A novel contract is giving a group of organic grain growers some much-needed market stability and a good price. It could work for conventional growers, too, as Robert Harris discovers.

The 2010-11 marketing year has been one of the most volatile that cereal growers have experienced in years. Luck as much as good judgement has played a key role in many deals and in the overall price achieved.

Thanks to a novel supply chain agreement, one small group of organic growers in East Anglia has received a better-than-average return without the hassle of trying to predict which way the market will jump.

Six growers belonging to farmer-owned co-operative Organic Arable supplied more than 5,000t of wheat, barley and beans this season to BQP, the Suffolk-based company that supplies contract-reared outdoor organic pigs for the Duchy Originals range sold through Waitrose. All grain goes via BOCM Pauls Burston Mill, Norfolk.

“The agreement has given BQP security of supply, traceability and a reduced carbon footprint for organic grain and beans,” says Alison Johnson of BQP. “For the farmers it guarantees a known, local destination, reducing food miles and giving security of sale.”

The 2010-11 marketing year is the first full season that the agreement has been in place, and it has proved a good test, says Andrew Trump, of Organic Arable based at Swaffham Prior, near Cambridge.

“The organic commodities market is very difficult to interpret. Supply and demand information is harder to come by than in the conventional market, so the organic sector can be more susceptible to volatility. A lack of supply-side information makes it difficult for buyers to manage and plan their grain supply and this is potentially damaging for farmers as imported supplies then dictate the market.”

So how does the contract work? To help share profit and risk equally among the parties, the pricing mechanism includes three elements: market price, the cost of production to the farmer and the retail value of pigmeat.

The market price is calculated by comparing prices for conventional feed wheat, using HGCA prices for East Anglia, and organic values, based on Organic Arable data, on a six-year rolling average, updated monthly.

The resulting ratio, which currently stands at about 2, mid-way between the extremes experienced over the six-year period, is used to convert the current conventional price into the contract price. Other commodities are then priced off the wheat figure.

Cost of production is updated as necessary. “The farmers get together to share their information and agree a figure. Being a small group they all know each other, which makes decision-making relatively easy,” says Mr Trump.

The retail pigmeat value is then factored in, using a basket of values for ham, bacon, sausages and various pork cuts.

These pricing arrangements have delivered much-needed consistency to the retailer and BQP, says Ms Johnson. “The organic market is still very price sensitive and rapid increases in feed costs are often quite destructive as, ultimately, they feed through to the retail price, reducing demand. The whole market becomes very cyclical. It has been very difficult to price UK organic grain forward, so it was much easier to use imported grain, which had a critical mass and known price. Now, we can buy British in a sustainable way, which is much more in line with the organic ethos.”

And for the growers? “Some were understandably questioning whether they had done the right thing when they looked at the recent market highs,” says Mr Trump. But they agreed that they were highly unlikely to have hit those highs with all their sales, and the final price they received was as good as or even slightly better than if they had sold independently into the open market, while achieving the reduction in price volatility that, in turn, helped to protect their market.”

The two parties are now working closely to fine-tune cropping. “With some juggling between members within the confines of the rotational needs, we come to an agreement that is led by demand, rather than supply,” says Ms Johnson.

BQP is also assessing the value of triticale as a feed – the crop, having a lower nutrient requirement suits the end of the organic rotation and is useful at suppressing weeds.

As well as benefiting the current group, Mrs Johnson believes this could encourage new growers specialising in high-value organic crops, such as vegetables or milling wheat, to join the supply group.

“We expect demand for organic pigmeat to increase as the economy recovers. Our lead time is about two years, so we are looking to increase pig numbers.

“Triticale allows growers to squeeze in an extra crop ahead of fertility-building clover crops, so it could open up opportunities for more organic growers to supply us with grain.”

Conventional wisdom

BQP is keen to create a similar partnership with conventional growers to supply grains for conventionally reared pigs destined for Waitrose.

“We’d like to start off with a similar number of growers – it’s much easier to get a workable model up and running,” says Mrs Johnson. “Of course this sector is much bigger than organic, so it could eventually involve many more farmers.”

Anyone interested in taking part should contact Alison Johnson (alison.johnson@dalehead.co.uk) or David Brown (david.brown@openfield.co.uk).

Caset study: Clive Martin, Cambridgeshire

Clive Martin, who farms 648ha near March in Cambridgeshire, including 202ha of organic vegetables and grain, has supplied 500-600t of grain to BQP over the past two years – he was a member of a pilot group in 2009-10.

“Organics is relatively new to me; I am growing a lot of different vegetables and I concentrate on marketing these and my conventional grain. I have enough confidence in the BQP agreement to know it will deliver a fair price, which takes the headache out of marketing organic grain myself.”

The first year’s price was exactly right, he says. “This year, if I’d sold spot I probably would have got a better price, but I’m happy with what the contract achieved. And I don’t know any farmer that’s not sold wheat wrong for the coming harvest – the BQP contract doesn’t work like that – it spreads the risk.

“And, although it comes down to price in the end, any farmer likes to think their produce is being used locally.”

Mr Martin is also tempted to try the conventional contract. “I’d like to see what pricing mechanism it will use, but it could be something I’m interested in.”