Friday, July 21, 2017

Gove to outline farm subsidy plans

Michael Gove will outline his plans for the future of farm subsidies today: Green Brexit

Farmers will have to earn support in the future by providing environmental benefits, although it looks as if there will be some scope for assistance with investment and food promotion. Upland farmers will also continue to receive support.

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Monday, July 17, 2017

What can the UK learn from New Zealand?

It is often suggested that the UK could learn from New Zealand's experience of abolishing agricultural subsidies, although such comparisons often overlook the way in which the climate there favours pastoral agriculture and the extent to which devaluation assisted the transition (a devaluation of 55 per cent over ten years).

The AHDB has taken a systematic look at what might be learnt from New Zealand, emphasising the differences between the state of the New Zealand agriculture and economy in 1984 and that of Britain today: Kiwi subsidy reforms

Ten per cent of farmers were in serious financial trouble by 1986 and land prices fell by over half.

The principal conclusions are:

  • Should the structure of farm support change there is likely to be a challenging transition period (my view is that phasing and managing this transition is crucially important.)
  • In order for the UK agriculture industry to be successful post-Brexit there will need to be a focus on efficiency and streamlining.
  • There may be opportunities for the UK to carve out niches and for agriculture to thrive through increased vertical integration.
  • Agriculture operates most efficiently when decisions are based on actual market returns.

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NFU suggests solutions to seasonal worker crisis

The NFU has warned that the supply of agricultural workers on UK farms is now 'in jeopardy' for the next two growing seasons. They have produced a report on the subject: Access to a Competent and Flexible Workforce

The options they suggest are:

  • Reintroduction of a seasonal agricultural workers scheme
  • An Australian style points based immigration scheme
  • A UK points system to attract non-UK nationals
  • Retaining an element of free movement

I would prefer a new SAWS scheme as there is already experience in operating such a scheme which has worked smoothly in the past.

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Wednesday, July 12, 2017

Match fit for Brexit

Wyn Grant with Professor Rob Edwards (left), chair of the Farmer-Scientist Network at the Great Yorkshire Show.

'Match fit for Brexit' was the theme of a seminar sponsored by the Farmer-Scientist Network of the Yorkshire Agricultural Society at the Great Yorkshire Show, chaired by the writer and led by James Severn and Richard King of farm business consultants Andersons. They are offering a 'Match fit for Brexit' business review to farmers for £650 plus VAT.

Andersons realistically see area payments ending and they see the following possible forms of support in the future with a budget half of the current one:

  • A wildlife and landscape scheme, agri-environmental, building on the platform of current schemes such as environmental stewardship
  • Support for hill farmers which could be in the form of an area payment
  • Productivity (research and development, knowledge exchange, training, capital investment
  • Food promotion at home and abroad (my question here would be, is this cost effective?)
  • Revenue insurance to guard against price volatility (I remain sceptical about whether this is the solution)
  • Natural resources, focused on water and soil in catchment areas (more than one farmer I spoke to at the show highlighted the problem of soil exhaustion)

One point made in discussion was that the payments available in agri-environmental schemes might not be sufficient to motivate farmers to participate.

Andersons used their three 'model' farms to predict the impact of Brexit. (Note that their profit figures are after making allowance for 'drawings', i.e, a wage for the farming family). The arable 'Loam' farm makes a healthy £248 per hectare a year at the moment. This would go down to £108 in 2025 with good access to the EU and still over £60 with poor access. (My view is that cereal farms with no stream of income from non-farm businesses, which is the case for many of them in East Anglia, would be particularly exposed to price volatility).

The Freisian dairy farm makes a modest £4.4 per hectare at present, this would go down to £3.4 under good access and a bare margin of £0.6 per hectare under poor access.

The 'Meadow' mixed farm, which it was admitted in discussion, is not a well-run business, makes £35 a hectare at present. This would be a loss of £72 per hectare under good access and a big £233 under poor access.

The core message was that farmers should not worry about the figures they can't control like the Brexit negotiations and focus on how well prepared their own business is prepared to respond to the impact of change (albeit that the form of that change is very uncertain). There was a time window for adjustment, given a relative status quo over the next few years and a boost to prices from devaluation. Farmers need to step back from their businesses and review them. For example, farms need to look at their debt structure. Could machinery and labour be pooled with neighbouring farms?

There was some discussion about whether Brexit could lead to land abandonment, but it was felt that most available land would be farmed by someone who could do a better job with it. There was scepticism about whether there will be a big fall in land prices or rents given all the factors that are in play apart from CAP support.

Drones and precision farming

The following session dealt with this topic with speakers from Newcastle University. Precision farming was defined in terms of more correct decisions per area of land or unit of time.

Drones can provide very high resolution images across a wide spectrum, more so than near earth satellites, and they can fly under clouds. However, they cannot be used in anything more than light rain or winds above 23 mph (and winds are often higher above the ground).

The sophisticated cameras cost more than the drones, the cost of which is falling. A question that arose was whether the information gathered for an average sized farm for about £100 would bring a sufficient return in terms of lower inputs and higher outputs.

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Monday, July 10, 2017

The biggest receipients of direct payments

Three conservation organisations are among the biggest recipients in the UK of area based payments. The National Trust receives £1.64m, although the bulk of that is for agri-environmental schemes. RSPB receives just under £1m and Natural England just over £850,000.

The biggest private recipient is Beeswax Farming owned by Sir James Dyson who has two big estates in Lincolnshire. He received £1.60m. He is listed 14th on the Sunday Times rich list with an estimated fortune of £7.8bn.

Scottish farmer Frank A Smart receives £1.45m. Farmcare Trading got £1.16m. It is owned by the Wellcome Trust and was formerly Co-op Farms.

These figures will increase the pressure for an end to area-based payments, reinforced by a likely reduction in CAP subsidies in the 27 member states which will undermine the argument that UK farmers need subsidies to create a 'level playing field'.

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Thursday, July 06, 2017

Trade deal with Japan offers boost to farmers

A trade deal between the EU and Japan, which has required four years of negotiations, will provide duty free access for almost all agri-food exports, although there will be a transitional period. For example, transition periods for phasing out all tariffs on hard cheese will last 15 years. It does cover pasta, confectionery and chocolate.

Current duties on food are high, ranging from 15 per cent on wine to 30 to 40 per cent on cheese.

A major stumbling block in the talks was Japan's reluctance to open up its dairy sector to European imports. There will be full tariff elimination for some cheeses and other dairy products, while in other cases a quota system would apply under which duty free access would be granted up a threshold. Soft cheeses will be covered by a duty free quota larger than the current volume of exports.

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Wednesday, July 05, 2017

Agri-environmental policy after Brexit

A group of academics funded by the ESRC has produced an authoritative briefing paper on agri-environmental policy post Brexit: New Dawn?

The report states,'By recognising the wider role of farming in the landscape, agricultural policy can become part of a wider sustainable Land Use Strategy, which seeks to end the decline in environmental quality and to enhance that quality through restoration.'

The policy brief concludes, 'There is a risk that future policy will be constrained by the legacy of past policies and practices. Whilst a transition arrangement between current and future policies is both sensible and inevitable, it is important to grasp this opportunity to remake our rural development and agricultural policies and avoid “lock-in” to unsustainable practices.'

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Environmentally sustainable agriculture

The Parliamentary Office for Science and Technology has produced a short but informative briefing note on environmentally sustainable agriculture: Research Briefing

The note places particular emphasis on the notion of 'natural capital'. As part of a new domestic agricultural policy, measures could be taken to achieve natural capital targets referring to the elements of nature that directly or indirectly produce value to people.

It also notes that the Conservative Party manifesto contained a proposal for a 25-year environment plan, but this was not included in the Queen's Speech. If it was proceeded with, it would have implications for a number of aspects of agricultural practice. Among them would be water pollution; greenhouse gas emissions (GHG) from crops and livestock; soil compaction from machinery and livestock; the effects of pesticide use on pollinators; and, the degradation and fragmentation of natural and semi-natural habitats.

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Thursday, June 29, 2017

The CAP after Brexit

The EU will lose about eight per cent of its current income after Brexit and is thinking about how to adjust to this loss. Given that the CAP accounts for 39 per cent of EU expenditure, it is at the forefront of concerns.

The European Commission has published a 'reflections' document on possible ways forward: EU finances

In terms of what it has to say about agriculture, it is an interesting mix of sticking to old orthodoxies and some signs of new thinking.

On the negative side, it sticks to the discredited argument that direct payments offer a form of 'income support that partially fills the gap between agricultural income and comparable income for other economic sectors.' It is a highly inefficient and poorly targeted means of delivering income support. Later down the same page, we are told that 80 per cent of support goes to 20 per cent of farms. (Actually, this is a stylised fact based on the Pareto rule: the actual figure is lower than 80 per cent).

We are also told that 'thanks to the CAP, European citizens have access to safe, affordable and high quality food.' One could argue that this is the result of technological advances and the innovations made by many farmers in response to changing patterns of consumer demand. Do the citizens of New Zealand lack access to food with these qualities despite the absence of subsidies?

The paper does admit that 'There is no consensus on the level of income support necessary when taking into account competitiveness within the sector.' This is because the policy does not have a competitiveness objective and is not designed to promote competitiveness.

Indeed, high tariff barriers allow uncompetitive practices to continue). A graph makes the claim that 'Agricultural trade balance shows a competitive sector', but makes no reference to the way in which tariffs keep out price competitive imports. Indeed, it is admitted that 'In some cases, these [CAP] payments do not contribute to the structural development of the sector but tend to increase land prices that may hinder the entry of young farmers into the market.'

There is a greater recognition of the need to deliver 'climate public goods and services', a serious omission in the current policy. There is also a recognition of the need to encourage farmers to invest in new technologies which is forming part of the UK debate on a new domestic agricultural policy.

The document envisages 'the introduction of a degree of national co-financing for direct payments in order to sustain the overall levels of current support.' This will not go down well in countries such as France which benefit from the current distribution of CAP funds.

There is also reference to reducing direct payments for large farms. It is suggested that there should be a new 'focus on farmers under special constraints, e.g., small farms, mountainous areas and sparsely populated regions.' Again, care will be needed to ensure that the chosen policy instruments do really tackle problems such as rural depopulation. For example, improving rural broadband might be a more effective way of stimulating new economic activity rather than propping up farms that lack viability.

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