Tuesday, October 17, 2017

New SAWS scheme not ruled out

The Government has now responded to the House of Commons Defra committee report on the agricultural labour market: Response

It argues that the sector faces a 'challenging situation' rather than a crisis. However, it does not rule out a new version of the SAWS scheme and says that such a scheme could be introduced within months of it being needed.

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Thursday, October 12, 2017

Farmers incomes could halve after Brexit

The AHDB has produced a report looking at alternative scenarios for Brexit and the impact on farmers: Brexit Scenarios

Agricultural incomes could halve after Brexit unless the UK strikes a free-trade agreement with the EU, according to a new report that urges farmers to prepare for Britain’s departure from the bloc by boosting their productivity.The average UK farm is predicted to have its income fall from a current level of £38,000 per year to £15,000 should the UK unilaterally open its borders to low-cost food producers.

The AHDB also found that in a second scenario of the UK erecting protectionist trade barriers, farm incomes would fall to £20,000. However, if the UK succeeded in its objective of securing a free-trade deal with the EU, the AHDB said the average farm income could rise slightly to £41,000, because an increase in trading expenses would push up costs of imports and therefore the prices that farmers can charge for their products.

Which scenario is most likely remains to be seen, although the odds of a hard Brexit appear to have increased. However, judging from an interview in the latest Farmers Weekly with a farmer who voted 'Leave', many remain optimistic. His 'Remain' colleague, a tenant farmer, feared he may have to leave farming and was already taking a Law degree.

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Wednesday, October 11, 2017

Thinking about domestic farm policy after Brexit

Brexit is going to occur, but we do not know what form it will take or when it will be completed. The chances of a very hard Brexit seem to be increasing which would not be good news for farming in particular and the economy more generally.

Last week I gave a presentation in the Entente Cordiale room at the Foreign and Commonwealth Office on options for a domestic agricultural policy after Brexit. Staff from a number of government departments were there including Brussels and UKRep Brussels. There were some very good questions, as one would expect.

Policy objectives

I suggested that what we needed to learn from the CAP was the need to have a clear and hierarchically ordered set of objectives. We should avoid poorly designed and overly complex policy instruments that imposed high transaction costs on both government and farm businesses.

Policy should seek to support an economically, socially and environmentally sustainable agriculture:

  • Economic: profitable, productive and internationally competitive
  • Social: the need to support marginal farmers in upland areas and to avoid depopulation in remote rural areas, especially island communities. Often the biggest boost that could be given to these communities was in the form of infrastructure, especially fast broadband. I gave the example of how the Isles of Scilly had benefited from this: Take up of fast broadband. A theme that emerged in discussion was that a sustainable rural life depended on many things apart from farming. Discussion centred on what role local authorities might take. The Orkney Islands have been successful at attracting returning graduates: Going back home. This is not just a question of the renewables industry: I know from reading The Orkney Farmer that it is happened in agriculture and food processing.
  • Environmental: minimise environmental damage from farming activity and promote beneficial effects.

What will go and what the emphasis will be

Area payments would disappear, except possibly in upland areas. There has been resentment at large sums paid to big scale farmers, often investors from outside the industry who may have tax planning motivations. However, it should be remembered that big farms are generally the most competitive, and they will be competing against, for example, North European grain farmers who will still be receiving EU subsidies.

The emphasis in the future will be on public goods, as is evident from remarks made by the Secretary of State (Michael Gove) at the Conservative Party conference and elsewhere. These would include the maintenance of valued landscapes and resilience in relation to climate change. There is a lot of interest in ecosystem services. Payment for them would mainly benefit upland farmers, but how does one price them?

Technological revolution

Farming is on the verge of a digital technological revolution which is likely to be as important as earlier revolutions which saw the introduction of crop rotation and agronomy; mechanisation; and artificial fertilisers/agrochemicals. Data from near earth satellites has been used for some time, but drones offer more precise information to guide decisions in relation to crops. There will be an ability to monitor the condition of cattle ín the fields. Advances are being made in robotic ploughing, planting and cropping.

Accelerating this trend may be an area where the Treasury would be willing to provide some support. Knowledge transfer and training is key with an important role for the existing four Centres for Agricultural Innovation.

There might be a case for supporting investment in buildings and equipment, particularly for sectors that did not receive much CAP funding, e.g., pig farming. This could run up against the additionality problem of paying farmers to do things they would have done anyway, but it would be a mechanism for helping farms to remain internationally competitive.

I noted that migrant labour was one one of the biggest concerns raised with me by farmers as its availability was already declining. This was a particular issue for the horticulture and field vegetable sectors. However, dairying had become increasingly reliant on EU and Fillipino labour. In a time of full employment, recruitment from the local unemployed pool was not possible, even if it ever was. Further mechanisation was some way off. What was needed was a new version of the SAWS scheme, but the difficult political question would be which countries to include.

Elephants in the room

The devolved administrations feared that Westminster was using Brexit as an opportunity to repatriate functions that were rightly theirs. However, we did need a UK policy framework to maintain a level playing field. The whole question of the trade settlement, largely dealt with by fellow presenter Carmen Hubbard, was clearly crucial. One issue that arose in discussion was whether the shelf life of fresh products could be extended to offset delays at the ports.

Succession planning

One issue that was raised in discussion was the advanced average age of farmers (which has been high for some time). I pointed out the statistics may not reflect the reality of a farm business. For example, my brother-in-law is 75, but my nephew has just turned thirty and is driving the farm business forward. Succession planning is nevertheless perhaps an issue under researched by academics, notwithstanding all the advice available from consultants and the farming press. I suggested that The Archers had offered some good fictional treatments of the inter generational tensions that can arise in a farm business.

Thanks

Palmerston and Larry discuss their differences over policy

Thanks to the FCO for offering me a tour of the building, but above all the chance to meet Palmerston the Foreign Office cat who was basking in the sunshine surrounded by a semi-circle of admirers. We peeped into Downing Street, but could not see his adversary Larry.

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Tuesday, October 10, 2017

TRQ deal knocked on head

Hopes that the UK and the EU had reached an agreement in principle on the tricky topic of tariff rate quotas (TRQs) have been knocked on the head by an intervention by the United States. The Trump administration is leading a group of countries challenging British plans to retain EU import restrictions on agricultural goods after Brexit. The other six countries who sent a letter to the UK's WTO representative and his EU counterpart were leading agricultural exporters: Argentina, Brazil, Canada, New Zealand, Thailand and Uruguay.

New Zealand's former high commissioner in London has given it large on the issue saying that the row would make Brexit look 'like a kids' Christmas party' if access was scaled back.

The risk for the UK is that part of the post-Brexit transition in the WTO it may have to accept opening up access to agricultural goods from third countries far more than it wants, even before it agrees the much vaunted new trade deals with such countries.

The UK has tried to smooth ruffled feathers by saying that the plans would be discussed extensively with partners in the WTO before proceeding. This is the opening stage of a process in which countries have staked out their starting position in what is likely to be a long negotiation.

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Sunday, October 08, 2017

Farmers don't drive land prices

It is often claimed that Brexit will bring down the price of farmland and make life easier for new entrants. However, according to Strutt & Parker, lifestyle buyers and tax-savvy investors are about to overtake farmers as the primary buyers of agricultural land. This conclusion is based on an analysis of every public sale of over 100 acres since 1996.

Farmers bought 68 per cent of the holdings for sale in 1998 but they bought over 51 per cent of those sold in the first six months of this year. Private investors have increased from 4 per cent of buyers in 1998 to 20 per cent this year. Lifestyle buyers have stayed largely constant at 25 per cent of sales [most of these sales in England are within reasonable travelling distance of London]. Overseas and institutional investors fluctuated around 4 per cent combined.

Stamp duty is capped at 5 per cent when a country house comes with land, otherwise a mansion is liable for up to 12 per cent. Agricultural land is also exempt from inheritance tax.

Sir James Dyson, who bought 33,000 acres (of admittedly good quality land) in Lincolnshire, Oxfordshire and Gloucestershire, is believed to have paid £15,000 an acre in 2013. Average prices peaked at £10,100 in acre in 2015 and, because of many years of poor prices and Brexit uncertainties, have dropped to around £9,600 an acre.

James Beedell, head of research at Strutt & Parker, said that investors have turned to farmland after the 2008 financial crisis because they wanted something safe. 'Lifestyle buyers and investors set prices because what they are prepared to pay for land isn't necessarily related to the profit it can produce.'

If there is a fall in land prices in Brexit, it could lead to greater consolidation as those with capital or access to it buy up smaller farms. Some think that would lead to productivity gains, others that it would have an adverse effect on rural communities and landscapes.

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Wednesday, October 04, 2017

TRQ deal agreed

Tariff rate quotas have always been one of the more difficult aspects of the negotiations between the UK and the EU over agricultural issues arising from Brexit. However, it looks as if an understanding about a deal has been reached. It may, however, not please third countries which could cause trouble down the line. The proposed deal would not expand overall quotas, and hence market access.

TRQs set the amount of goods that can be exported at low or zero tariffs, and are hence valued by agricultural exporters. The UK and the EU need to share out the quotas by the time Brexit takes place in 2019. Countries such as Australia and New Zealand have been pushing for an increase in combined UK-EU quotas after Brexit.

The deal would divide up quotas according to where goods were previously consumed. For example, the UK would take a larger quota for products such as New Zealand lamb. Consumption patterns would be measured over a three year period. This outcome would reduce additional competitive pressure on sheep farmers in particular.

Australia and New Zealand will challenge any outcome they think reduces their current levels of market access. Other major agricultural exporters such as Brazil and the US want more market access. However, if they decide they want to take matters to the dispute settlement mechanism of the WTO, they may be in for a disappointment. The US has been blocking the appointment of new judges and the quasi-judicial tribunal may soon have insufficient judges to function.

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Tuesday, October 03, 2017

Limits to Kiwi lesson learning

Attention is often drawn to how New Zealand benefited from the withdrawal of agricultural support, but this helpful briefing note from the AHDB points out that there are many differences between the situation in New Zealand in 1984 and that in Britain today: What can we learn from New Zealand?

In particular we should never forget that New Zealand has a particularly favourable climate for livestock with year round grazing.

There are some lessons that can be drawn:

  • Should the structure of farm support change there is likely to be a challenging transition period
  • 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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