TWO banks have adopted an Australian scheme to help wheat farmers tackle volatile prices.

The Yorkshire and Clydesdale Banks, both members of the Australian-based NAB Group, are offering a package to allow growers to manage their selling price for wheat for up to three years forward.

Henry Graham, the banks' head of agribusiness, said that, in the 12 months to December last year, wheat prices ranged from £60 to £120 a tonne. "That's a level of price volatility which used to be unheard of in the UK but which is becoming a more regular feature of EU trade," he said.

"For growers able to sell at, or close to, £120 a tonne, 2003 was a very good year. In reality, however, many received a lot less than that, having agreed forward contracts at about £75 a tonne early in the year. At the time, the memory of a £60 a tonne trade in 2002 made such an offer seem too good to miss."

Mr Graham said the banks had created a more flexible price management package for growers. It would give them the opportunity to cash in fully on the good years, while protecting them against rock-bottom prices in less positive seasons.

As well as offering fixed prices, the package allowed growers to select a base wheat price for the coming harvest, locking an agreed tonnage into that price in return for an agreed premium. It ensured the grower never received less than the base price, but benefited fully if the price rose.

As an example, Mr Graham quoted a selected price of £85 a tonne, with an agreed premium of £5 a tonne. If the actual sale price was £60, the grower would get £60 from selling to the normal buyer in the local marketplace and £25 from Clydesdale/Yorkshire, minus the £5 hedging payment. The grower would end up £20 ahead of the market.

If, however, the market price reached £110, the grower would simply sell to the best local spot offer, and pay only the £5 premium to Clydesdale/Yorkshire after the sale of the crop.

"We've been able to create this package by drawing on the experience and resources of our parent, the National Australia Bank," said Mr Graham. "They've dealt with extreme price volatility for many years in relation to agriculture in Australia, developing a range of price management packages to enable growers to plan ahead with a degree of security.

"In practical terms, it also means major wheat buyers, including pig farmers, can also use wheat price management packages."

The buyers' package works in exactly the same way as the growers', but with the buyer gaining protection against the highest price he is prepared to pay.

The bank's currency hedging packages could also be of interest under the single farm payment system as the euro:sterling exchange rate is to be used to set the SFP.

"The fact that the euro has been worth just over 66p in recent weeks, but was worth up to 72p a few months ago, highlights the continuing scope for change," said Mr Graham. "This risk is made even greater by the fact that the SFP will be calculated using the average exchange rate of one month only.

"On a SFP of £100,000, for example, the exchange rate volatility we've seen during the last 12 months could have altered the actual on-farm payment in the UK by as much as £15,000."

Interest rate movements within the UK have similar scope for significant on-farm impact.

"Risk management is going to become an increasingly important part of agriculture in the future, particularly as we move towards the SFP," said Mr Graham. "What we've tried to do is to create solutions which will enable farmers to minimise risk within their business without the complexities, restrictions or missed opportunities which tend to apply to other forms of forward price planning or future trading.

All Clydesdale/Yorkshire's risk management packages carry minimum size qualifications. Wheat growers must handle a minimum of £100,000 of wheat sales, although this can be over a three-year period. On currency, the minimum deal size is £100,000, which is an arable aid or single farm payment of £100,000.