Flanders’ cereal farmers can expect to receive high prices for their harvests this year, due to circumstances far, far away. According to the United Nations Food and Agriculture Organisation (FAO), the grain prices index this summer is up 23% for corn, thanks to a long period of drought in the United States, the world’s largest producer, which also has a huge demand.
At the same time, the FAO index for wheat is up 19%, thanks to the Russians – also a major producer – revising harvest forecasts downwards; reduced harvests in Australia, India and Ukraine; and the continuing growth in demand from India and China. There’s also more demand worldwide for wheat as a direct result of the failure of the corn crop.
The only trouble is that cereals account for only about one-quarter of the arable land in Flanders and about 10% of incomes, according to Piet Vanthemsche, director of the farmers’ union Boerenbond. And while the producers of wheat, barley and corn may be rejoicing, the rest of Flanders’ farmers have less to be happy about.
Flanders doesn’t produce enough cereals to feed itself, explains François Huyghe, an economic adviser at Boerenbond. “The quantities we consume are much larger than the amounts we produce, partly as a result of our livestock sector. We have a lot of livestock farming, so we’re obliged to import grain for animal feed.”
Corn makes up a large part of that animal feed. “We have some corn production in Flanders,” explains Huyghe, “but the kind that grows here is only good for silage.” Silage is the transformation of corn – kernels, leaves and all – into animal fodder.
“We produce very little corn for human consumption,” continues Huyghe, “compared to France, for example. That’s a question of climate: Corn is a tropical plant that can grow in the south of France, whereas here the harvest takes place in November, so you have a great deal of uncertainty because of winter weather or fungus.”
Pigs – of which Flanders has nearly 5.9 million, accounting for one-quarter of all agricultural income – depend heavily on corn and other grains. Unlike cows – of which Flanders has 1.3 million raised for meat and 294,000 for milk – pigs don’t graze and so are raised almost entirely with feed, which consists of 70% grain. Poultry, likewise, depends on grain for sustenance.
All of those farmers are now going to be paying more for their animal feed than before and without the possibility of passing along the higher costs to the consumer. One reason is the nature of livestock farming, says Huyghe. “Take pig farmers, for example. They have to feed their pigs today – pigs of 50kg for instance – so the costs increase, but those pigs won’t be slaughtered until they weigh 100kg. So it’s only after some time has passed that the costs can be passed on. The problem, of course, is that the pig production sector is already having a hard time getting prices that cover production costs.”
The thousands of small, independent farmers in Flanders don’t have the muscle of major distribution chains, like supermarkets. Retailers want to be able to offer cheap meat to their customers and have succeeded in pushing down the price they pay to farmers below the level at which they start making a profit – even before the rise in grain prices.
That led to grisly scenes in August last year when pig farmers protested against low prices by dumping severed pig heads at one of Delhaize’s distribution centres in Asse, Flemish Brabant. “These pig heads stand as a symbol of the heads of pig farmers, which will begin to roll thanks to the continuing pressure on meat prices,” a spokesman for the pig farmer association VEVA said. Other protest actions targeted Lidl in Wevelgem, West Flanders.
So the price of meat is not likely to go up for consumers, Huyghe predicts. “In fact that’s what ought to happen, but it’s by no means certain it will, in the short term anyway, unfortunately.”
Corn is an ingredient in many more foodstuffs than you might think, including in animal feed; starch; mayonnaise; high-fructose corn syrup in soft drinks and sweets; and as additives like lecithin, monosodium glutamate and citric acid in snacks and processed foods. Though corn is all but ubiquitous, it forms only a small part of the overall cost of production of such foodstuffs. So, although corn has been described by American food author Michael Pollan as “the most successful plant on the planet”, the effect of the price increase on processed food is limited.
The same is even true for baked goods, where the relationship is more direct. The bakers’ federation was met with criticism when it announced a price increase of .05 to .10 a month per loaf as a result of the disappointing wheat harvest. “Grain makes up only a fraction of the cost price of bread,” says Huyghe. “There are also energy and wage costs. And we’ve seen how when grain prices go down, the price of bread stays the same.”
The ABS, a farmers’ union independent of Boerenbond, claimed the bakers were using the wheat price as an excuse to raise prices. “It seems as if everyone but the farmer is able to pass rising costs on to the consumer,” commented director-general Hendrik Vandamme.
Meanwhile, the price of beer is expected to go up by as much as 4% in September, when the time comes to start using the barley harvest, which was smaller and of poorer quality because of heavy rain. Barley is also one of the products expected to be in demand because of the poor corn and wheat harvests. In March this year, rising grain prices were one of the reasons given for an increase in the cost of barley of 5.8%, along with salary costs and energy prices.
The world’s biggest brewer, AB InBev in Leuven, is playing its cards close to its chest. “Because of our risk management/hedging policy, we do not expect a significant impact for AB InBev overall,” a spokesperson told Flanders Today. “However, the situation varies by geographic zone, and we continue to monitor things very closely.”
In the short term, then, products that use cereals directly, like bread, beer and baked goods, as well as those that rely on grain indirectly, like meat and dairy products, are likely to see only measured increases in the price to consumers. Vegetables, however, are likely to increase in price more immediately. The reason is crop substitution.
“If grain prices are good, as they are at the moment, more grain will be sown in the later part of the year,” says Huyghe. “That means less area will be available for other crops, including potatoes and vegetables, so the prices of those crops will also go up.”
Farmers, in other words, will jump on the grain-price bandwagon by turning their fields over to cereals. “There are quite a few potato growers who have had disappointing returns in recent years, and they’re likely now to switch over to grain,” explains Huyghe.
Potato contract prices are determined around December, “and planting takes place in the spring – or not, as the case may be,” notes Huyghe. “But the sowing of grain takes place in the later part of the year – in October or November at the latest, so we’ll see very soon the extent to which grain production will increase, all over Europe as well as the US.”
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