Arable Matters: Out of the limelight doesn't mean out of trouble

But although Scotland’s arable sector might not have been hitting the national headlines, it doesn’t mean that it hasn’t been without its own problems …

While rain in some parts of the world and dry conditions in others have kept the futures markets in a constant state of yo-yo-ing in advance of this year’s harvest, on the international front trade deals are important on the grain market as well and obviously the ramifications of Brexit will continue to buffet the market. As also will the repercussions of new agricultural policy and the need for the sector to play its role in tackling the climate emergency.

But there’s no getting away from fact that local conditions and events can also have a major impact on harvest results, and no escaping the fact that consolidation and concentration of power in the supply chain is a growing worry for the sector.

The recent events in the grain trade which saw one of the country’s long-established grain merchants, Alexander Inglis and Son, placed into administration, has only added to the magnitude of this problem. There's now a major restructuring across the grain trade which will see the purchasing of malting barley in Scotland now concentrated into very few hands.

The financial ramifications for those caught up in the complicated process of registering as a creditor in the desperate hope of recouping some of their losses from the Inglis collapse are immediate and obvious – and by all accounts could threaten the survival of some farm businesses.

While there’s been much speculation on the level of direct losses suffered by the industry and by individuals – as of yet there’s been no confirmation from administrators as to the actual scale of these.

In part, this is due to the complex relationship which often exists between farmers and the bodies with which they trade. Arrangements can cover everything from signed and dated contracts through verbal agreements and ‘understandings’, often involving delayed payments and even barter deals.

Unsurprisingly, this means that there is still no clear indication of the level of losses across the industry. However, there can be little doubt that they will be substantial.

With the auditors deciding to wind up the company, rather than trying to sell it as a going concern and selling the assets – including both any grain which was in store and the facilities in which they are stored – it’s also more than likely that it could be some considerable time before any unsecured creditors receive their share of the funds realised.

Sadly, though, even for those who believe that their grain is still in the store, it would appear that unless a retention of title clause was included in the contract and that goods can be clearly and distinctly identifiable, through labelling or suchlike, it looks like there will be little chance of reclaiming physical grain supplied.

Of course, with the seasons rolling on, those holding malting barley contracts for this year’s harvest have also been left in limbo. While the general understanding is that these will not be called in, growers have been advised to contact the administrators to have this confirmed before being tempted to take advantage of any upturn which has been seen in the terms being offered in some contracts.

So, it’s clear that the effect on some of the individual businesses, both farming and other grain merchants, caught up in the fallout is likely to be significant and should not be underestimated.

But there are considerable implications for Scotland’s wider arable sector as well.

For the Scottish grain trade – which has gone through spells of significant consolidation in the past and would appear to be going through yet another at the present moment – with the collapse of Inglis and the purchase at the tail end of last year of WN Lindsay, by Simpsons Malt, spelling a considerable shrinkage in the number of major buyers operating in Scotland’s grain market.

Any reduction in the level of competition amongst buyers at a time when the whole of Scottish agriculture faces the host of major changes outlined earlier, simply can’t be viewed as good news.

The scale of the problem was picked up by NFU Scotland – and the union realised the whole issue is a stark indication of the magnitude of the challenges facing growers in the arable sector particularly in the south east of Scotland.

There was a sudden flurry of activity focusing on the fact that the time might be right for arable farmers to think about the future and to explore if there is an opportunity for increased farmer co-operation and collaboration to address the imbalance in power within supply chains.

However, a well-attended Zoom meeting organised to look at the possibilities for addressing the dwindling level of competition amongst buyers, while raising the profile of the role which could be played by the creation of a new farmer-led grain marketing co-operative, did admit that there was little chance of setting up such a body in time to put in a bid for the Inglis stores and handling facilities, the loss of which could remove 200,000 tonnes of processing capacity from the Scottish market.

The loss of even part of that capacity at the Inglis sites at Tranent, Melrose, Morpeth and Errol, could certainly have significant negative impacts on the often difficult logistics during the Scottish grain harvest.

But, with the land agents charged with selling the sites indicating that they were setting a closing date for bids to be in by the end of this week, there was an admission that it was unrealistic to set up a co-operative group by then or, indeed, even in time for this year’s harvest.

Those with experience in the sector who spoke at the meeting said that getting things set up for a co-op venture wasn’t just a matter of buying the site, equipment would need to be readied, suitable manpower found and contracts for marketing the grain would also all need to be organised, a bit of a tall order from scratch.

So, for grain growers, it was probably a bit of a consolation prize that there had been considerable commercial interest in the sites, especially across the Lothians and Borders.

For provided the interested parties are from the grain trade itself – rather than developers – with existing contract, infrastructure and manpower, there will be a chance that those already in the trade will be better placed to ensure that some of that storage and drying capacity might be up and running by harvest time.

So it seems that, rather than doing anything precipitous on the co-operative front, the best approach might be to see who buys the plants and then try to set up an arrangement on a partnership basis for future years.

But while farming co-operative ventures into the grain trade sector in Scotland have had mixed fortunes over the years, there are a number of outfits which have proved to be highly successful – and while the idea certainly shouldn’t be rushed into, it shouldn’t be dismissed either.

Speaking at the meeting, Jim Booth, head of co-operative development with SAOS, laid out the benefits of farmers taking formalised collaborative action – but he did admit that it tended to take upwards of a year to ensure that a co-op venture was set up on a sound basis.

“Business plans need to be drawn up, feasibility studies carried out, people need to come together to set up the members’ agreement and agree to good governance principles,” he argued. “The last thing anyone would want to do would be to set up a group in a hurry and then see it fail.”

However, while admitting that farmer co-op groups had met with mixed fortunes across the years, he refuted suggestions that this type of business structure was more prone to failure: “In fact, HMRC figures actually show that co-operative ventures have about half the failure rates of other business start up models.”

Booth said that it was widely recognised that consolidation across the agri-food sector had made farmers ever more reliant on a handful of suppliers and buyers: “And this has exacerbated power imbalances, allowing costs to be shifted onto farmers, squeezing their incomes, eroding their autonomy and leaving them vulnerable”.

He said that as an alternative to the advances of multinational conglomerates, and with a commitment to local services and infrastructure, co-operative groups offered an option which could support rural communities and family farms.

Definitely an option worth considering.