Feed price rises seen as inevitable
Feed prices are expected to rise over the coming months, sparking off a rise in prices of consumer foods like milk, eggs, chicken and pork.The rising cost of oil and the need to curb greenhouse gases is fuelling the search for better alternatives, with...
Feed prices are expected to rise over the coming months, sparking off a rise in prices of consumer foods like milk, eggs, chicken and pork.
The rising cost of oil and the need to curb greenhouse gases is fuelling the search for better alternatives, with ethanol emerging as a favourite.
Ethanol is made from sugar cane, maize corn or sugar beet. However, as demand for corn to make ethanol grows, its price has increased considerably, now selling at almost twice its historically stable level. And with more corn being diverted to ethanol-production, demand is growing for other cereals, driving up their prices, and there is no sign of the increases abating.
This is driving up prices for feed made from cereals and in turn the livestock that live off it, with the cost of cattle in the US going up by 10 per cent in the last year. The price of corn on the world market over the past 12 months went up by 26 per cent and the recent barley harvest was sold for prices 47 per cent higher than those of the previous one (&euro4;0 more for corn and &euro6;3 for barley).
And despite all the efforts and priority given by the Ministry for Rural Affairs to support the livestock sector through its temporary state aid scheme for maize and barley, Malta is unlikely to avoid similar price rises in feed, with the inevitable impact on livestock and food products like milk, eggs, chicken and pork, to name but a few.
The increase in cereal prices will have even more of an impact on local livestock producers because it coincides with the gradual phasing out of government assistance as contemplated in the Treaty of Accession.
Malta had negotiated a derogation with the EU, allowing it to support cereal purchases by covering the level of export refund or Common External Tariff. The derogation will run out in 2010 by when the EU prices and world prices are expected to converge.
Feed prices until now have increased marginally thanks to the ongoing consultations between the ministry and the two EU-licensed producers, KPH and Andrews Feeds, together with four small millers and some importers.
Prior to Malta's accession, feed prices remained stable for 19 years through a Price Stabilisation Fund that used savings when prices were low to "hedge" against years when prices went up.
This was enough to be able to cope with price changes due to things like a bad harvest - but the increases resulting from demand for ethanol production are unlikely to be one-off or temporary as the world becomes more aware of the need to control greenhouse gas emissions.
"It will be a shock for local producers who have known price stability since 1988," Andrews Feeds general manager Peter Gatt said. "A period of volatility is almost inevitable now."
Following a recent meeting in Brussels, at which licensed feedmills participated, the government is currently preparing a paper, which it intends to use to lobby the EU, pointing out the inherent disadvantages of a country with no cereal growers of its own and high transport costs as a result of Malta's location as an island on the periphery. "We have to be realistic about what we can expect the EU to do," Mr Gatt warned. "It has consistently been moving away from subsidies."
The question is now by how much the feed prices will go up. In March, the average of Lm95 per ton already went up by Lm2 but Mr Gatt did not mince his words.
"We anticipate significant increases to be announced over the coming months with the next taking effect on July 1 once the government announces the temporary state aid on cereals for the second half of the year. The Rural Affairs Minister George Pullicino said last Saturday during a tour of the Valle del Miele chicken-processing plant that the government is aware of the problem and is looking at options allowed under the Treaty of Accession to soften the impact on producers.
"The question is whether it would be enough to compensate for the increased feed prices and whether the processors will be able to absorb the increase or have to pass some or all of it on to the consumers.
"We are being very open and transparent about this and are showing all the relevant figures to the authorities as it is very important for us to retain the trust that we have built up with local producers. We are all facing a very difficult situation but just as we faced up to the reality of higher oil prices, we have to realise that we cannot avoid this either," Mr Gatt said.
"The only consolation is that all food producers all over the world will face the same increases in feed prices which will trickle down to the cost of consumer foods. So we are not going to lose competitiveness.
If producers and processors stick to the same margins, the impact on consumers will also be kept to a minimum. We all have to work together on this to secure the future of local fresh products."
Factfile
If the UK wants to replace five per cent of its fuel with ethanol, it would have to dedicate one fifth of all its arable land to growing corn (or sugar cane).
If all the US corn stocks were used to make ethanol, it would only be enough for one per cent of annual American fuel demand. Last year, the US produced nearly five billion gallons of ethanol, aiming for 7.5 billion gallons to be used by 2012.
For every unit of energy used to produce ethanol, 1.33 units of energy are created.
The Ukraine, one of the world's largest producers of barley, has restricted exports of the grain in an attempt to stabilise internal prices. Saudi Arabia, one of its major importers, turned to European markets instead, driving prices up.
In Chicago, corn prices have gone up by 73 per cent to a three-month high of $4.095 per bushel. A dairy economist in Florida forecast that the cost of milk would go up to more than $5 a gallon.
As farmers switch to corn, they grow fewer crops like soybean, which means prices for these crops also goes up.
The rising cost of oil and the need to curb greenhouse gases is fuelling the search for better alternatives, with ethanol emerging as a favourite.
Ethanol is made from sugar cane, maize corn or sugar beet. However, as demand for corn to make ethanol grows, its price has increased considerably, now selling at almost twice its historically stable level. And with more corn being diverted to ethanol-production, demand is growing for other cereals, driving up their prices, and there is no sign of the increases abating.
This is driving up prices for feed made from cereals and in turn the livestock that live off it, with the cost of cattle in the US going up by 10 per cent in the last year. The price of corn on the world market over the past 12 months went up by 26 per cent and the recent barley harvest was sold for prices 47 per cent higher than those of the previous one (&euro4;0 more for corn and &euro6;3 for barley).
And despite all the efforts and priority given by the Ministry for Rural Affairs to support the livestock sector through its temporary state aid scheme for maize and barley, Malta is unlikely to avoid similar price rises in feed, with the inevitable impact on livestock and food products like milk, eggs, chicken and pork, to name but a few.
The increase in cereal prices will have even more of an impact on local livestock producers because it coincides with the gradual phasing out of government assistance as contemplated in the Treaty of Accession.
Malta had negotiated a derogation with the EU, allowing it to support cereal purchases by covering the level of export refund or Common External Tariff. The derogation will run out in 2010 by when the EU prices and world prices are expected to converge.
Feed prices until now have increased marginally thanks to the ongoing consultations between the ministry and the two EU-licensed producers, KPH and Andrews Feeds, together with four small millers and some importers.
Prior to Malta's accession, feed prices remained stable for 19 years through a Price Stabilisation Fund that used savings when prices were low to "hedge" against years when prices went up.
This was enough to be able to cope with price changes due to things like a bad harvest - but the increases resulting from demand for ethanol production are unlikely to be one-off or temporary as the world becomes more aware of the need to control greenhouse gas emissions.
"It will be a shock for local producers who have known price stability since 1988," Andrews Feeds general manager Peter Gatt said. "A period of volatility is almost inevitable now."
Following a recent meeting in Brussels, at which licensed feedmills participated, the government is currently preparing a paper, which it intends to use to lobby the EU, pointing out the inherent disadvantages of a country with no cereal growers of its own and high transport costs as a result of Malta's location as an island on the periphery. "We have to be realistic about what we can expect the EU to do," Mr Gatt warned. "It has consistently been moving away from subsidies."
The question is now by how much the feed prices will go up. In March, the average of Lm95 per ton already went up by Lm2 but Mr Gatt did not mince his words.
"We anticipate significant increases to be announced over the coming months with the next taking effect on July 1 once the government announces the temporary state aid on cereals for the second half of the year. The Rural Affairs Minister George Pullicino said last Saturday during a tour of the Valle del Miele chicken-processing plant that the government is aware of the problem and is looking at options allowed under the Treaty of Accession to soften the impact on producers.
"The question is whether it would be enough to compensate for the increased feed prices and whether the processors will be able to absorb the increase or have to pass some or all of it on to the consumers.
"We are being very open and transparent about this and are showing all the relevant figures to the authorities as it is very important for us to retain the trust that we have built up with local producers. We are all facing a very difficult situation but just as we faced up to the reality of higher oil prices, we have to realise that we cannot avoid this either," Mr Gatt said.
"The only consolation is that all food producers all over the world will face the same increases in feed prices which will trickle down to the cost of consumer foods. So we are not going to lose competitiveness.
If producers and processors stick to the same margins, the impact on consumers will also be kept to a minimum. We all have to work together on this to secure the future of local fresh products."
Factfile
If the UK wants to replace five per cent of its fuel with ethanol, it would have to dedicate one fifth of all its arable land to growing corn (or sugar cane).
If all the US corn stocks were used to make ethanol, it would only be enough for one per cent of annual American fuel demand. Last year, the US produced nearly five billion gallons of ethanol, aiming for 7.5 billion gallons to be used by 2012.
For every unit of energy used to produce ethanol, 1.33 units of energy are created.
The Ukraine, one of the world's largest producers of barley, has restricted exports of the grain in an attempt to stabilise internal prices. Saudi Arabia, one of its major importers, turned to European markets instead, driving prices up.
In Chicago, corn prices have gone up by 73 per cent to a three-month high of $4.095 per bushel. A dairy economist in Florida forecast that the cost of milk would go up to more than $5 a gallon.
As farmers switch to corn, they grow fewer crops like soybean, which means prices for these crops also goes up.