A Real Cash Flow: Why Food Production Is Big News

GLOBE - Monday found your Penny Sleuth attending a presentation by Carr’s Milling in the City. Around the table sat a collection of private client fund managers who were, of course draining their wine glasses at maximum speed in order to anaesthetize themselves against the depressing prospect of an afternoon in the office.
calendar icon 16 November 2007
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But my wits were, as ever, needle sharp, and I was especially interested to hear Carr’s chief executive Chris Holmes describe the impact of the milk price rise that our poor struggling dairy farmers have finally managed to extract from the retailers. Actually, it is not the retailers at all, because they have passed the price rise - and a bit more besides - straight through to you and I.

But I digress. The point is that the average dairy cow produces 7,000 litres of milk each year. I know! Astonishing isn’t it? Until recently farmers were getting just 18p for each litre. Now they are getting 27p. The extra 9p on 7,000 litres of milk is worth £630. Subtract from that the £200 or so extra that the farmer has had to pay for animal feed, but he is still getting a good £400 per cow that he was not getting before. Multiply that by a herd size of 200 cattle, and our struggling dairy farmer is struggling no more. £80,000 per year richer, he is checking out the cost of a new Range Rover, thinking that he might buy a new tractor, and certainly vowing to invest in a better class of feed for his animals and fertiliser for his land.

The outlook for dairy farming, according to Holmes, is ‘as bright as I have ever seen it,’ and if this rosy picture has not yet spread to other types of farm it can only be a matter of time. Suddenly farming is popular. Ten years ago investors started to wake up to the fact that there was a global shortage of raw materials to feed the Chinese manufacturing dragon. Now they are waking up the fact that the world needs more food.

Global demand for food on the rise

It is as simple as that. The global population is rising inexorably. The burgeoning middle class of Asia is no longer content to eat bucketfuls of rice and cabbage, with an occasional chicken’s foot as a treat. They want red meat, fruit, Mars Bars and all the other culinary delicacies that we take for granted in this country.

Source: MoneyWeek
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