January 8, 2010
As farm subsidies wane, farmers need to learn to become better marketers and risk managers. Sound familiar? That's one observation from German farm leader Carl Bartmer as he surveys the future landscape of European agriculture.
Bartmer is a farmer and president of DLG, Germany's leading farm organization. He farms 2,400 acres of row crops east of Hanover, Germany. I spoke with him at Agritechnica, Europe's leading farm equipment show.
Farm Futures: Agritechnica is a forum for the latest technology in agriculture. If European farmers are keen to adopt new technology, why don't your farm organizations stand up and demand the right to use biotech seed?
Bartmer: We do. It's sad that the political conditions are not good at the moment. Germany is typical for the rest of Europe. The people have a fear of this technology. They believe it's setting technology free in nature that can't be called back. They are worried that it can result in something we don't want. They don't understand that it's just as risky to do classic research as it is to do biotechnology.
We have a lot of scientists and scientific groups, as well as EFSA (European Food Safety Authority) that tests to determine if a technology is safe. They have proven a lot of GMO events safe, but you need a political decision to implement this in the market, and the political decision has to do with elections and the fears of the people.
We feel politicians often align themselves with the fears of the people. We present GMO trials and it causes a lot of problems. But we have good contacts in America and with seed company KWS that is working on this technology. We have a long term strategy to implement this strategy in the market.
I think it will happen when the scarcity of food and feed is felt in the public. Two years ago when prices were very high for food and feed, people started asking if GM would help us.
FF: What will your farm's 2010 crop budgets look like compared to 2009?
Bartmer: We don't have a very satisfying market situation at the moment, which makes it complicated for most farmers to put together a good balance sheet. 30% of our farmers are losing money, but that's just my estimation. Dairy farmers are losing money mainly, but also hog farmers, and arable (crop) farmers to a lesser degree.
There's a rising demand for commodities, but you also have rising prices for fertilizer, plant protection and machinery. I assume the first half of 2010 will be complicated. I'm not expecting rising crop prices, because global stocks are high but they are very mobile.
Farmers here are getting a better understanding of the volatility of the markets. They're interested in using more instruments to control risk, looking at futures or other instruments.
FF: You're saying German farmers are going to need more marketing skills going forward?
Bartmer: Yes they will. That’s one reason the DLG has implemented a marketing information newsletter that will be sent out twice a week. It's about what's happening in U.S. markets, Paris.
We need more marketing skills because we expect a decline in the European Community role over the next 10 years. I expect we will have a fundamental safety net, but it will be very low - to only help us in extreme situations. For example milk is 20 eurocents per liter and even the best enterprises can't live with that. If you had prices under 20 cents, I assume EC policy might step in and play an emergency role.
FF: What is your view on bioenergy?
Bartmer: I'm not sure that the money invested in Ag is always the best choice. For example, subsidizing ethanol in the U.S. I think your ethanol industry is only running because of subsidies from the U.S. government. The problem is, when commodity prices rise in big amounts, the economics of ethanol plants are not that good. In Europe, especially Germany, we have rapeseed going to biodiesel technology, also running because of subsidies.
We need arable land to produce food and feed and if there is something left, then perhaps devote it to bioenergy. But my favorite idea is to use wood, manure, straw, or other byproducts of food production. Systems like wind and solar are good, but for me there are too many subsidies in those programs. Biogas could also be a problem. They are running well in Europe because the inputs are cheap and the price for electric energy is high, lifted up by subsidies - about three times higher than you could get for fossil fuel energy or nuclear. The problem with biogas is, when input prices change those plants may not run as well.
FF: Do you think bioenergy will lead to food shortages?
Bartmer: I think food scarcity is a bigger problem in the future than the surpluses we are discussing today. I'm sure we need all our potential to grow Ag commodities in the world. We need technical progress to improve productivity on the scarce amounts of fertile soil we have. We need technical progress, not just when markets give us signs, but now.
It's important to invest, especially in those countries where there is the biggest hunger problem. We need capital investments in Africa, South America and Asia. It's typical for non-ag money to be interested in Ag when prices are high, but those investors get out when prices are low.
FF: In our country, farmers are often forced to expand acreage because of thinner profit margins. That appears to be a problem in some areas of Germany and other European countries. How will it be resolved?
Bartmer: The driving force is economies of scale. The best solution is if a farmer realizes it early enough and there's still enough capital and well educated people that they decide okay, I have no prospective on my small farm to realize economies of scale, and so I need to incorporate with a neighboring farm. Or give another farmer the chance to rent my farm. The least satisfying way is to sell a farm. The main way we see forward is to incorporate or rent.
At the moment prices for land rents and to purchase arable land are very high. That means big limits to structural change. That perhaps gives the opportunity to incorporate. From what I see this year we also have a lot of interesting technical progress, even for small farms. Electronics make it possible.
There's a good chance middle sized farms will continue. They are focused more on regional markets and specialized products, so they can get bigger margins by not working mainly with commodities.
FF: Brazil, Russia, India and China are all becoming world players in agriculture. Where will Europe and American farmers be in 10 years by comparison to the BRIC countries?
Bartmer: Those BRIC countries will have rich farmers too. They are very focused and have interesting structure. We will have in the future a more cooperative situation, with similar interests. I'm sure we will be working in a market with strong demand for our products; it won't be like it is now, where we fear countries that produce food cheaper. I'm optimistic in the future.
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