Fall in farm land prices

After many years of above inflation increases, the price of agricultural land fell by 7 per cent last year with the average price per acre dropping to £10,223. The Royal Institute of Chartered Surveyors blamed a sense of uncertainty linked to the prospective loss of EU subsidies.

A survey by Knight Frank found that farmland prices had fallen last year at the fastest rate since 1999. Its survey of bare agricultural land (not including homes or farm buildings) found that prices fell by 9 per cent to £7,470 an acre. Nevertheless, a pound invested in agricultural land in 2009 would still be worth twice as much as a pound invested in a house or the FTSE 100 share index.

It is thought that the price of farmland could continue to fall this year because of higher input prices resulting from the fall in the value of the pound. Prices are, however, being propped up by lifestyle farmers who are estimated to account for a quarter of purchases.

A fall in land prices might be seen as a benefit of Brexit, making it easier for new entrants to come into the industry, reducing the average age of farmers and boosting innovation. However, the real consideration here is whether rents for tenants fall significantly as this is the usual entry route other than in cases of succession.

Even then, new entrants face the cost of machinery and, other than or arable farms, livestock. What may be needed is new means of building up a herd such as share farming which is being experimented with, following the Nee Zealand example.

NFU goes for three pronged approach

The National Farmers Union has gone for a 'three pronged' approach to British agricultural policy after Brexit. If it seems a little short on detail, this is no surprise as different sectors of the industry want different things and even farmers within the same sector.

The first area would be designed to enhance productivity and competitiveness. This could include capital grants to farmers, knowledge transfer, training and advice an tax breaks to encourage investment.

The second area would be directed at environmental measures. As well as traditional agri-environmental schemes this could encompass payments for ecosystem services such as water companies paying farmers to look after watercourses.

The third area would be concerned with volatility. This would be the top priority if the settlement was an unfavourable one for the sector, e.g., on trade. This could include crop insurance (I remain to be convinced), future contracts (surely only for bigger farmers), and income guarantees, as well as direct payments to farmers. Income guarantees might look like deficiency payments as happened pre-1973, but they may not be WTO compatible.

Migrant labour and agriculture

The UK in a Changing Europe programme has published a blog post from me on migrant labour and agriculture in which I call for a new version of the SAWS programme after Brexit: Migrant labour

No priority at all?

According to a leaked report in The Times today, the Government has divided sectors of the economy into high, medium and low priority for the Brexit negotiations.

As one might expect, pharmaceuticals, motor vehicles, aerospace and air transport get high priority, along with (rather more surprising) textiles and clothing. Fisheries gets into the medium priority list. But in this leaked list, agriculture and food processing don't get mentioned at all.

That is a concern when agriculture could be the sector economically damaged by Brexit through a combination of the loss of subsidies and the removal of tariff protection.

What form of pesticide regulation after Brexit?

This is one of the many complexities to be faced after Brexit and fortunately the ADHB has produced an excellent guide to the subject authored by Sarah Barker and John Knight: Horizon study

After the referendum, I heard that some arable farmers had voted for Brexít because of restrictive pesticide regulations. However, this study concludes: 'The regulatory burden might not be reduced as much as farmers hope and in any event would probably take a number of years to achieve. It is also likely that environmental, consumer and public health lobbies will continue to be influential and to exert pressure for more stringent regulation'.

The report sets out four options. Aligning with the EU would be relatively straightforward, provided it was accepted by the EU. The precautionary principle would continue, but the UK would have no influence over the approval process which might become more restrictive with the remaining EU members.

Aligning with the US has found favour in some quarters because of the use of a risk-based approach there. More actives and products would become available to the UK industry and more biologicals would be available [the US has been particularly innovative in this area]. However, there might be a pressure group reaction to a more permissive regime and climatic differences may mean that US actives are less suitable for use in the UK, particularly for niche crops.

Adopting OECD standards, which use a risk-based approach, might work in the future but there are major challenges in obtaining efficient collaboration between multiple governments.

The UK could have its own policy which would give it full control of the approvals process. It could adopt a low-risk approach and it might be possible to speed up the approval of biopesticides. However, the registration and use of pesticides would have to be acceptable to trading partners. The UK may be seen as too small a market for companies to go to the expense of registering products for approval, leading to fewer actives being available.

In other words, there is no ideal solution, although a UK policy might be seen as politically compatible with hard Brexit.

The future of agri-food trade

In an informative and comprehensive treatment, two leading agricultural lawyers take a look at the future of agri-food trade post Brexit. Needless to say, it is complex! Agri-food trade

Can Defra cope?

At yesterday's Lords committee meeting, I was asked if government needed to be more proactive in identifying regulations that could be abolished or modified after Brexit. My response was, in effect, that Defra had been hollowed out so much, I doubt whether it had the capacity.

This view is confirmed by the latest Whitehall Monitor published by the Institute for Government: Whitehall Monitor

It points out that Defra has estimated that around a quarter of EU laws (around 1,200) relate to its work, and that 80 per cent of the department's work is 'framed' by EU legislation. But staff levels have fallen by a third since 2010.

It also notes that Defra has had relatively little recent legislative experience, its responsibilities since 2010/11 being limited to two Government bills that became law.

Be very, very afraid

At one point in yesterday's House of Lords committee evidence session, Professor Alan Swinbank envisaged a future in which there were fewer farming enterprises in Britain. I know that the committee were very interested in a paper he had written for the University of Sussex trade observatory entitled 'World Trade Rules and the Policy Options for British Agriculture Post-Brexit.' The contents, although rigorously argued, are somewhat more explosive than the anodyne title might suggest. You can download the full paper here: Key reflections

It is worth quoting a little of what he says in his conclusion. Professor Swinbank is one of the leading experts on the CAP, but also on agricultural trade policy.

He warns, 'It is highly unlikely that agricultural issues will determine the UK's future trade policy, as easy access for sugar, beef or butter to the UK's market for example could well be some of the key demands of potential FTA partners.' He continues, 'A unilateral reduction in tariff barriers to lower food prices and increase competitive pressures, would probably be unwise (although appealing to a number of economists) as it is those high tariffs that strengthen the UK's negotiating capital.'

He notes that alternative trade scenarios could result in a large number of farms being 'put under considerable financial pressures, with an uncertain impact on farming practices and the environment ... [Farmers] would probably protest vigorously if both taxpayer funded support and tariff protection were removed in a double whammy.'

In yesterday's session, Alan Swinbank was asked if any free trade pacts would be beneficial for agriculture. He noted that the real danger did not come from an agreement with the United States, but from agreements with Brazil or other South American countries, Australia and New Zealand. Australia would like to increase its tariff free exports of sheepmeat to the UK. Benefits could come from agreements with highly protected markets to which high value added goods could be sold: Japan, (South) Korea and Norway.

Further information about Alan Swinbank's remarks to the Lords committee can be found here: Irish Farmers Journal

House of Lords launches Brexit and agriculture enquiry

The House of Lords Energy and Environment Sub-Committee of its EU Committee has launched a short inquiry into the implications of Brexit for UK agriculture: Brexit

Excerpts from the evidence given by Alan Swinbank and myself were used on Farming Today on 26th January.

The full visual and audio record of the meeting can be found here: Evidence

'Cliff edge' for farmers

As I write this post, the Council of the National Farmers' Union is debating options for farming post Brexit a few miles away at Stoneleigh Park and none of the scenarios looks particularly promising.

If area subsidies are withdrawn overnight, farmers will face a 'cliff edge'. Many enterprises will go out of business and be consolidated into larger businesses or bought by foreign investors at a knockdown price.

We need a phasing out of existing forms of subsidy. Exactly how this might be done is something I am working on at the moment.

Earlier this morning I did a television interview for Reuters on the challenges for UK farming post Brexit. The interviewer made the point that they heard a lot in London about the needs of the financial services industry, but very little about farming. Exactly so.

Indeed, the UK Government is now contemplating a trade deal with New Zealand that would benefit the financial services industry, but allow in additional imports of lamb, to the detriment of the sheepmeat industry.

The Scottish Government is considering continuing general subsidies after Brexit, although they may face budgetary constraints in doing so. What is clear is that French and German farmers will continue to receive CAP subsidies which could amount to 20 per cent of the market value of product.

I want to move away from subsidies, and in particular blanket subsidies that are not related to a policy objective. But it must be done in a way that allows the industry to adjust.

Does it matter that Andrea Leadsom doesn't understand history?

Does it really matter that Defra secretary Andrea Leadsom does not understand that farming is a relatively recent development in human history? This blog post argues that it does: Getting it wrong

More to the point, what we got in her speech at the Oxford Farming Conference was a series of platitudes, but very little detail on what the future holds for British farming in policy terms. OK, there are going to be two consultations, but that is a tried and trusted way of delaying taking difficult decisions.

Some thought that her predecessor at Defra, Liz Truss, was a lightweight. Mrs Leadsom doesn't lack confidence or optimism as a dedicated supporter of Brexit, but what she can deliver for the industry remains to be seen.

Monbiot gives it large

I disagree with almost everything that George Monbiot says, but one has to admit that he is an effective polemicist who has some influence. Here is what he had to say at the Oxford Farming Conference: Efficient farmers beware

Leadsom promises 'bonfire of controls'

Defra secretary Andrea Leadsom has promised a 'bonfire of controls' at the Oxford Farming Conference with a 'slash and burn' approach to EU regulation: Red tape to go.

This may be easier to promise than deliver given the complexity of the regulatory environment. Promising to scrap red tape always generates a good headline, but what is really needed is to review each regulation and the purpose it serves. This require some expertise.

However, she is targeting the 'three crops' regulation designed to promote biodiversity on larger farms and this has gone down well with the CLA.

Green campaigners have been more critical, but my view is that the three crops regulation is a rather blunt policy instrument which constrains farm level decision-making without contributing much to sustainability.

Minette Batters, deputy president of the National Farmers Union, said she was disappointed Mrs Leadsom was focusing on less important farming issues relating to Brexit rather than farmers' main concerns such as continued access to the single market and a steady supply of foreign labour to pick crops.

Protecting niche products after Brexit

Will Orkney cheddar cheese still enjoy protection after Brexit? Geographical indications as they are called are on the agenda again, so I thought it might be helpful to reproduce below what I wrote for our Yorkshire Agricultural Society report with the concluding paragraphs drafted by an agricultural trade lawyer.

Seventy-six names in the UK, including food products, wine, beers and ciders, are registered under the EU’s geographical protection schemes. There are three main programmes: protected designation of origin (PDO), protected geographical indication (PGI) and traditional speciality guaranteed (TSG).

Government sources told The Times that securing a “rollover of current arrangements” was the best option. Officials are also looking to see if speciality recipes or regional provenance can be protected using trademark regulations under domestic intellectual property rights laws. Matthew O’Callaghan, of the Melton Mowbray Pork Pie Association, called for a swift resolution. “It would be very damaging to leave these schemes,” he said. “There are some products that are exported, it would be damaging for them within the EU. More important for us is the issue of copying within the UK. It is the EU that has saved a lot of British food heritage."

[From our repoort] The basic idea behind geographical indications (GIs) is to prevent a domestic producer giving a name to their own product that gives the impression to consumers that it comes from the protected region covered by the GI, e.g., Parma ham. It is seen as a means of preventing the public from being misled by producers jumping on the bandwagon of a successful GI and also to prevent unfair competition.

The EU has been favourably disposed to GIs because it sees it as a means of encouraging high quality, value added food production in the EU which will increase returns to farmers. This has led to some conflicts with producers elsewhere in the world, e.g., with the United States over parmesan cheese. Given the EU’s support for GIs, it is likely that they would insist on the UK recognising EU GIs in any future trade agreement. This could well become a contentious issue in any trade negotiations between the EU and UK after Brexit.

What value GIs offer to British farmers is an interesting question. Niche products, e.g., Orkney Island cheddar, are often involved, although these may be important to local economies. In Yorkshire in particular, the following products are covered by GIs: Swaledale cheese; Swaledale ewes cheese; Yorkshire Wensleydale.

GIs are established by EU regulations and there is no UK legislation needed. GI protection in the UK would lapse on Brexit and EU protection of UK GIs could be expected to lapse as well. The UK would probably have to offer some minimum standard of protection to European GIs. Indeed, under WTO rules, the UK would be under an obligation to implement some form of legal protection. In an earlier TRIPS case India-Patent Protection for Pharmaceutical and Chemical Products WT/SDS79/R (albeit one on patents and not on GIs as such), the Appellate Body went out of its way to say that the need to offer protection was a positive obligation on the part of the WTO member.

If Brexit does occur, our view is that it is likely that the WTO rules in TRIPS require the UK to offer a minimum standard of protection for products protected by EU GIs, although the form and level of that protection remains unclear. These are complex matters as is evident from the example below.

It is possible that the WTO rules may have made the position clearer – and also better for UK farmers On our understanding, the Dispute Settlement Panel in EC — Trademarks and Geographical Indications (WT/DS174/R) upheld the principle that foreign nationals should have proper access to the EC’s GI system (https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds174_e.htm), with the EC subsequently amending the system so as to comply with the WTO decision: see Council Regulation (EC) No 509/2006 of 20 March 2006 on agricultural products and foodstuffs as traditional specialities guaranteed and Council Regulation (EC) No 510/2006 of 20 March 2006 on the protection of geographical indications and designations of origin for agricultural products and foodstuffs.

Significantly, the latter expressly recited that ‘[t]he protection afforded by this Regulation, subject to registration, should be open to the geographical indications of third countries where these are protected in their country of origin’. (For the current legislation, see Regulation (EU) No 1151/2012 of the European Parliament and of the Council of 21 November 2012 on quality schemes for agricultural products and foodstuffs.) Accordingly, it would seem that UK farmers post-Brexit might legitimately expect to be able to continue to take advantage of this form of ‘quality marketing’ within the EU.

Treasury ups war on farm subsdies

The following report appeared in the Sunday Times yesterday (extracts only).

'A “25-year plan for nature” calling for UK uplands to be allowed to revert to forests and wetlands and tough new restrictions on commercial fishing is predicted to spark a Whitehall battle when ministers publish it in the next few weeks. The plan is being driven by the Treasury’s natural capital committee (NCC), a group of economists and environmentalists tasked by the former chancellor George Osborne with helping to fulfil the Conservative Party’s election pledges to reverse 60 years of environmental decline.

At the heart of the plan is a key radical idea: that Britain’s natural assets, including mountains, rivers, fields and forests, can be given a monetary value and incorporated into the country’s national accounts. Each element of those natural assets, from fish stocks to the recreational value of mountains, can then be periodically revalued.

The NCC’s latest report says: “Despite only accounting for 0.7% of GDP, farming utilises 75% of total land area . . . and can produce large external costs to society in the form of greenhouse gases, water pollution, air pollution, habitat destruction, soil erosion and flooding. These costs are not reflected in the price of food. As a result, farming is responsible for net external costs to society that have been valued at £700m per annum.”'

Leaving aside the journalistic hyperbole, all this in consistent with the Treasury's targeting of farm subsidies which is nothing new.

What this is also about is the notion of paying farmers for providing so-called ecosystem services, an idea that is gaining traction. It is not my main area of expertise, but my hunch is that any scheme of this kind could well benefit upland farmers at the expense of lowland farmers who have obtained the biggest subsidies up to now. It might not also be good news for sheep farmers who are attracting increasing environmental criticism.

Without seeing the report, it is difficult to comment on it. What I do predict is that there are stormy waters ahead in 2017.

How and why farmers voted on Brexit

A view has developed that farmers voted overwhelmingly for Brexit. However, this view is largely based on a series of Farmers Weekly polls which were not based on a sample but on self-selected responses. Thus, if Brexiteers were stronger in their beliefs, they might be more likely to respond.

This does not mean that nothing can be learnt from these polls. The latest online poll shows that of 1,400 active farmer respondents, 54 per cent voted to leave and 44 per cent voted to remain. 28 per cent thought they would be better off as a result of Brexit and 41 per cent thought they would be worse off (21 per cent about the same). Even among those who voted to leave, there has been a decline in optimism.

Horticulture was the only sector in which more farmers voted to remain than leave. The sector is highly dependent on migrant labour from the EU.

Unsurprisingly, those sectors that have received little or no support from the CAP were most likely to vote leave (poultry, pigs, potatoes). The pigmeat sector incurs heavy transaction costs in meeting EU environmental regulations.

More than half of farmers in Scotland, Wales and Northern Ireland voted to leave, although they are particularly reliant on subsidies.

It is important to note that farmers often voted on the basis of the same concerns as the public in general, rather than agricultural policy. Those who wanted to leave were concerned about issues such as loss of sovereignty and migration. Those who voted to remain were more concerned about market access and loss of support.

During the referendum campaign I addressed a number of meetings of farmers on Brexit. Since then I have sought the views of well-connected farmers for their views on patterns of voting.

The general view was that livestock farmers were more likely to vote for Brexit as they felt constrained by what they saw as EU regulations. The FW poll shows that support for Brexit was particularly strong in the south-west, a livestock region.

However, there is anecdotal evidence that some arable farmers voted for Brexit because they felt constrained by the EU pesticides regime, e.g., restrictions on neonics and a possible ban on glyphosate, a popular weed killer. However, they now realise that if the UK wants to export grains to the EU, it would have to abide by EU regulations.

Special post-Brexit deal needed for Ireland

A special post-Brexit deal is needed for Ireland, according to an influential House of Lords committee: Brexit and Ireland

The report gives recognition to the importance of the agro-food sector in Ireland and Anglo-Irish trade in this area. Farmers will suffer if trade barriers are imposed between the two countries. The agro-food sector would probably be worst affected, given its reliance on cross-border trade.

Is Defra ready for Brexit?

It has been estimated that around a quarter of EU derived regulations fall within the ambit of Defra. Is Defra ready for Brexit? No, although the more important question is whether it will be ready by 2019.

The Institute for Government has undertaken a very interesting study of Whitehall's preparedness for Brexit which is quite positive about the Department for Exiting the European Union. Defra is one of five departmental case studies: Institute for Government

What is particularly worrying in Defra's case, given the range and complexity of the issues involved, are the cuts in staff and budget that have taken place. Defra's budget is 17 per cent smaller than it was in 2010 and will be about 35 per cent smaller by March 2019. Moreover, staff have already been cut by 35 per cent.

If all the depleted staff had to do was to deal with Brexit, it might be feasible. Decisions about which regulations to keep and which to change can be taken after Brexit. However, staff also have to do their 'business as usual' work and there is no shortage of challenges, e.g., bovine TB, not to mention the question of relations with the devolved administrations.

Seasonal worker shortage hits home

Even before Brexit, a shortage of seasonal workers is hitting fruit and vegetable growers. A survey by the NFU found that almost half the companies supplying agricultural labour were unable to meet the horticultural sector's demands between July and September. The supply pf pickers for late season crops was only able to meet 67 per cent of the industry's needs. This marked a sharp deterioration from the start of the year when none of the labour providers reported problems finding workers.

Leading provider HOPs Labour Solutions said that two years ago 40 per cent of seasonal workers planned to return to the UK. That number had fallen to 24 per cent.

There is a perception that Britain is a xenophobic place, while the devaluation of the pound has reduced net income by 15 to 20 per cent.

British horticulture relies on EU workers for more than 98 per cent of its seasonal workers. Defra secretary Andrea Leadsom has said that more British workers should be attracted into the sector, but they have proved unreliable in the past.

The possibilities of a bond scheme

If the basic payment is withdrawn overnight in 2020 after Brexit or becomes a limited payment confined to marginal upland farms, the effect on farming could be catastrophic. For many farms, probably the majority, it is the difference between running at a profit and making a loss.

Some sort of transitional arrangement is needed. It could be a phased reduction in payments, or it could be a government backed bond which could either be sold to invest in the farm business or would generate an income from interest for a period of time.

I have been sceptical about such schemes in earlier postings because of the current low interest rate environment and that does remain a challenge. However, writing in Agra Europe distinguished agricultural economist Stefan Tangermann has revived the idea with his usual eloquent advocacy.

A time limited annuity scheme would offer a soft landing, and would be far preferable to a phased removal of the existing system of support that is still linked to land and farmers. As Stefan says in his article, if these entitlements are 'in the form of a bond-type entitlement document that is saleable on the capital market' this would give farmers confidence that the 'future stream of payments is irrevocably determined'.

With the current state of financial markets, however, it is open to question whether there would be a robust market for this "bond". Most recipients would, I suspect, simply collect their annual compensation payments, rather than exchanging the entitlement for a cash sum for investment purposes.