Dr Rob Fisher in action at the NPA conference. He said the next decade would see immense volatility in the world's grain markets

Rising feed prices dominated proceedings. Commodities guru Dr Rob Fisher of the International Agribusiness Group, Michigan, said British producers were right to be concerned.

He told the 130-strong audience that bio-fuel production would impact heavily on global grain markets. The rising demand for ethanol will pressurise global markets and prices will tighten. However, the politics surrounding ethanol and bio-fuel production did outweigh the practical viability of the business and in time grain markets would stabilise.

"Within 10 years, things could be back to normal. The US government's line on green fuels is not the most economically thought out. It's a vote winner, and the way the business is subsidised will also allow the US to get within World Trade Organisation guidelines," said Dr Fisher.

Although the policy is creating volatile markets now, long term he believed things would settle.

"Current expansion programmes cannot be sustained, because producing ethanol from agriculture is not sustainable," he said.

The escalating market value for commodities is also beginning to attract investment interest. And it will push prices up to levels that distillers can't afford. "Add this into the equation and the whole thing becomes less viable. Ethanol plants will buy in to the market when prices are favourable, but pull out when it gets expensive. It's not a sustainable system," said Dr Fisher.

Distorted supplies

But this does not bode well at farm level. Corn prices are likely to stay high well into 2008 and although plantings in the US are up significantly on last year, forecasters are predicting a massive substitution effect as US growers favour corn against oil crops.

"Stocks for this year will be fine, but next year will be tight and big changes in the global market are predicted," said Dr Fisher.

He said Brazil would become the world's main supplier of oil seeds and soya bean. And, it was likely that many other third countries would become key suppliers of protein and fibre crops.

China's vast population, and its increased westernisation, is fuelling global competition in commodity markets - particularly for protein. Eating habits are changing rapidly, but the country remains a low commodity producer. "There is huge opportunity here for western food producers, and the pork market will expand significantly, but this trend will also add pressure to western grain and oil seed stocks and we'll probably see more oils crops grown in Europe in the near future," said Dr Fisher.

South America is the world's leading producer of soya beans, due to the increasing demand in China, and this trend will continue for primary agricultural products. "There will be market distortion across the world. The US will grow corn at home and contract places like Brazil to grow whatever else it needs, like soya and cotton," said Dr Fisher. The concept stacks up economically, but from a GB perspective there are key concerns.

GM crops, pesticide use, grain quality and consistency are vitally important to the UK's 'food safety conscious' millers and compounders and buyers here are not confident about assurance protocols. There is also the issue of food miles and the carbon foot print - which UK retailers are now using as a marketing ploy.

Cost and assurance

Angela Booth of ABN said the GM issue caused considerable costs to UK industry. "It's very difficult for compounders sourcing raw materials because GM products are not an issue anywhere else in the world. In Europe we have to store GM raw materials separately at the bulk stage, by law, and it adds a massive cost to our businesses," she said.

As a major stakeholder in the UK pig sector, she said ABN, like others must have absolute assurance that crops were either genetically modified crops or were GM-free. "We must know this from the outset because the credibility of our entire production chain depends on it," she added.

Compounders and feed formulators are also questioning the consistency of by-products from bio-diesel and ethanol plants. "The products have a feed value, but again, there is a GM issue. There are also concerns about variable nutritional values, which makes using these products, or even including them at all, questionable," said Ms Booth.

Feed costs could be reduced in other ways and Ms Booth said a more integrated approach to feed manufacture and haulage could cut costs and improve pig chain efficiency considerably.

Greater efficiency at the mill, through longer runs and fewer shut downs, would have a marked effect on industry economics, energy use and production costs. "Down times are massively expensive, as are short runs. We are a compact livestock industry and we need to address this because there are significant advantages to be gained from better organisation. More on-farm storage capacity would allow full load deliveries on most units and that would reduce transport and fuel costs for us and help keep feed prices down to our customers," said Ms Booth.

As an industry she said that the UK needed to consider standardising it diets. "Are all these diets all really necessary? Fewer runs, equals greater efficiency and minimal costs, which will benefit the whole production chain," she added.

Changing spec

The fluctuating cereals market and rapidly rising prices are now forcing ration formulators to look carefully at inclusion rates and ingredients. Ms Booth said that nutritionists were constantly reviewing formulations to find the most economic use of raw materials. She believed that diet specifications were likely to change as using the most cost effective formulation could prove to be the better option.

As ingredients become more expensive it may be more economic to reduce or omit certain ingredients, or to take a diet out of a feeding regime. This would reduce costs and, in many instances, would not be detrimental to pig performance. The effect would not be enough to mar productivity, but the savings could make the difference between profit and loss.

Ms Booth said that nutritional management in the future will probably involve balancing accepted, economically viable performance against the real cost of inputs. "It's a matter of weighing up the cost benefits and efficiency factors on both sides. Looking at where other improvements can be made, and potential realised, may be through better disease control or new genetics. This will enable producers to increase or maintain performance while minimising feed costs," she added.