Farm subsidies up again across the world

A long-term trend towards a decline in farm support was reversed in 2012 according to the Organisation for Economic Cooperation and Development (OECD): OECD Report

This is perhaps a surprising development, given that government budgets are under pressure and farm subsidies offer a possible, although well-defended target. However, the OECD noted a particular trend towards increasing support in countries that emphasise self-sufficiency and they think that this has a poor relationship with food security.

This is a concern as self-sufficiency has been raised again recently in the UK debate by the NFU. Admittedly, there has been a decline in self-sufficiency in indigenous food between 1984 (95 per cent) and 2012 (76 per cent). (When foods from non-temperate climates are added in, the figure drops to 62 per cent). One might ask what the relevance of this is given that the UK operates within the CAP, but if the UK was to leave the EU this kind of discourse might become more relevant.

Admittedly, the overall increase in subsidies was 1 per cent, but that masked some sharp increases in emerging countries: 4 percentage points in China to 17 per cent of total income; 6 percentage points in Indonesia to 21 per cent; and 4 percentage points in Kazakhstan to 15 per cent. Norway provided the largest level of farm support with a 63 per cent share, up four percentage points. Switzerland, Japan and Korea were all over the 50 per cent of farmers' income level.

Farm support in the EU was consistent with the general trend, rising from 18 per cent to 19 per cent of farm incomes.

The search for a British baked bean

I spent an enjoyable afternoon at the Warwick Crops Centre (formerly Warwick HRI) Open Day at Wellesbourne yesterday. In part this was because of the opportunity to catch up with former research collaborators (and hopefully future ones), but there were also many interesting exhibits and a good crowd in attendance. My overall impression was that the Crops Centre is now in a more stable position than it was and able to make a real contribution to the need for applied research in agriculture that is of value to farmers and growers.

I was particularly interested in the exhibit of growing haricot beans. Baked beans are a staple of the British diet and they are very nutritious, although possibly they could be prepared and cooked in more interesting ways than being doused in tomato sauce (having said that, I do eat them in that format). At one time production was centred in Michigan, but we now mainly import them from Canada.

They are difficult to grow in the UK because they are sensitive to cold. Some twenty years ago work was done on a British variety of 'navy' bean (I'm not sure where the terminology comes from) but then the funding ran out. However, with a new emphasis on food security, BBSRC has come up with some funding for the work to continue.

Two types of bean were being grown, one that is disease resistant and one that is cold resistant. One of the varieties was white rather than the usual colour which would require some re-education of consumers. The hope is to combine these to produce a bean that is both cold and disease resistant which could then be grown in the UK. How economic this would be, even with an improved variety, is an open question. The plants seemed to be smaller than their counterparts in Canada.

Nevertheless, it is an excellent example of applied research and you can read more here: Baked beans

Can Scottish farmers be weaned off subsidies?

One of the claims being made in the Scottish independence referendum debate is that if Scotland had a seat at the negotiating table, its farmers would get much more way in the way of CAP subsidies. But is such a dependence on subsidies desirable when English farmers are being urged to orient themselves towards the market? This provocative piece from a New Zealander suggests that it can become tantamount to an addiction: Subsidies

Of course, as the writer recognises, farming in the remoter parts of Scotland faces special challenges, but these are better tackled under the umbrella of a rural development/remote areas policy rather than through blanket subsidies. Moreover, the treatment of the Highlands and Islands has not been ungenerous, particularly when compared with England's isolated Scilly Isles, a subject I have been tackling in a series of articles for Scilly Now and Then. The magazine's website is here: Isles of Scilly

China's new line on corn imports could affect world market

Changes in supply and demand patterns for food in China can have important implications for world markets. Even a small increase in Chinese imports can influence world markets in which there is a tight balance between supply and demand, as well as offering new export opportunities for farmers. Many of these decisions are politically determined and there appears to be a significant change in the line of the central authorities on corn (maize) imports recently.

Since 2001 when China lowered its import barriers, a policy of self-sufficiency has been followed in relation to corn, rice and wheat with imports kept to a minimum. In contrast the soyabean market was opened up to imports to release land for the key staples. China has become the world's largest importer of the oilseed, representing 75 per cent of global seaborne trade.

Last year China's agriculture minister Han Changfu said that corn 'should not become the second soyabean.' Recently, he has modified his line, saying that corn imports would have to increase gradually to meet demand for animal feed which in turn reflects growing prosperity and higher levels of meat consumption. It appears that China envisages importing 20-30m tonnes of corn a year, the lower figure representing 10 per cent of consumption. While China's grain output is at record levels, there are evident strains with urbanisation using up farmland and problems with water supplies.

China does not want to be solely dependent on the US and is encouraging exports from Argentina and the Ukraine.

Finance for farmers

Back in the 1990s I was involved in a research project led by Will Coleman from Canada which looked at how farmers got their finance. I interviewed all the clearing banks in Britain and Ireland, plus a specialist institution called the Agricultural Mortgage Corporation which was set up by government in the 1920s but by then was being absorbed into the private sector.

The general pattern was for banks to have a specialist agricultural manager at head office who, with local managers, kept in touch with the farming community. Farmers were seen as a very safe bet. They rarely defaulted and, even if they did, you ultimately had the land as an asset, although banks were very reluctant to foreclose. In many ways it was a very traditional form of banking. A relative who is a farmer was tipped off by his bank manager about a suitable farm to buy to diversify his business.

There's still plenty of need for finance for land and capital equipment. Those who inherit a farm sometimes have to buy out siblings. They may also want to buy additional areas of land to secure economies of scale. Finance is important if agriculture is to meet the challenge of increasing and more sophisticated demand and relatively finite supply, particularly of land suitable for farming. Food production will need to rise by at least 60 per cent by 2050 to feed a rapidly growing world population that is increasingly able to demand more resource intensive foods such as meat which create additional demand for animal feed.

However, since the financial crisis banks have been cutting their loan books, while the price of land continues to rise, stimulated by the availability of subsidies, good long-term demand for food, tax breaks and, in parts of the UK, the dual use of farms for sporting purposes. However, new types of finance provider are emerging like Aquila Capital of Hamburg.

Aquila actually buys equity stakes in a farm which could be as much as 70 per cent. However, they claim that it works more like a debt. They receive a guaranteed 3 per cent a year, although there might be circumstances in which the farmer had to borrow to meet this requirement, increasing the debt burden. The farmer receives the next tranche of income and the remainder is split 70-30 in Aquila's favour. It is envisaged that such investments will yield pre-tax, post-free returns of 5-7 per cent a year which are attractive in current circumstances. Savings accounts are typically paying less than 2 per cent and relatively few companies pay dividends above 5 per cent (and may not be able to sustain them). 4 per cent would be a good return on an income fund, although you should be able to get over 5 per cent from a peer lender, depending on how much risk you might be able to take.

Whether it is a good deal for farmers is an interesting question, but needs must. Aquila also claim that after 15 years or so farmers will have accumulated enough capital to buy them out.

The capping controversy

A full and very informative blog post here, although the English is a little stilted in places: Capping

I would just make a couple of points. First, it is always possible that businesses could be split into distinct legal entities to avoid the rules. Second, the last paragraph of the post points out that many wealthy estates benefit from large CAP subsidies.

However, this brings us back to the question of what the CAP is for. If its main objective is to help poor or marginal farmers, it is an inefficient means of doing so. (Actually, there are probably at least two objectives here, one an income distribution objective and one a rural landscapes/depopulation objective).

If one, however, one thinks that the CAP should be helping European farms and food processors to be globally competitive, larger farms are, in general, more efficient (and often more environmentally conscious and aware of animal welfare needs).