Exclusive: Britain running out of wheat as cold weather crisis hits farmers

The dismal harvests will increase the country's reliance on the secretive trading firms which dominate the international grain market

Britain will be forced to become a net importer of wheat for the first time in a decade this year, after the recent bitter weather devastated crops.

A disastrous 12-month cycle of poor weather has ruined harvests across the UK, costing farmers an estimated £500m, the chief economist of the National Farmers Union (NFU) warned.

The conditions mean Britain – traditionally a significant net exporter of wheat – will have to boost imports by more than a million tonnes.

While the effect on the price of a loaf of bread is expected to be minimal, the dismal harvests will increase the country's reliance on the secretive trading firms which dominate the international grain market.

The crop damage deals a further blow to Britain's beleaguered farming industry, which is already reeling from a spate of recent livestock deaths due to the cold weather. To make matters worse, the weather has made planting new crops more difficult and damaged many of the seeds that have been sown in recent weeks.

This means the next harvest has already been damaged. Nor is wheat the only crop crop affected. Potato plantings stood at just 4,000 hectares at the end of March, barely a 10th of the 30,000 hectare area that had been planted this time last year, implying a jump in potato imports next crop year. After the coldest March in half a century, Britain is on course to import about 1.5m tonnes more of the grain than it exports this “crop year”, which runs from July 2012 to June 2013.  This compares to net exports of 1.6m tonnes last crop year and 2.2m tonnes four years ago, according to the Agriculture and Horticulture Development Board (AHDB).

“The last 12 months have been unreal for farmers. Last April we had a drought and talk of a hosepipe ban, then we had to contend with heavy rains and flooding and then the wintery weather, frozen land and snow,” says Mike Thomas, of the National Farmers Union (NFU).

The poor harvest represents the lowest wheat crop since 1985 and means the country will be a net importer of the grain this crop year for the first time since 2001. The NFU predicts next crop year – July 2013 to June 2014 - will be another year of net wheat imports, the first time this has happened in consecutive years since the start of the 1980s.

But while farmers will lose hundreds of millions of pounds and the fragile economy will suffer, British consumers are only like to see a small increase, if any, in the price of a loaf.

“Wheat only represents about a tenth of the cost of a loaf and energy costs and packaging probably have as large an impact on price,” says NFU chief economist Phil Bicknell. “But the wheat price is determined by global supply, rather than UK supply, and the price has actually dipped in the last few days.”

Increasingly unpredictable crop yields caused by adverse weather conditions have increased the opportunity for traders to make a profit from price fluctuations.  This week Geneva-based Vitol, the world’s largest oil trading house, announced plans to become the latest company to move into the lucrative and monopolistic business of food trading.

Vitol is a highly secretive energy, sugar, metals and minerals trading giant run by Ian Taylor, one of Scotland’s wealthiest men with an estimated £155m fortune who has donated more than £500,000 to the Conservative Party and attended a dinner through for large donors at 10 Downing Street in 2011.

Vitol is the third major energy trader to add food staples to its portfolio in recent months. Analysts speculated that these energy-focused giants were driven, at least in part, by the need to counter lower profitability in crude oil, natural gas and power, which have been less volatile in the past two years.

Vitol joins an elite group of five dominant food traders who collectively control 90 per cent of the global market for grain. Glencore, the Swiss trading giant listed on the London Stock Exchange and run by multi-billionaire Ivan Glasenberg, is best known. The others are Cargill, Archer Daniels Midland, Bunge and Louis Dreyfus.

Like Vitol, the big-five food traders are largely based in or near Geneva and collectively made billions of dollars of profits last year, much of it from providing an essential trading function, buying commodities from farmers, shipping them around the world and selling them to users.

As such, the addition of another muscular food trader will be good for consumers because the extra competition will could reduce the mark-up they make on their buying and selling activities.

But there is also evidence that some of the dominant traders engage in speculative trading – investing in agricultural staples purely for financial gain through “futures” contracts – an activity critics say exacerbates price volatility.

Christine Haigh, food and finance campaigner at the World Development Movement anti-poverty group, said: “Like the banks, the big traders also play the market as speculators. While they might not like to admit it, it’s widely acknowledged that these players trade many more futures contracts than necessary to protect themselves from losses due to price fluctuations.”

Going with the grain: The six big traders

Glencore: Controls roughly a tenth of the global grain market. Set to merge with Xstrata this year.

Cargill: World’s biggest trader. Distributes nearly every commodity.

Bunge: Employs 35,000 people in 40 countries, processing oilseeds, wheat, corn and sugar cane.

Louis Dreyfus: Operates in more than 50 countries and transports 70m tonnes of food a year.

ADM (Archer Daniels Midland): World’s third largest processor of oilseed, corn, wheat and cocoa.

Vitol: World’s biggest oil trader; soon to join the big league of food traders.

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