How farmer attitudes affect farm profitability

A fascinating study explores the association between farmers' attributes and profitability.

PhD candidate Niall O'Leary at the University of Reading has found that a large proportion of the variation in farm profitability can be predicted by the attributes of a farm's manager. Two studies of dairy farmers in Great Britain were carried out and almost 40% of the variation in farm profitability could be explained by five variables in one study and by three variables in the other.

The major predictors of farm profitability identified fall under the following five categories.

• Detail Conscious behaviour - farmers are generally not Detail Conscious but high scorers are much more profitable. A high scorer 'focuses on detail, likes being methodical, organised and systematic'. A low scorer is 'unlikely to become preoccupied with detail, less organised and systematic, dislikes tasks involving detail'.
• Leadership behaviour described as 'Inspiring and guiding individuals and group. Leading by example and arousing enthusiasm for a shared vision' is strongly associated with profitability.
• Those who 'lose their cool' when things go wrong and also those who are generally relaxed or laid back are less profitable. A motivated and proactive person who can handle problems is likely to be much more profitable than either a laid back, relaxed person or an overly anxious person prone to frustration.
• Attitudes and beliefs, in particular how entrepreneurial / profit orientated farmers view themselves are associated positively with profitability.
• 'Growth Mindset', those who have a fixed view of their own and staffs abilities are much less profitable. Education and training provision are tangible indicators of a Growth Mindset.

The effect of Detail Conscious is significant with 24% of variation in profitability covarying with it. A high scorer 'focuses on detail, likes being methodical, organised and systematic'. A low scorer is 'unlikely to become preoccupied with detail, less organised and systematic, dislikes tasks involving detail'. A one point difference in Detail Conscious on the 1 - 10 scale is associated with 1p per litre or £72 per cow greater profit per year.

Leadership is described as 'Inspiring and guiding individuals and group. Leading by example and arousing enthusiasm for a shared vision.'Relaxed is negatively associated with profitability. A high scorer on the Relaxed measures 'finds it easy to relax, rarely feels tense, generally calm and untroubled' and a low scorer 'tends to feel tense, finds it difficult to relax, can find it hard to unwind after work'.

The need for resilience

Participants in the panel on Brexit and agriculture

The Agricultural Economics Society conference in Dublin in the earlier part of this week attracted a number of interesting presentations and a speech by EU agriculture commissioner Phil Hogan.

One point that he made was that any free trade agreement with the UK would have to cover food standards, food quality, food safety, animal welfare and environmental issue. The aquis wold have to be imported into a FTA. The UK could not be used as a backdoor mechanism for inferior goods.

One theme that emerged from the conference was the need for farmers to show 'resilience' in the face of changing conditions and uncertain circumstances. However, that may not be a quality they all have.

One poster presentation by Niall O'Leary investigated the personality traits of farmers. It showed that 'independence' was the most common trait, in the sense of 'I'll do it my way.'

Agricultural economist Alan Swinbank said that high tariffs were a relic of a 1980s CAP when there was a fear that imports would undermine the intervention price. If one lowered tariffs to ten per cent that would still give more protection than enjoyed by other sectors.

There was considerable discussion of ecosystem services, although I was still left uncertain about how this concept could be operationalised. In policy terms it was seen as a means of challenging the 'agriculture first' element in policy. The objective would be to promote the total social value of rural land resources.

It was uncertain whether we had identified all ecosystem services. How could a balance be achieved between marketed and non-marketed services? There was the question of trade offs between different ecosystem services. Local environmental governance organisations (LEGOs) could be a mechanism for coordination at a local level.

How will Brexit affect British farming?

Share Radio talks to myself and NFU Vice-President Guy Smith: Brexit and farming

From crop protection to crop health

As a member of the Farmer-Scientist Network at the Yorkshire Agricultural Society, I was involved in getting this project off the ground which is using field trials to see if we can make more use of biologicals in plant protection. View the introductory video here: From crop protection to crop health

Roma Gwynn and other experts look at the future for pesticide regulations here: Horticulture Week

The benefits of stability

The round of talks on Brexit and agriculture, at which one often meets the usual suspects, continues. Next stop Dublin, yesterday it was the Public Interest and Environmental Law (PIEL) conference at Cass Business School, ably organised by students.

My central focus was on the need for well-designed policy instruments in a domestic agricultural policy that would meet their objectives without imposing undue transaction costs.

Our chairman from the RSPB made an interesting observation. He said that the CAP was slow to reform, but the other side of the coin was that it offered stability through the legislative framework. Moreover, it offered a multi-year budget but in future we would be facing an annual budget with competing demands on resources.

Incidentally, I never knew that red diesel was used at Heathrow and for the refrigeration compartments of food lorries.

New agri-business Brexit coalition formed

Eight trade associations or organisations concerned with agri-business have formed a new coalition to advise the Government on the implications of Brexit for farming: Voice of agribusiness

It will be interesting to see how this new grouping relates to the NFU.

Successful diversification

Farmers have diversified in all sorts of ways to provide new streams of income for their farms. For dairy farmers, one option has been to process their milk on the farm to provide high value added products such as yoghurt, speciality cheeses or ice cream.

Troy Town Farm on St. Agnes in the Isles of Scilly is the most westerly farm in Britain. I think they have just nine cows, but they produce high quality ice cream. I can vouch for that as I have walked across St. Agnes to taste it.

This short video gives a brief account of their story: Troy Town Farm

Four new papers on Brexit and agriculture

The Brexit working party of the Farmer-Scientist Network of the Yorkshire Agriculture Society, which I chair, has produced four new papers on Brexit and agriculture. They can be found here: Brexit papers

I have written papers on the future of Pillar 1 subsidies and migrant labour; Michael Cardwell and Fiona Smith have written on agri-food trade; and Alan Greer has covered devolution aspects.

More threats than opportunities

The agricultural trade dimension of Brexit posed more threats than opportunities according to NFU Director of Strategy Martin Haworth. He was speaking at a EurActiv seminar on 'After the CAP: what future for British agri-trade?' in London yesterday.

He thought that there was a lot of optimism about how easy it would be to negotiate a free trade area with the EU. How far could one replace EU markets with third country markets? With no frictionless access to the single market, we were looking at second best outcomes, the question was how second best?

Even with tariff free trade, there would be barriers with customs procedures. There was a great potential for disruption with perishable goods. He had a number of campaign medals from the past, but none of these problems had arisen since we had been part of the single market.

He noted that the horticulture sector was very integrated through importing and exporting. (Later, this led to discussion of how it was not in Spain's interests to have salad exports to the UK disrupted).

Our food exports to Belgium were three times those of China, India, Russia and Brazil combined.

Peter Hardwick of the ADHB noted that the advantages of proximity and speed of delivery in EU markets. Logistical issues around rules of origin were far more difficult than tariffs.

Molly Scott Cato MEP noted that it was difficult to justify paying people for owning land. There needed to be a discussion in government about what the future farming model should look like. A Defra staff member confirmed that no green paper was in prospect.

Phil Stocker, chief executive of the National Sheep Association, said we were not having a discussion about how we wanted agriculture to look like in the future. Upland farmers could respond by intensifying.

Lord Teverson said that the future relationship with the CAP was critical. The sequencing of agri-trade deals was important. Supply chains were now important even for SMEs.

Martin Haworth emphasised that a defined transition period was needed for everything.

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.