many of the larger farms especially as an effective means to manage scale and capture key information, such as historic applications, land capability etc., thus assisting farm managers to conduct operations more effectively. It is also essential that the fundamentals of good farming practices remain paramount as it is easy to become engulfed by a torrent of data which can waste precious time and cloud decision-making.

Uptake of specific precision farming technologies in UK farming

Technology

2012*

2016

Approximate cost

GPS (incl auto-steering)

22%

~55%

up to £10K

Soil mapping

20%

~25%

£15 – £30 per ha

Variable rate application

16%

~20%

built into equipment

Yield mapping

11%

~20%

£5 – £7 per ha

Telematics

2%

~5%

circa £1k + yearly cost

*Defra 2012 estimate – Source: Defra

Fertiliser prices – selected products

On-Farm Fertiliser Prices – w/c 19th June 2017

Fertiliser Type (all prices in £/tonne)

This month

Straights and Others

34.5% N (UK)

175

Urea – 46%N

190

Ammonium Sulphate and Ammonium Nitrate (granular)
(27%N:30%Sulphur)

200

Triple Superphosphate (46%P)

264

Muriate of Potash (60%K)

233

Source: InsideTrack

Prices are based on delivery during September/October 2017

Spray prices – selected products

On-Farm Spray Prices – w/c 19th June 2017

Active Ingredient (AI)

Example Brand(s)

Pack Size

(L; KG)

Price (£/pack)

Price (£/L)

Cereals – General Herbicides

Diflufenican

Hurricane

1

27

26.75

Flufenacet + diflufenican

Liberator

5

247

49.47

Flufenacet + Pendimethalin

Crystal

10

119

11.85

Flupyrsulfuron-methyl and thifensulfuron-methyl

Lexus Millennium

0.2

101

504.80

MCPA

10

40

3.97

Mesosulfuron iodosulfuron

Atlantis; Pacifica

2

174

86.77

Pinoxaden + Cloquintocet-mexyl

Axial

5

403

80.60

Source: InsideTrack

Spray prices refer to on-farm spot trade (ex. VAT) quoted across the Midlands, East Anglia and South East of England and do not include additional service costs (e.g. field walking etc.). Example brands are given for reference purposes only, alternative brands also available.

Brexit Bills in Queen’s Speech

On 21st June, the Queen launched the Government’s programme, devoid of its most controversial manifesto commitments, which included eight Brexit Bills on:

  • Agriculture – to replace the CAP
  • The Repeal – of the European Communities Act 1972 and copy and paste the contents into UK law
  • Customs – to replace EU customs rules and allow the UK to impose its own tariffs (significant for agricultural exports and imports)
  • Trade – to operate our own trade policy (this may face opposition from soft Brexit MPs wanting to keep the UK in the EU customs union)
  • Immigration – to allow the UK to set its own immigration policy (vitally important for the fruit & veg, poultry and processing sectors).
  • Fisheries – to take control of UK fishing waters and to set fishing quotas.
  • Nuclear safeguards – to set up a nuclear safety regime (currently regulated by Euratom)
  • International sanctions – to allow the UK to apply its own international sanctions

Of particular interest to InsideTrack readers is the Agriculture Bill.  This is the first chance for a British Government to design a wide-ranging reform of agriculture policy since 1947 (the last substantive Agriculture Act).  It presents a once in a generation opportunity to shape and sustain a profitable farming sector without (we assume) CAP levels of direct support and EU border protection arrangements.

The Government’s says that:

“The Bill will ensure that after we leave the EU we have an effective system in place to support UK farmers and protect our natural environment. The Bill will:

  • provide stability to farmers as we leave the EU;
  • protect our precious natural environment for future generations;

We will see.

Sugar beet – yield, prices and prospects

The dry weather has meant germination has been patchy in many spring crops, and sugar beet is no exception. Some crops have been re-planted, but the number of these is very small. Most growers have been hoping that some rain (which has now arrived) will be enough to recover the situation.

Whilst many beet crops are undoubtedly behind where they might normally be, there is still enough of the growing season left that overall yields will not necessarily be affected.  The final 2016 crop yield was 71.4 adjusted tonnes per Ha.

The contracted area for the 2017 has grown significantly.  After two years in 2015 and 2016 where the total area was down to 80,000 hectares, this year’s plantings are up to 105,000 hectares.  British Sugar has offered extra Contract Tonnage Entitlement (CTE) as its own stocks have reduced whilst EU and world markets have improved.

On the subject of markets, the EU sugar price was around €495 per tonne up to March this year (EU price reporting is a little slow).  This is above the €475 per tonne threshold level for bonuses to be paid under the new 2017 pricing mechanism.  However, since the start of the year world sugar markets has declined and this may soon start to impact the EU price.  The reference period for the calculation does not begin to operate until October this year, so none of the current market movements are actually affecting the price that growers will receive.

2016/17 world update 2017/18 forecast

The monthly USDA grain and oilseed world supply and demand estimates and forecasts are especially important in May as it is the first month of each year when they publish their entire thoughts on the forthcoming global grain crop.

For 2016/17, global grain production has, once again, been revised up by 14 Mt to almost 2,593 Mt. However, 2017/18 output is forecast to decline by nearly 62 Mt. Although this 2.7% decline may appear to be slight in percentage terms, it is almost three times that of UK cereals production (22 Mt). That said, it must be remembered that the 2017/18 forecast is nearly 64 Mt ahead of 2015/16.

Total global grains supply & demand at 10 May 2017 (Mt)

Output

Trade

Total use

Cl. stocks*

2015/16

2,467.12

377.07

2,439.19

606.93

2016/17 est April

2,578.58

413.12

2,555.41

628.36

2016/17 est May

2,592.72

416.95

2,566.25

633.40

2017/18 forecast

2,530.95

406.45

2,564.91

599.44

*closing stocks Source: USDA

World wheat production (737.8 Mt), although projected to be the second highest on record, is forecast to decline by 15 Mt in 2017/18. This estimate is heavily influenced by the US (down by 13 Mt to 49.5 Mt) and helped to rally the markets. Early US survey estimates suggest that winter wheat production is down sharply with the lowest harvested area in a century and lower yields. April snow storms affected large portions of the US winter wheat crop, especially in Kansas, and the US spring wheat area is also projected to decline. But, with global wheat consumption forecast to fall and stocks increasing, the outlook for prices remains rather bearish for 2017/18.

Wheat supply & demand at 10 May 2017 (Mt)

Output

Trade

Total use

Cl. stocks*

2015/16

737.00

172.85

712.08

242.42

2016/17 est April

751.36

180.68

740.84

252.26

2016/17 est May

753.09

179.74

740.16

255.35

2017/18 forecast

737.83

178.35

734.89

238.29

*closing stocks Source: USDA

Coarse grains (feed grains) output is more than double the total wheat crop around the world and 75% of them are maize. Coarse grains production (1,312 Mt) is projected to fall by 3.4% (46 Mt) in 2017/18 vis-à-vis 2016/17 (1,358 Mt). This decline is significant and leads to a 38 million tonne fall in stocks, a 15% decline which is also substantial. This is far more bullish news.