Wednesday, April 08, 2015

What would British withdrawal from the EU imply for British farm policy?

Farmers are uncertain what impact a British exit from the European Union would have on their businesses. This is not surprising as so far there has been little systematic exploration of these issues, says the Farmer-Scientist Network which has been set up by the Yorkshire Agricultural Society.

The Farmer-Scientist Network is based at the Great Yorkshire Showground, and has assembled a working party of CAP experts from economics, law and political science chaired by Professor Wyn Grant of Warwick University. North Yorkshire farmer, Bill Cowling, who is best known as the Honorary Show Director of the Great Yorkshire Show, is a working party member and is helping to identify the issues that concern farmers in particular.

He comments: “The impact of a possible withdrawal from the EU cannot be under estimated. The Yorkshire Agricultural Society was established to drive forward developments in farming, and it is anticipated that this Network will encourage a more informed debate in the event of a referendum.”

The Network has raised the point that Britain would be outside the Common Agricultural Policy (CAP) and would have to devise its own agricultural policy. The shape of that policy would, however, be influenced by the form that the relationship with the EU took after exit and obligations under the international trade regime as Britain would remain a member of the World Trade Organisation.

Over the next few months the working party will examine:

  • Financial support for farmers post exit
  • The tariff regime that would be followed outside the EU
  • What would happen to environmental regulations
  • The availability of migrant labour

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Friday, April 03, 2015

The productivity puzzle

Britain's recent poor productivity performance, which necessarily has an effect on real wages, is the issue that dares not speak its name in the general election. It doesn't reflect well on the Coalition Government, but Labour has not pushed the issue, perhaps because they have no answers.

Britain's record in agricultural productivity has been poor. Between 1900 and 1984, yields of wheat trebled from one tonne to three tonnes an acre. Since then, although there was some improvement in the late 1990s, productivity has more or less flat lined.

Using USDA and OECD data, England ranks seventh out of eight countries on ratio of farm outputs to inputs by value (excluding subsidies). The World Bank calculates that the country produces less cereal per hectare of harvested and than Belgium, France, Germany or the Netherlands.

To put it another way, if we start with a 1990 index of 100, Britain's agricultural productivity was around 118 in 2011. The US was on over 140, the Netherlands and Germany in the 170s, New Zealand near 220 and Denmark over 220.

The high price of agricultural land in Britain doesn't help. It's a popular, lightly taxed investment asset, also popular for sporting and lifestyle purposes. Its steep rise in value absorbs funds that might otherwise be used for investment.

There has also been a sharp fall in applied research and development with a number of public research institutes wound up in the 1980s. Over the past two decades the country's spending on agricultural R & D has fallen by an average of 6 per cent in real terms.

The UK did launch an agri-tech strategy in 2013 with cross-party support, but it is open to question whether the £160m allocated to it is enough or whether it has come too late.

Monday, March 23, 2015

Balls in less farm subsidies shock

There was what I found to be a rather surprising exchange on agricultural policy at the end of the questioning of Ed Balls as Shadow Chancellor on Sky this afternoon. Someone from the farming industry asked him about declining self-sufficiency in UK agriculture, no doubt him expecting to say that targets to increase it should be set. The NFU has just tweeted that she is one of their members.

Instead he said that he believed in international trade and that this gave consumers a wider choice of products in the supermarkets and this kept prices down for consumers. He was also critical of the CAP, although that is standard for UK politicians.

He was then asked by the facilitator whether he favoured more farm subsidies or less and he unequivocally answered, 'Less'.

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Monday, March 16, 2015

Campaigning for farming and food in the general election

The general election is an opportunity for farming and food issues to be debated and the National Farmers' Union is fully entitled to brief its members with questions to be asked of candidates. Indeed, the NFU has posed very interesting questions about any referendum on membership of the EU and what the implications of 'Brexit' might be for British agriculture, an issue that requires more systematic attention and exploration.

What I think is less helpful is any suggestion that we need self-sufficiency targets which can all too easily smack of Soviet central planning. The NFU has warned that by 2080 less than half the nation's food needs will be met by UK farming. This date is a long way away and it is not clear whether this is a figure for temperate foodstuffs or whether it includes tropical products like the ever popular banana.

The NFU's report entitled Backing British Farming in a Volatile World said that 85 per cent of consumers wanted to see supermarkets selling food from British farms. This is a bit like asking people whether they are in favour of motherhood and apple pie.

There are food security issues to be discussed, but as Tim Benton of Leeds University, the UK's global food security champion, commented: 'It remains an "open question" as to what the optimal level of self-sufficiency should be.' I would argue that there is no methodology that can tell us, given all the uncertainties. That may, of course, represent a case for being cautious, but I don't think that target figures are the right way forward.

The NFU claims that more than half the income of an 'average' farm comes from single farm payments (soon to be the basic payment). This suggests an over dependence on subsidy, but the NFU says they are needed to protect against price volatility. What would perhaps help more is a supermarkets ombudsman with more powers and a staff of more than three to ensure more of a level playing field. But then governments like low food prices.

You can read the NFU report here: Backing British Farming

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Friday, March 13, 2015

Mid-term review on the cards?

Many observers of the CAP, particularly environmentalists, were disappointed with the last reform of the CAP. They argued that it was not a reform at all, which has been true of many so-called reforms of the CAP, honourable exceptions being those initiated by Commissioners MacSharry and Fischler.

Commissioner Hogan has responded to the criticisms, saying that there could be a mid-term review of the CAP in 2017, leading to more reforms: Mid-term review?

Some scepticism is in order, as a mid-term review may lead to little more than some tweaking and cosmetic changes. However, at least it shows that the possibility of a renewed reform debate is not dead.

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Wednesday, March 11, 2015

Huge growth in price of best arable land

The average price of UK farmland reached a record of just over £10,000 an acre in the second half of 2014. This is 8.3 per cent up on the previous year and the 11th year in a row that prices have broken the previous record. However, the average price masks a growing gap between the price of top quality arable land and ordinary pasture.

The price of prime arable land, mainly in East Anglia, rose by 277 per cent in the decade to 2014 according to figures from Savills. These figures beat prime London property, up 127 per cent over the last decade, the FTSE All-Share index and even gold. Rumners Farm, a 560-acre North Cambridgeshire arable estate sold for about £2.75m in 2007. Now it is back on the market at £8m.

Investors are pushing up the price of the best land. Bagless vacuum cleaner magnate Sir James Dyson has been buying up land in Lincolnshire. He now has 25,000 acres, having recently purchased the 3,000 acre Cranwell and Roxholme estate. According to Mark McAndrew of Strutt & Parker private investment competition can push up the price from £7,000 an acre to £12,000-£13,000.

Investors are interested in land as a counter-cyclical safe asset. With a growing world population, food prices should rise in the long term.

Other hotspots include Hampshire, Berkshire and Oxfordshire, 'Home Counties' that are within easy reach of London and appeal to lifestyle buyers who may want to breed horses.

What is curiously missing from the reports I have read is any mention of the CAP. The subsidies it provides make land a more attractive asset and push up prices. It then becomes difficult for new entrants unless they inherit, become farm managers or are prepared to start with a marginal livestock enterprise. The sector may be deprived of innovative new talent.

Rising land prices do nothing for the 30 per cent of farmers who are tenants. For dairy farmers under the cosh from falling prices for their milk they offer the prospect of a better return if they sell up as many are doing. However, their farms are rarely in the most lucrative areas.

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Saturday, March 07, 2015

Complex picture on cutting payments to big farms

A common complaint about the CAP is that too high proportion of the subsidies go to already prosperous farmers. The counter argument is that these farmers are the most efficient and the most internationally competitive. It all comes down to what you think the CAP is for and there has always been confusion about the objectives and their relative preference ordering.

From this year all member states are obliged to apply a 5 per cent degressivity tax on payments over €150,000. Let us suppose that you are an East Anglian grain baron receiving €1m in subsidies. This means that you would appear to lose €42,500 of your subsidy, but then the 30 per cent greening subsidy is exempt, so the actual sum comes in at under €30,000 (obviously the amount received in pounds is sensitive to the pound-euro exchange rate). The amount lost would be significant but not devastating.

However, any member state or region can impose their own cap. This option has been chosen by all the devolved regions in the UK, but on a different basis in each case: It's your choice

Northern Ireland has imposed an absolute cap at €150,000. There are not many farms in Northern Ireland who would receive more than this. Wales has come up with a particularly complicated system, but again there are not that many farms in Wales who would qualify for relatively large payments. Scotland, where there are some large farms, has set the cap higher. Indeed, their €600,000 starting point is the highest notified by any EU country or region.

It's not difficult to work out the politics of this. Farmers in Northern Ireland who are Democratic Unionist or Sinn Fein supporters are unlikely to be affected. In Wales, the more Welsh-speaking parts of the country are unlikely to be hit (although other aspects of Welsh Assembly Government policy have been a source of complaint). In Scotland, the Scottish Nationalists do not want to upset any constituency, but the relatively small number of farmers likely to be affected are not significant in electoral terms.

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