The food chain

Susannah Streeter: Hello and welcome to Switch Your Money On from Hargeaves Lansdown. I'm Susannah Streeter, I'm the senior investment and markets analyst here at Hargreaves Lansdown. And, as usual, I'm with Sarah Coles, our senior personal finance analyst. So, Sarah, we're talking all things food and farming this week. Now, I know you live further out of Bristol than I do, in a town, pretty much, surrounded by farms. So, presumably, you have the benefit of a bit of local knowledge here?

Sarah Coles: Well, I do. There are about 8,500 farmers and food producers in Somerset, but I do have to admit, the closest I tend to get to them, is when I go to farms that have those kids activities. And although you go to them and the plan is to feed the sheep and watch the cows being milked, you always end up trapped in the soft play area.

Susannah Streeter: Yes, soft play. That awakens, I think, terrifying memories for most parents. I have quite a few. Don't make the mistake of going to one on a rainy day in the school holidays, it's like the scary scene from Toy Story 3. I much prefer being in the fresh air, whatever delectable smells the farmyard brings, it's nothing compared to the ball pit. Thankfully, though, we're heading out of soft play onto the farm and taking a closer look at how the industry's been affected by everything from the invasion of Ukraine to the weather and just how this all feeds into the food supply chain, in a podcast we're calling The food chain.

Sarah Coles: Yes, we'll be speaking to Guy Singh-Watson, founder and creator of one of the most recognisable farming brands in the UK, Riverford Organic Farmers. We'll talk about the UK's largest organic veg box business and some of the challenges facing farming at the moment. Guy, thanks for joining us. So, you founded the business in 1986, so you've been farming for 36 years. So, has this stood out as a particularly challenging year? Or is this just all part and parcel of farming?

Guy Singh-Watson: Yes, it has been an incredibly challenging year. I mean, obviously, the droughts, now the energy prices, you know, the complications of Brexit, difficulties with recruiting labour. Yes, it's a time of unprecedented uncertainty and disruption.

Susannah Streeter: Wow, problems really are piling up, aren't they? Looking forward to hearing a little bit more, just about how it's affected your business a bit later, and we'll also be speaking to our lead equity analyst Sophie Lund-Yates, about some of the listed companies in this space, including Danone and Tesco.

Sophie Lund-Yates: Hi Susannah, yes, there's certainly a lot to unpack and it's not just the suppliers themselves that are struggling at the moment but certainly, some big questions to be answered for the supermarket groups too.

Susannah Streeter: Okay, thanks, Sophie. And we're also going to catch up with Emma Wall, our head of investment analysis and research, who's been speaking to James Govan, lead manager of the Barings Global Agriculture Fund. And, of course, we will have the quiz and I've found some pretty incredible numbers and odd facts about farming, to keep you on your toes, Sarah.

Sarah Coles: Oh no. I wish I'd paid a bit more attention on those farms now.

Susannah Streeter: Well, all that is to come. But let's start by digging into the business of farming because while we think of farming as a local business, it has been dramatically affected by global forces. Costs for UK farmers keep surpassing record levels. Agricultural input prices rose just over 33% in the year to June, with a big jump in April and steady increases in May and June. Pressures are coming from all sides, through a combination of wider inflation, issues arising from Brexit and the invasion of Ukraine. Plus, of course, the extremes of weather we've seen this year. Like any businesses, farms have been hit by rising energy prices, which aren't protected by the domestic energy price cap. Fuel prices have taken a toll because of gas guzzling farm machinery, in particular.

Sarah Coles: But there are also problems that are specific to the industry. So, for livestock farmers, there's the rocketing price of feed and that's been caused by rises in the price of sunflower meal, wheat and soya bean. So, the invasion of Ukraine had a major effect on the first two. Russia and Ukraine are responsible for a big slice of both. Meanwhile, poor harvests have reduced the supply of soya beans too. And then, for growers, there are rising seed prices and issues around fertilisers. So, fertiliser prices have hurtled upwards and were the biggest contributor to the shocking jump in farmers' costs. And a major part of the problem is that much of the manufacturing's done in Russia and Ukraine, so the invasion has had a huge impact. The cost of nitrogen fertiliser is up almost threefold.

Susannah Streeter: And meanwhile, there's a separate pressure on UK-produced fertiliser. The decision by CF Fertilisers to stop the production of ammonia, a key ingredient, because of soaring gas costs, means it's no longer commercially viable and it's led to fears of fresh shortages and price rises. Although the company says it'll import ammonia to fulfil orders over the next few months, it really does underline the huge difficulties in the fertiliser industry right now. And livestock farmers potentially face a double whammy of consequences due to the closure. Not only do they use fertiliser often on the grass to feed animals, there's now set to be a shortage of CO2 gas, due to the ammonia production shutdown, which is used to stun livestock before slaughter. Now, farmers, once again, may face the difficult decision of having to cull animals, if a backlog builds up for abattoirs and if a solution to the CO2 shortage isn't found fast. Last autumn, the government stepped in with temporary financial help. I don't know whether you remember but with so many firms now calling for help with energy bills right now, the situation appears even more acute.

Sarah Coles: And then there are staffing issues on top of this. So, part of this is due to changes after Brexit, which restricted EU nationals travelling to the UK for harvest. Now, a replacement scheme was put in place for seasonal fruit and vegetable pickers but the total number of workers, which was 30,000 a year, which could rise to 40,000 if necessary, that's well short of the number that farmers had asked for. And leaving the EU also dramatically changed the system of subsidies. So, payments matching the old scheme have been gradually cut and they're replaced with a new one which is structured differently. So, farmers are no longer paid according to the area of land being farmed but payments will be linked to environmental work. So, for some farmers, they're going to be lower too. In these early days outside the EU, there are new challenges for exporting farmers as well because they've got to grapple with the new paperwork required. And then there's the delays at ports which raise the risk of wastage for food with short shelf-life, which can seriously eat into profits.

Susannah Streeter: So, farmers are wrestling with these challenges while dealing with the fact that input costs are rising so much faster than the value of outputs. Up over 33% compared to 25% in the year to June. Now, some farmers have agreed fixed prices in advance, so they won't benefit from rising market prices, which is widespread in the dairy market. Now, this was seen as a way of giving them certainty over income over the years but has caused significant problems now that prices are rising. Rising sale prices are making a big difference to other farmers because the value of some agricultural products has soared much higher than the headline rate, such as oats, up 88%, oilseed rape up 66% and milk up 41% in the year to June. However, not all farmers have had as positive a result because the extreme weather has caused real problems for some crops, including potatoes, onions, lettuce and carrots. It's had an impact on grazing livestock too because the lack of rain has severely limited grass growth.

Sarah Coles: So, these pressures are sewing the seeds for more painful price rises for shoppers, who are already struggling amid the painful cost of living crisis. So, let's bring in Guy Singh-Watson, founder and creator of the Riverford Organic Farmers. So, Guy, I mentioned you've been in organic farming for 36 years. That makes you something of a pioneer, so why was it so important to you?

Guy Singh-Watson: To farm organically?

Sarah Coles: Yes.

Guy Singh-Watson: Well, I didn't like handling pesticides. My brother had just come out of hospital with paraquat poisoning and I'd made myself pretty ill as a teenager, spraying my father's barley. I just didn't like handling all these containers with skulls and crossbones on them. And as the years progressed, that developed into, kind of, almost a sort of philosophical commitment to farming in partnership with nature, as opposed to dominating it and putting something else in its place.

Susannah Streeter: Presumably because, you know, you're farming organically, that comes with additional challenges as well?

Guy Singh-Watson: Yes. I mean, though, over the years, we have overcome most of the difficulties. I mean, you know, we used to suffer terrible losses to pests and diseases and on the whole, we've found ways of managing that. Maintaining soil fertility is probably the biggest challenge but again, I think we've got better at that and making sure we've got a really healthy soil where we can grow good crops. Even though a chemical analysis will tell you that the nutrients aren't there in the soil, in the way that a farmer would normally analyse them, because we have a more, kind of, active soil and more active mycorrhiza around our crops' roots. So, like I say, over the years, we've found ways of finding our way around most of the problems which, initially, were so challenging. I mean, weed control used to be a terrible problem. Now, you know, much less so.

Susannah Streeter: Do you think your model means that you're a little bit more insulated in some ways, from the current crisis affecting farmers more broadly?

Guy Singh-Watson: Well, definitely, in terms of energy, yes. We don't use ammonium nitrate, made in the Haber-Bosch process, hugely consumptive of energy. So, that's not an issue for us. I mean, one of the characteristics of an organic farm is that it should, as far as possible, be self-sustaining and generating its input from within the boundaries of the farm. So, we're buying in less and, yes, we are a little bit more insulated. But, you know, we're every bit as susceptible to what's going in the labour market, as a result of Brexit. And, you know, our electricity bill has gone up somewhere between three and fourfold, it stands at £1.2 million for this year, which is pretty painful.

Susannah Streeter: What can you do to try and mitigate some of these costs? For example, electricity. I mean, I imagine, as you're an organic business already trying to reduce energy consumption as well, you've probably already pulled quite a few levers?

Guy Singh-Watson: We do have a lot of solar panels, the largest rooftop array in any business in the South West. But we're definitely going to increase that. It's a little bit annoying. We do buy all green energy anyway, which hasn't gone up in price. The price of producing it hasn't gone up but obviously, you know, those people with the wind farms and the solar farms are doing very well out of this situation, which is a little bit annoying. Then in terms of, you know, the labour, by becoming employee-owned, I think people like working for us more, they're better paid, they're better respected, better looked after and they feel they're part of something that they want to contribute to, on the whole. So, we have had less labour issues than most people within the horticultural and food sector.

Susannah Streeter: There is such clamour across so many industries for help with energy bills but do you think, you know, you point out there, the frustration that even though you pay for greener energy, you're still having to pay rocketing prices. Do you think that there should be a review of the energy market, to look at why that is?

Guy Singh-Watson: Well, I think there should be more renewable energy. I think we should let energy prices rise but I think we should ensure that those, particularly those on lower incomes, are essentially given more money through Universal Credit or whatever, so that they are not, you know, suffering the sort of poverty that we are seeing. But I think we should absolutely allow the price signal of higher energy costs to drive down energy consumption. You know, both for our resilience as an economy and a nation and to combat climate catastrophe. So, you know, the idea of subsidising energy, I mean, we should've been taxing energy for 30 years and we wouldn't be in the mess that we're in today. So, if energy is a lot more expensive, people will find ways of using less of it. But we do need to be careful to protect the most vulnerable.

Sarah Coles: You mentioned the ownership structure and the way that it's employee-owned, can you explain to me a little bit about why you decided to make that move?

Guy Singh-Watson: I'd been thinking about it for 20 years, I suppose. I was always quite inspired by the John Lewis Partnership and some other employee-owned businesses, like Arup, where my daughter was working. And I very much wanted to show that we are, as human beings, motivated by things other than greed and that you could run a good business, you know, without appealing solely to greed. So, I guess it was an enactment of principles that I hold and maybe a bit of a, kind of, experiment. And so far, it's gone fantastically well. I mean, you know, sales have been brilliant, staff retention has been brilliant. We, you know, did very well through COVID, I'm a bit embarrassed to say it because of all the suffering that a lot of people had and a lot of businesses and individuals. But we actually did very well out of it and part of that was that staff went the extra mile so we could take on more customers and did very well out of it and the profits we made were shared with the co-owners.

Susannah Streeter: You did mention that you still have been impacted by Brexit, in particular, at the labour market. Do you think though, the fact that you can retain staff has really helped you offset some of the problems experienced on other farms?

Guy Singh-Watson: Yes, unquestionably. I mean, if you go into most fields, you know, in horticulture, there's not a word of English spoken, it's almost exclusively east European and I think, to some extent, they've been replaced by Nepalese and plane loads of people coming in from all over the world to try and replace them. You know, that's not the world that I want to live in. I would like to live in a world where, you know, we are connected to the food that we produce and we paid a price at which people within this country are willing to do the jobs, that it isn't the job of a sort of underclass to feed us. I think we've always paid reasonably well. We pay a bit above the odds. And I have to say, the rest of the market has caught up with us now, so I'm not sure that we are actually paying that much more anymore but I think wages will have to go up. We have to pay more, we have to make those jobs more attractive, more interesting. That is, at some point, going to involve people paying more for their food. I can't see how we can avoid that.

Sarah Coles: You're seeing so many input costs increase and you're seeing people are also facing the cost of everything else going up, do you think that that affects demand for something like organic food, which might be considered, in some ways, a bit of a luxury?

Guy Singh-Watson: There is so much going on, you know, at the moment. You know, Brexit, the whole energy thing, the effect of COVID and the slow reversion to people's habits, behaviours pre-COVID. And to, sort of, unwrap all those things and attribute so much of the change to anyone, I think, is impossible. We did actually go back and look up what happened to us during the 2008 crisis and we expect our customer behaviour to be fairly resilient. We don't expect to see a large drop off in demand as a result of squeezed incomes. We will see some, I'm sure. And we will have to, probably, you know, tailor our offer a bit to ameliorate that but we're not expecting a drastic effect. Sales have dropped considerably, I think we're about 22% down from where we were at the peak of COVID but we're nowhere near back to the levels that we were pre-COVID. You know, we're still, probably, 20% up, 25% up. Unfortunately, we have to programme our crops. Almost everything that we sell in our boxes is grown with farmers that we know, on a programme, with an agreed price and a volume and so on. Unfortunately, we did programme their crops last October for what we will be selling until next May and that does mean that we are a bit over-supplied with some things at the moment, which is proving difficult. We are going to have to reduce programmes a bit next year, I think.

Susannah Streeter: Do you think, though, that eating seasonally, using boxes that you deliver, does encourage more creativity? I mean, I know you put out menu suggestions and how the vegetables should be cooked. Do you think that this is going to become even more important going forward? When people have to make really difficult decisions, have to put back goods because they simply can't afford it. Do you think there's a lot more value that can be garnered from vegetables, that currently is not exploited?

Guy Singh-Watson: Potentially. But every experience I've had over 35 years, is that trying to persuade people to eat a Savoy cabbage grown in Devon, rather than a head of broccoli, grown in Spain or Italy, in January, is an uphill struggle. You know, those vegetables, personally, I'd rather eat a Savoy any day but people feel intimidated by a Savoy. Actually, cauliflowers have become fashionable again but, you know, it used to be they were intimidated by a cauliflower as well but would happily eat a pepper, aubergine, whatever, imported from all over the world, at a huge carbon footprint. Actually changing people's behaviour in the kitchen is extremely difficult and it's a very, very slow burn, any idea that people are going to change their cooking. They might go to eating, you know, cheap white bread but I'm not sure that they'll go back to eating a Savoy, unfortunately.

Susannah Streeter: The scariness of the Savoy. Well, we're going to leave it there, I think, Guy. You've got a demanding dog in the background. It's really great to talk to you and get your views on the current crisis. I really appreciate it.

Guy Singh-Watson: Sorry about the dog.

Susannah Streeter: Oh, we love him.

Guy Singh-Watson: Okay. Alright, bye then.

Susannah Streeter: Now, it's usually Sophie Lund-Yates who's trying to control her dog in the background but he's pretty quiet today, Sophie. So, Sophie's our lead equity analyst here at HL. Sophie, you've been looking at a few other companies in the food chain, haven't you?

Sophie Lund-Yates: Yes. And you are correct, the puppy is currently sleeping. So, we can cross our fingers that I can get through this. But to kick things off, I'm going to start off talking about dairy and looking at Danone. It is pretty tough to not do that jingle but I will refrain or it's going to be stuck in everybody's heads. So, Danone is the world's leading company for fresh dairy products and plant-based food and beverages, according to value. Its two biggest brands are Aptamil and Activia, while its biggest markets are the USA, China and France, although its products are actually distributed in over 120 countries. It's certainly no small fry. I mean, it has annual sales north of 24 billion euros. Now, the dairy giant is, as you might imagine, from what we've been talking about today, not immune from soaring input costs. What's known as the group's recurring operating margin, fell to 12.1% in the first half, down from 13.1% at the same time last year. It's actually in a bit of hot water with the organic community in the US, where it's cut-ties with 89 small dairy farmers in the North East, in favour of other locations. This is a real blow to the dairy communities in these areas, which have been struggling for years. But it's a stark reminder of the problems at play in the logistics arm of large-scale farmed foods. Danone says that the move comes as it aims to shorten the routes its milk actually needs to travel. Especially because it's having difficulty finding drivers for those long-haul routes. A lot going on and it's understandably a highly sensitive issue. One thing I would say, is the far-reaching demand for the group's products means on the corporate and investor side, not a lot has disrupted progress really. The shares change hands on a price-to-earnings ratio of 15.3, which is a bit below the average and that suggests some caution from the market, which is at least partially stemming from concerns on the cost front.

Susannah Streeter: Let's move onto the supermarket sector because, of course, we know that food inflation is really high right now. What impact is this having on another company you've looked at?

Sophie Lund-Yates: Next up, for this week, I looked at Supermarket Income REIT. And a slightly different way to look at farming and produce, is to look at those in the business of renting out supermarket space, which is exactly what this company does. It's a UK-based real estate investment trust and that's where the REIT comes from. It invests in supermarket real estate assets and has a portfolio of about 73 supermarkets and that includes 47 stores and 26 joint ventures. The main thing to point out is that while there are some ups and downs going on, in terms of product availability, which will have a knock-on effect for supermarket chains, this is unlikely to be a derailment of success. And looking at a supermarket's landlord is one way to potentially benefit from the resilience of supermarkets. REITs don't really care about the ups and downs in revenue at a store, they only care that rent can be paid, which isn't a likely issue for supermarkets. Although, please do remember that nothing's guaranteed. The company's portfolio houses a lot of the expected names. So, that's Tesco, Sainsbury's, Morrisons, Waitrose, Asda, Aldi and M&S. And one thing, when you look at that, that really stands out, is that its tenants span the value spectrum, which helps spread risk. Also, as a REIT, the group has to pay out the majority of its profits as a dividend and that helps support the prospective yield of 4.9%. Although, as ever, no dividend is ever guaranteed. Some things to keep in mind, include the fact that the group's expanding by taking on new sites and funding this through debt. This is an absolutely normal thing to do but as with any company looking like it's acquiring rather aggressively, the pace and the quality of these deals is something to monitor, really. I mean, we believe this company offers more resilience than other names in the current climate but it isn't an exciting fast growth company, is what I would say.

Susannah Streeter: Okay. So, moving on, what's your take on Tesco?

Sophie Lund-Yates: Tesco knows a few things about farmers and farming. It has a direct relationship with around 3,000 of the 38,000 farms it works with. And managing these relationships is a core element of the group's success. Not just so it has items to fill its shelves but also, from an environmental, social and governance perspective, or ESG for short. Supplier treatments and rights are exactly the kind of thing newer investors can care deeply about. But what I really want to talk about is wonky veg. There has been an increase of supermarkets selling so-called 'wonky veg'. You know, carrots that aren't straight and things like that. And that's because the hot weather has messed up a lot of crops and farmers have essentially told the supermarkets, 'This is perfectly edible. Please take it and sell it.' But I think this is great and will hopefully start the process of consumers understanding that cooking with a bent parsnip isn't going to kill you. But essentially, on the corporate side, what this is telling me is that it's easy to forget how utterly ingrained with farming the big supermarkets are. What affects farmers, affects them and the products that they are able to sell. Now, in terms of Tesco's recent performance, we know that first quarter group retail sales, excluding fuel, grew 2% on a like for like basis, to £13.6 billion. Compared to pre-pandemic levels, that reflects like for like growth of 9.9%. Now, Ken Murphy, who is Tesco's CEO, said, 'We are seeing some early indications of changing customer behaviour as a result of the inflationary environment. Despite which, guidance on profit and cash does remain unchanged.' And this is really the main thing to watch for all the supermarkets, as customers continue to penny pinch, margins are really in the spotlight.

Sarah Coles: Thanks, Sophie. We're covering it all here, from the scary Savoy to the wonky veg. I should add that figures are from Refinitiv and are correct, as of 26th August. And figures should not be looked at in isolation. Let's bring in Emma Wall now, our head of investment analysis and research here at HL. She's been talking to James Govan, lead manager of the Barings Global Agriculture Fund.

Emma Wall: Hi James.

James Govan: Good morning, Emma.

Emma Wall: So, it's been rather a roller-coaster couple of years for agriculture or soft commodities. If we can, sort of, cast our minds back to the beginning of the pandemic, we saw the markets slow quite a lot, didn't we? As lockdowns across the world impacted demand and, indeed, the ability to get certain agricultural commodities to those that needed them.

James Govan: Yes. So, I mean, the good thing, through the pandemic, was that agriculture was treated as a critical part of the economy. So, farmers throughout the pandemic were able to get hold of the crop protection products they needed, fertiliser and seeds. And farm equipment to manufacturers, the fertiliser plants etc. kept running. So, from a supply perspective, it managed through the whole process reasonably well. From a demand perspective, demand for food is always there. There was a secondary impact, in terms of biofuels, obviously, with fewer miles driven, things like corn going into ethanol, you know, over a third of US corn production goes into ethanol. Things like that did slow down but in general terms, I think agriculture managed through the pandemic reasonably well.

Emma Wall: And then, as the world starts to emerge from what has been a very difficult few years, another geopolitical disaster in the form of Russia invading Ukraine, the grain that comes out of Ukraine has been severely hampered and this has impacted inflation across the world. How have you managed investing in this asset class through such a difficult time?

James Govan: We could even go back to slightly before Ukraine, the South American crop, at the start of the year, we've had La Niña weather event, which is still with us and expected to continue into the winter. So, that reduced South American production right at the start of the year. So, Brazil, biggest soybean exporter in the world, second biggest corn exporter in the world. So, we had physically tight balances, in terms of demand and supply for the grains and edible oils and then the Ukraine situation hit. As you rightly say, Emma, from an agricultural perspective, Russia and Ukraine are powerhouses in agriculture. Nearly, you know, 30% of global wheat exports, 18% of corn exports and much of those exports flow through the Black Sea. So, there have been challenges, both from a Russian perspective and a Ukrainian perspective. From a Russian perspective, payments have been more difficult and marine insurance, getting vessels in and out of the Black Sea, has also become more expensive. And we're expecting a bumper wheat crop out of Russia this year, you know, any help the Russians can get, in terms of getting their exports out and as part of the UN agreement with Ukraine, they are assisting further exports of food and fertiliser from Russia. In terms of Ukraine, we hear stories of brave farmers tending their crop, even in these difficult situations. The ships are leaving the harbour. Again, we'd like to see a faster pace. Fertiliser production, the Russian fertiliser exports have been ramping up.

But it's actually more the secondary impacts that we're seeing, in terms of higher natural gas prices, taking fertiliser production to uneconomic levels in many parts of Europe and that's tightening the demand and supply for fertiliser and leading quite a few fertiliser products' pricing to go up as well. So, in terms of us managing through the Russia-Ukraine situation, we didn't have any direct Russian exposure when the war happened, in the Agriculture Fund. In fact, we held the fertilisers, the seeds, the crop protection agricultural machinery. And as the crop prices were at strong levels, strong farmer profitability, we didn't really have to do too much.

Emma Wall: Can you put some of this volatility into context? Because, for example, a couple of months ago, with the original, sort of, agreement to allow ships to leave the ports, we saw soft commodity prices come down, associated with what was on those boats. And then one of the ports was bombed and overnight, we saw, you know, massive price inflation, as that deal came into question. How does the volatility that we've seen this year compare to typical agricultural prices? Because commodities in general, soft and hard commodities, can be a more volatile asset class. In part, because of the, sort of, external drivers of the market. You mentioned, yourself, the weather events, which can have a huge impact on agricultural prices. So, how does this year compare to, sort of, normal volatility in this asset class?

James Govan: It clearly has been a more volatile year than normal. And normally, within agricultural markets, volatility tends to be higher when the physical balances, in terms of the demand and supply, and the inventory levels of grains and edible oils are at tight levels already. So, as we came into the year, we were at physically tight levels, so any small change in the fundamentals can lead to a bigger impact, in terms of pricing. And that's what we've seen. But yes, for sure, this year has been more volatile, as the markets had to not only look at the weather events but also, as you rightly point out, the war in Ukraine as well.

Emma Wall: So, the multibillion, trillion dollar question, if you get your crystal ball out, what does the next 12-24 months hold, in terms of pricing and expected volatility?

James Govan: Our expectation is that crop prices will remain high for at least the next two years. And that's because, for most regions around the world, you only get one crop a year. So, we think we need two good harvests, in order to replenish inventories back to more normal levels. And therefore, we expect strong prices or high prices, in terms of the soft commodities, for the next two years. That should set up strong farmer profitability, the US Department of Agriculture just released their estimates of US farmer profitability. And they're expecting 2022 to be a record in nominal terms and almost record levels on an inflation-adjusted basis as well. So, strong farmer profitability which should lead to good demand for things like seeds, pesticides, agricultural machinery and, of course, for the farms themselves. So, we think high prices, strong farmer profitability, for the next couple of years.

Emma Wall: James, thank you very much.

Susannah Streeter: That was Emma Wall talking to James Govan, lead manager of the Barings Global Agriculture Fund. And please bear in mind that these are the views of the fund manager and are not individual stock recommendations. You're listening to Switch Your Money On from Hargreaves Lansdown. And do remember, please subscribe wherever you get your podcasts, so you get a fresh, new episode in your inbox whenever it's ready.

Sarah Coles: So, finally, it's time for the quiz. Susannah tells me she's been harvesting some intriguing farming facts. It does fill me with dread.

Susannah Streeter: Don't worry. There's nothing too scary in here. Possibly silly but not scary. So, first up, at the risk of sending you to sleep, let's start with counting sheep. So, how many sheep do you think there were, in the UK, in 2021? Now, I'm going to help a little bit here, rather than just leave you in the dark. There are more sheep than pigs and cows added together and there are 9.6 million cows and 5.3 million pigs. So, given that, how many sheep are there? Are there 15 million? 22 million? Or 33 million?

Sarah Coles: Well, I've just driven through Scotland and the Lake District and that's pretty much wall-to-wall sheep. So, I'm going to go with the highest option. So, that's going to be 33 million.

Susannah Streeter: You are right. Good start. Although, I hope you weren't counting them while you were driving. Okay. We're in the realms of big numbers, let's try the total utilised agricultural area, which includes arable land, permanent crops, permanent grassland and kitchen gardens but not things like farm buildings, woodland or unused land. So, how much of the UK do you think this covers? Is it around 50%? 60%? Or 70%?

Sarah Coles: Well, I'll try not to be side-tracked by the Lake District this time because I realise that's not where most people live, most of the time. I mean, I suppose, everything that's said about the growth of cities, it feels like it should be down the bottom end of the spectrum but there's the chance that farming is just, sort of, quietly getting on with dominating things. So, I'll go down the middle. I'll say 60%.

Susannah Streeter: No, you're right about how farming does dominate, you just underestimated it because it makes up 71% of the UK, which is more than 17 million hectares. So, you know, a real expanse. Okay, let's dig into potatoes now. There are around 5.5 million tonnes of potatoes produced in the UK. So, how many bags of crisps do you reckon you could make from 5.5 million tones of potatoes? Is it around 13 billion bags? 28 billion bags? Or 50 billion bags?

Sarah Coles: It's a great question but I don't even know where to start trying to work it out. I suppose it might depend if you're talking about grab bags or those disappointingly small ones you get in a multipack. I'll take a wild guess, I'll say 50 billion.

Susannah Streeter: No, it's actually 28 billion bags which would still, probably, even feed my crisp-obsessed kids for a while. My daughter actually asked for 100 packets of Quavers from Father Christmas. So, there we are. And she did get them, dropped down the chimney. Didn't last that long. Anyway, we're going to finish with a very sensible question about greenhouse gases. Farm animals produce a fair amount of methane but which is the worst offender, is it cow farts? Cow burps? Or pig manure?

Sarah Coles: Well, that's just such a lovely question to end with. Do you know, I feel like I'm walking into a trap but I've always thought it was cow farts.

Susannah Streeter: Well, you're right in one way, it was a trap. Yes, people commonly think that the methane menace is from cow farts but while cows produce more methane than pigs, it's their belches which are to blame. I couldn't resist adding a silly question.

Sarah Coles: Oh, I'm happy with the silliness. I just think I just need some really easy ones because I only got one, again.

Susannah Streeter: I should give you really one and a half because you were so close with the arable land question. But there is always next time. That's all from us for now but before we go, we do need to remind you that this was recorded on the 5th of September 2022 and all information was correct at the time of recording.

Sarah Coles: Nothing in this podcast is personal advice. You should seek advice if you're not sure what's right for you. Investments rise and fall in value, so you could get back less than you invest. And past performance isn't a guide to the future.

Susannah Streeter: Yes, this is not advice or a recommendation to buy, sell or hold any investment. No view was given on the present or future value or price of any investment and investors should form their own view on any proposed investment.

Sarah Coles: And this hasn't been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.

Susannah Streeter: Non-independent research is not subject to FCA rules prohibiting dealing ahead of research. However, HL has put controls in place, including dealing restrictions, physical and information barriers, to manage potential conflicts of interest presented by such dealing.

Sarah Coles: You can see our full non-independent research disclosure on our website for more information. So, all that's left is for me to thank our guests, Guy, James, Sophie, Emma and our producer, Elizabeth Hotson.

Susannah Streeter: Thank you so much for listening. We'll be back again soon. Goodbye.