Growing Realisation that competitive markets are more important than ever

18th May 2011

By Gwyn Williams, Partner Frank Marshall & Co, Chelford and Chairman, Livestock Auctioneers Association

What a winter we have just seen! Livestock prices have been reaching new records almost week by week, at last, some realistic returns for both sheep and beef producers after so many years of uncertainty. The story is not all gilt, however, as input prices have also risen strongly and in particular, we have seen a huge increase in prices for fodder and bedding. Within our weekly programme of livestock, horticultural and machinery auction sales at Chelford, we hold a weekly sale of Farm Produce every Monday, where we regularly sell well in excess of 50 loads of hay, straw, silage, etc. This winter we have seen small bay hay up to £265 per ton, large bale hay to £192 per ton, haylage up to £185 per ton, and regularly around £150 per ton. Straw for feed in particular has also risen in price accordingly, at up to £128 per ton for small bale barley with large bale barley straw to £120 per ton and big bale silage up to £85 per ton.

So what has driven all of this? It is easy to say that higher livestock prices have increased the ability of producers to pay more money for feed and bedding. It is however, the basic principle of supply and demand, which can never be truly manipulated, which sets all market values - and this winter has demonstrated just how important open competitive auction sales are to all producers, not just livestock farmers.

It is true of course, that if stock prices rise, then so too in general will prices of feedstock and bedding, with grain and straw producers reliant to a large extent on the demand from livestock farmers for their produce. This year has been unusual, with a difficult harvesting summer, followed by a very cold winter.

Our location at Chelford, on the edge of the Peak District, and close to the major livestock areas of Lancashire, Cheshire, Staffordshire and the Welsh Borders, makes an excellent meeting point for the main grain producers from Eastern counties to promote their wares. Would they achieve such a huge increase in prices without a competitive auction based market place? I doubt it very much as consistently purchasers, although having paid these high prices for hay and straw in particular, often say that it just couldn't be afforded. Yet, because of competition, driven by supply and demand, they had to pay the true market value for their feed and bedding. Prices this winter therefore have been an excellent barometer of the newly found confidence in livestock farming but also demonstrated the importance of competitive marketing to all producers. Can there be a lesson to be learnt here for the milk and pig sectors? Indeed, we are already hearing of a number of large pig producers who are contemplating moving away from direct selling, to a more competitive, auction based marketing system, thereby turning the clock full circle.

Markets were originally started in the mid nineteenth century by groups of enlightened farmers who had become concerned that the pricing of livestock was falling into too few hands. Does that have echoes of the situation today? Strong export markets, and the increased competition that provides, has allowed more buyers to enter the trade, and the availability of stock through auctions allows them to compete openly with the larger retailer/processors, who make up such an important part of our customer base. Competition is good for the soul, they say, although some major processors and retailers may not see it that way at times!

Operating such a diverse auction centre as we do at Chelford, we meet customers from a wide range of trade. Our weekly horticultural auction, through which hundreds of thousands of plants pass each week, attracts both sellers and purchasers from throughout the UK , and have been a saviour to many smaller producers, who have seen many of their local retail customers disappear as large superstores take control of local trade. The huge range of goods available in our weekly sales, and the range of small, local retailers keen to attend each week and bid against each other is testament to the strength of the competitive marketing system we offer. Those enlightened farmers of the nineteenth century realized that the open, competitive marketing system was the original co-operative movement - vendors all grouping together to offer stock to the widest possible range of purchasers, thereby in an attempt to achieve the best possible price for each individual animal or item they offered for sale. There has never been a more important time, since those days of the nineteenth century, for producers to stick together with the co-operative, competitive auction market movement in order to protect their returns.

For years, we have seen scores of "modernists" extol the virtues of every other alternative marketing system yet only one system has stood the test of time, and still provides a true barometer of supply and demand for any commodity.

Many of those proponents of alternative systems have returned to the competitive auction market system, and if rumblings within the pig industry in particular are to be believed, many more are likely to do so as they see the benefits of being involved in a system which provides a transparent, competitive pricing mechanism.

Let us hope that the farming industry will look back and see the winter of 2010/11 as a water shed - as the time, when even after the huge trading problems caused by the closure of markets due to BSE, FMD, Bluetongue etc the mere survival of the competitive marketing system demonstrates its strength; and those who have ignored the power of the competitive auction system were finally persuaded that, it is, in fact, a modern marketing phenomenon that needs to be encouraged and developed.