Brexiteer Dyson sees his farm business make a profit

The farm subsidies given to vacuum cleaner entrepreneur Sir James Dyson's extensive estate have attracted a lot of criticism. In 2017 he received CAP subsidies of £2.8m, up from £2.4m the previous year because of land purchases.

It is thought to be unfair that one of Britain's richest men should be given such amounts, although in fact they go to his farm business (Beeswax Dyson Farming) rather than to him personally. The estate is made up of 35,000 acres of land in Lincolnshire, Gloucestershire and Oxfordshire. No doubt his example has given some impetus to the reduction of subsidies for larger farms after Brexit.

Now the Financial Times has revealed that the business generated a pre-tax profit of £747,000 last year, compared with a loss of £1.53m the year before. Turnover went up 11 per cent to £15.7m. This represents a return of just under 5 per cent. The cost of sales fell by 12 per cent.

He was one of the few prominent Brexiteers from the world of business in the referendum campaign. He has said that he needs EU subsidies to compete against continental competitors. Over the five years he has put £92m into improving the farms, including renewable energy projects. Investment has been directed at such areas as soil health, technology and infrastructure.

Plan A+ and agriculture

No longer responsible for traffic jams, Boris Johnson turns his attention to agriculture.

The Institute of Economic Affairs was founded by one of the first battery farmers and has always take an interest in the way in which agricultural policies perversely disrupt (in its view) the operation of the market mechanism. It is therefore no surprise that its PLan A+ for Brexit, endorsed by leading Brexiteers such as David Davis and Boris Johnson, has a lot to say about agriculture, some of it on very technical matters: Plan A

It is certainly no 'Plan A' from outer space in the sense that it based on a good if particular understanding of how the CAP and international trade rules in agriculture operate.

The report calls for Britain to eliminate tariffs on all agricultural products it does not produce such as avocados, oranges and rice [rice is a significant crop in Italy]. It does allow for the continuation of direct grants to farmers who it admits may face competition from new foreign imports. Tariffs on food should be reduced.

Cargill's central role in food supply

Earlier this week I went to see the brilliant play at the National Theatre about Lehman Brothers. Essentially this was a story about an admittedly always rapacious family company which lost its connection with the family and became even more resolute in the pursuit of money for its own sake, eventually leading to its own demise and its central role in the financial crash of 2008.

Everyone interested in food and agriculture knows about Cargill and what it does, but no one knows too much about it. It has remained a private family company controlled by 100-odd members. About 90 per cent of its common stock is owned by members of the Cargill and MacMillan families, descendants of the man who founded it in 1863.

It is the largest private US company by revenues and plays a central role in global food supply, moving millions of tonnes of agricultural commodities around the world. However, the sector in which it operates has provided its challenges in recent years because of glutted grain markets and an increase in farmers' power in negotiating crop deals.

Chief executive since 2012, David MacLennan. has sought to improve its returns and profitability. He has focused on food and agriculture businesses where it is most competitive. Dividend payments have historically been modest, but it paid $551m to shareholders in the fiscal year to 31 May, up 29 per cent from the year before.

Getting your head round the Agriculture Bill

I was out shopping early this morning and was stopped by an agricultural lawyer. Naturally conversation turned to the Agriculture Bill and she pointed me to a useful essay on Sustain. It answers ten questions and, of course, there are more, but it is a start as I try to get my head round the framework for future English agricultural policy: 10 questions

Strutt & Parker sale will test land market

The sale of the 100-year old business Strutt & Parker Farms (distinct from the estate agent of the same name) will provide a good test of what is happening to the UK land market given the uncertainties surrounding Brexit.

One thing is clear, though, the amount of support available to farmers from government will diminish. However, it is claimed not to be particularly significant for this business given diversification.

At an estimated value of more than £200m it will the biggest farming transaction since the Co-op sold its 16,000 hectare Farmcare business to the Wellcome Trust in 2014 for £209m. Some observers think that there are fewer buyers around than in 2014. Strutt & Parker farms 13,450 hectares, of which it owns around 43 per cent.

It operates in East Anglia across Essex, Cambridgeshire and Suffolk. It is a diverse business with residential, office and other commercial lettings along with renewable energy and a natural burial site. It made a profit of £3.3m on £17m of turnover in the year to March 2017. A new anaerobic digestion plant is expected to boost revenues to £21m in 2018.

There has been considerable early interest from individuals, property businesses, farming companies and pension funds. There are divergent views about whether there should be a premium or a discount for scale. Splitting the land up is unlikely to happen.

The effects of moving away from direct payments

The Government Statistical Service has produced an in depth analysis of the effects of moving away from direct payments to farmers. There is a lot of data there, including some suggestions for farmers.

I am yet to absorb it all, but it looks very useful, even if some of the figures are familiar to those of who have been ploughing this field for longer than we care to remember: Direct payments

Defra faces enormous challenge on Brexit

The Department for Environment, Food and Rural Affairs (Defra) has made good progress in its preparations for exiting the EU, but it faces an enormous challenge. It is now not able to deliver everything it originally intended for a ‘no-deal’ exit, though Defra told us it still aims to have sufficient arrangements in place if needed, says the National Audit Office (NAO).

Defra is one of the government departments most affected by EU Exit. It is responsible for 55 of the 319 EU related work streams across government, covering chemical and agri-food industries, agriculture, fisheries and the environment.

The NAO report acknowledges that Defra has achieved a great deal in difficult circumstances and to a very demanding timescale. For example, Defra has: developed detailed plans for its preparations, secured HM Treasury approval for £320 million spending in 2018-19; started to build new IT systems; recruited over 1,300 new staff by March 2018 [unfortunately inexperienced ones replacing experienced ones who left - WG]; strengthened its project management capability; and published consultation documents on agriculture and fisheries.

Despite these and other developments, the constantly changing environment has made it challenging for the department to make and stick to a robust plan and meet its project deadlines. The risk of Defra not delivering everything it had originally intended for a no deal scenario is high and, until recently, not well understood by the department. In the work streams the NAO examined it found the following examples where Defra would not be ready:

• Exports of animals and animal products from the UK are valued at £7.6 billion. For the UK to continue exporting, it must comply with international health requirements and all exports must be accompanied by an export health certificate. Defra needs to negotiate with 154 countries to introduce 1,400 different UK versions of current EU export health certificates. Defra is focusing on reaching agreement with 15 of these countries which it estimates account for 90% of total exports, but will not reach the other 139 by March 2019. It has accepted the risk that UK firms exporting to countries where agreements are not reached may not be able to do so for a period after EU Exit.
• Export health certificates will also be required for the first time for exports to the EU if there is no deal which will result in a significant increase in certificates needing to be processed by vets. Without enough vets, consignments of food could be delayed at the border or prevented from leaving the UK. Defra intended to start engaging with the veterinary industry in April 2018, but has not been permitted to do so and now plans to launch an emergency recruitment campaign in October to at least meet minimum levels of vets required. It plans to meet any remaining gaps through the use of nonveterinarians to check records and processes that do not require veterinary judgement.
• The fishing industry contributes £682 million to UK gross domestic product. Defra is still developing its plans to strengthen its control and enforcement activities in English fishing waters. Defra hopes to significantly increase vessel patrol hours, but due to delays in procurement and planning is unlikely to reach its originally intended patrolling capacity by March 2019. In a no-deal scenario, Defra may have to scale up its capacity over time, but is confident that it will be able to manage the risk of any disruption in the interim.

There are further challenges that sit outside of Defra’s control. The UK hopes to seek continued participation in the European Chemicals Agency, but this is dependent on a negotiated settlement. Without this, UK chemical manufacturers would no longer be able to export products to EU member states as registrations of products would cease to be recognised by the EU. To recover market access, they would need to reregister their products on the EU's system via an affiliate or representative located in an EU member state. This is a lengthy process that cannot be started until the UK has left the EU.

Due to the shortage of parliamentary time available, there is a high risk that Defra will not be able to deliver all of its legislation by March 2019. It has three new bills and 93 Statutory Instruments to convert EU law into UK law and is now having to prioritise.

Defra has not been able to fully support businesses in their preparations. As a result of government restrictions, communicated through DExEU, it has not been able to hold open consultations with stakeholders on their preparations for a no-deal scenario. It has also, until very recently, been prevented from issuing specific information for the chemical industry or food importers and exporters.

Amyas Morse, the head of the NAO, said: 'The scale and complexity of what needs to be done to leave the EU is a significant challenge and Defra is impacted more than most. It has achieved a great deal, but gaps remain and with six months to go it won’t deliver all it originally intended in the event of no deal, and when gaps exist, it needs to focus on alternatives and mitigations.'

'Like other departments, it now must ensure its voice is heard by the centre of government to provide an accurate picture of what is possible if a negotiated settlement is not reached, and even if it is.'

The full report can be found here: EU exit

Agriculture Bill to be published today

The Agriculture Bill which sets out the framework for domestic agricultural policy after Brexit is to be published today: Delivering a green Brexit

Direct payments will be paid much as at present in 2019 and 2020. They will then be phased out between 2021 and 2027 which gives farmers plenty of time to adjust, although the fact remains that many of them are reliant on these payments to make a profit.

Those with the highest payments will see the biggest reductions initially. This will have popular support, but it may also affect the ability of more efficient farms to invest and improve productivity.

However, there will be measures to improve productivity and invest in R and D. As with much else, the devil will be in the detail.

The Defra statement makes no mention of devolution and it as well remember that this is essentially a measure for England. The distribution of responsibilities and cash between Westminster and the devolved administrations has yet to be agreed and remains controversial.

New SAWS scheme to be trialed

A new scheme to enable migrants to work in UK agriculture in the picking season after Brexit has long been awaited, but is now about to be announced.

It appears that Downing Street was blocking the scheme. Why this should be the case is not clear, but Theresa May has taken a hard line on migration issues, evidenced by her insistence that students should count as immigrants.

In any event, Home Secretary Savid Javid and Defra Secretary of State Michael Gove have been able to push the scheme through.

It will be a trial scheme for two years and will cover 2,500 workers which is a small number given that 75,000 seasonal workers are estimated to have been employed in 2016. The current shortfall is about 7,000.

The scheme would be for those from outside the EU and the regulations that would apply to temporary EU migrants remain to be resolved. Countries that might supply workers under the trial scheme could include Ukraine and Morocco. However, Germany has offered 60,000 visas to workers from the Ukraine.

Under the old SAWS scheme, which ran from 1945 to 2013, farmers could employ overseas workers for up to six months to pick fruit and vegetables. Workers were recruited and vetted by four authorised agencies (the pilot scheme will be run by two yet to be selected).

Farmers and growers have been dealing with significant shortages of labour, reflected in the Radio 4 fictional serial, The Archers. The weakening of the pound and the buoyancy of economies elsewhere in Europe has slowed the number of workers arriving.

One of England's biggest fruit growers, Hall Hunter Partnership, have tried an innovative approach on their seven sites. They have tried to improve workers' productivity to enable pay to rise. As a result, more than 70 per cent of the pickers they hire are returning to the UK each year, well above the sector average of 40 per cent.

The proposal has been broadly welcomed by the NFU who see it as a success for their lobbying.

Read more about the proposal in this report from Farmers Weekly: Visa scheme

Imperfect strawberries

British supermarkets have been increasing their willingness to sell fruit and vegetables that do not meet high cosmetic standards in terms of shape and presentation: Wonky veg

However, it has been the more upmarket supermarkets such as Waitrose and Sainsbury's who have been at the forefront of these developments. Hence, I was interested to find in Tesco today 'Perfectly imperfect strawberries' grown in Hereford, stated to be 'less than perfect, just as tasty.' The shapes weren't that odd and they were certainly just as tasty.

This has to be a win-win: food waste is reduced, consumers get a 'five a day' product at a very competitive price and growers are able to get a return on produce that would otherwise go unused.

All we need now is for the Government to get its act together and come up with a successor to the Seasonal Agricultural Workers Scheme so that the fruit can be picked. Judging by the speed with which Michael Gove has fulfilled his pledge to do 'whatever it takes' to deal with the consequences of the summer drought, I wouldn't be too hopeful.

On the drought issue, read the NFU's views here: Failure to act

Could government change its stance on subsidies?

The National Trust is worried that the Government may cave into pressure and preserve many subsidies to farmers. They and other green groups fear that the farm lobby has succeeded in ensuring that food production and agricultural productivity will also be listed as 'public goods'.

This would go beyond the definition of what is a public good in economics, but the definition tends to be elastic in public debate and tends to encompass what would properly be termed merit goods.

Of course, the political calculus behind using farm payments to incentivise environmental benefits was to appeal to the urban electorate (many of them members of the National Trust) and that calculation remains a powerful one.

I do not think that there is a general case for subsidies for food production (many food security arguments are spurious) but there is a case for doing more to boost agricultural productivity which is poor, particularly through encouraging the use of new technology.

There is a £60m Countryside Productivity Small Grant Scheme to assist the purchase of new farm equipment: Farming productivity fund. However, the maximum grant is £12,000 which doesn't go a long way to buying sophisticated kit. Also, farmers applying for the scheme consider that they get caught between demonstrating that the farm business is viable, but not too viable otherwise it would not need assistance.

Farm payments if there is no Brexit deal

The Government has published its guidance, but it doesn't add very much to what we know already. It is full of well-intentioned hand wringing on subjects like Ireland: Farm payments

Is anyone going to be convinced by the claim that 'negotiations are progressing well'.

The NFU is concerned that organic food products might not be allowed into the EU for nine months after a no deal Brexit: Food export concerns

Where are we with agriculture and Brexit?

I gave a presentation on Brexit and agriculture to a group of insurance providers and brokers involved with farming at Bishop Burton College this week.

I started by emphasising that it is important to bear in mind that farm businesses vary considerably and this affects their ability to respond to Brexit. Some of the key variations are:

• Climate/terrain
• Soil type
• Ownership structure: owned, tenanted, mixed (increasingly common)
• Size of farm
• Diversification: how much of the farm business is dependent on farming? Most common: agricultural contracting; tourism; on farm niche value added production, e.g., cheese, yoghurt, ice cream; farm shop and/or café. Most of the low hanging fruit has been taken. One needs the right management skills and management resources can be taken away from the farm business.

What does this imply for farms? It is important for farms to spend some time and effort (and probably money) analysing their businesses and how they will be affected by Brexit Is this a commodity business pursuing economies of scale or a niche business? Should we expand or downsize? Succession issues require attention.

The CAP has been a dysfunctional policy. It was not designed with UK agriculture in mind or contemporary problems. Basic payments have been only tenuously linked to outcomes Policy instruments have been poorly designed and often impact farm businesses without securing desired outcomes. It has encouraged the intensification of agriculture.

There is an opportunity to design a better domestic policy, but whether this will be seized is open to doubt. Current proposals are too concerned with pleasing an urban electorate.

I outlined three broad brush scenarios for Brexit:

• Leaving with no deal on WTO terms
• Some kind of less than satisfactory deal
• A comprehensive agreement. The last is very unlikely given the time that is left and the difficulties that have been encountered in the negotiations so far.

Could the negotiating period be extended? Extending the negotiating period would require the consent of all 27 member states. The EU does have a history of ‘stopping the clock. But I have looked at the ways in which constitutional lawyers say this might be done and none are very convincing.

The UK has a governing party that has been negotiating with itself, but also a split opposition party with unclear policies. There is no sure majority in the Commons for any path to Brexit. A second referendum would shift the decision from a deadlocked Parliament to a deadlocked people, and what would the question be?

It is in the interests of both the UK and the EU to come to some sort of agreement. There have been some signs of a softening of the Commission position. At some point the member states are going to have to get more involved, in particular France and Germany, but they have different positions: France hopes to poach UK jobs and business and German domestic politics are fragile.

Northern Ireland is the most difficult issue. Original EU proposal in March would have given EU courts and regulators near unimpeded jurisdiction over the province. The EU is now considering limiting powers of EU authorities to make checks on UK territory and giving the ECJ only indirect authority. However, the Democratic Unionists are capable of vetoing any solution that outsiders might consider reasonable.

A no deal exit has been talked up. Some of this is people playing political games to suit their own ends. There is also an element of brinkmanship as the case in many negotiations A no deal exit is certainly possible, and it is a scenario I will consider in relation to agriculture, but I don’t think it is the most likely outcome.

An eleventh hour fudged compromise is more likely. EU decision-making characterised by last minute deals. This would leave many issues unresolved that would have to be addressed during the transition or implementation period. But during that period economic relationships would continue much as before.

The fudged compromise still leaves some problems. The Basic Payment is the difference between profit and loss for many farms. It will be phased out (in England & Wales) Public good payments will be more unpredictable, they may involve higher transaction costs and they are more likely to yield income for upland farms.

It's decision time for farms. Do they continue in business? One consequence could be a consolidation into larger units. Land prices could be driven down and they have constituted a barrier to new entrants. However, land prices are also boosted by tax benefits and interest in the sporting value of estates.

The growth rate of productivity in farming is poor (0.9 per cent a year, USA 3.2 per cent, Netherlands 3.5 per cent). Brexit might shake out less efficient farmers who are ‘making do’. Younger entrants might be more open to the possibilities of new technology.

Farmers have shown themselves to be resilient and many are innovative. They may have to rethink idea that expansion was always the answer. They need to analyse their individual farm business.

Are the NFU crying wolf?

Britain would run out of food on this day next year if it had to be self-sufficient after a no deal Brexit claims the National Farmers Union: Run out of food

This is a bit misleading as, although a no deal Brexit would disrupt food supplies, it would not mean a complete absence of imports. Ireland, for example, would be keen to continue to sell its produce to us.

It is true that self-sufficiency has declined, but I find the idea of a self-sufficiency target a bit Stalinist. If we were reliant on just one or two countries for our food, there would be cause for concern, but there are many countries keen to sell to us.

I think that a no deal Brexit would be damaging for all sorts of reason, but we need to be careful about the arguments we use against it.

Farm expansion may no longer work after Brexit

Leaving the EU will bring a more challenging and more commercial environment in which farmers will have to watch net margin rather than gross cash flow, according to Jeremy Moody, secretary and adviser to the Central Association of Agricultural Valuers.

The commercial realities of farming will focus rental values more on the productive capacity of land. Decisions about land occupation will include a consideration of fulfilling new requirements under a domestic farm policy including environmental public good.

In the past businesses have tended to become larger as they seek economies of scale, but this may not be the pattern in the future. Some will find under the new regime that land they have taken on to expand will no longer perform financially.

Scale will probably still be a goal for commodity producers but with a sharper business focus.

Farmers want to remain

It is a deeply embedded myth that farmers voted in favour of Brexit. In fact there is no evidence base in favour of that view other than a Farmers Weekly poll in which respondents were self-selected rather than based on a sample.

However, for what it is worth, Farmers Weekly has done a new poll on how farmers would vote in a three way referendum. 64 per cent selected remain, 28 per cent backed the Chequers deal and just six per cent wanted to leave without a trade deal.

Food security after Brexit

The Food Research Collaboration has published a report authored by Professor Tim Lang and three other leading analysts on food security after Brexit: Feeding Britain

Three main issues are considered:

• The question of whether the Government is paying enough attention to agri-food in the negotiating process, given its central role in both public well-being and the national economy.
• The threat a careless Brexit poses to the UK’s short-term food security – and any long-term attempt to develop a genuinely sustainable food strategy for the whole of the UK.
• The risk generated to the UK’s status as a potential trading partner of the EU by the Food Standards Agency’s decision to press ahead with major reform of UK food safety regulation, at a time when regulatory stability and clarity have never been more important.

The report notes, 'Like all systems operating to finely tuned specifications, the UK food system is fragile and vulnerable to disruption. Contracts for food supplies are typically set 12 months ahead. UK food comes via a complex logistics system run on a just-in-time basis, i.e. three to five days’ supply. There are only tiny food stocks, commercial or public, held in the UK’s food distribution chain.'

Agriculture in Wales after Brexit

The Commons Select Committee on Welsh Affairs has produced a report on Welsh agriculture after Brexit: Report

The report emphasises the contribution of agriculture to community life in Wales and the health of the Welsh language.

The report notes, 'UK-wide common frameworks could be established in a number of different ways, but it is still not clear where they will apply, what they will look like, how they will work, or how any disputes would be resolved. It is imperative that these frameworks are agreed mutually between the UK and devolved governments and ensure the unique issues that face each of the administrations are given due consideration. We believe that these frameworks will need to be supported by robust and transparent intergovernmental mechanisms.'

The Welsh Government's own proposals for phasing out the basic payment had not been well received by farmers. There is a case for retaining some form of basic payment in less favoured areas to support remote hill farms.

How changing food cultures challenge agriculture

One of our leading rural studies experts, Professor Michael Winter looks at the challenges and opportunities agriculture faces from changing food cultures: Food cultures

His report considers how changing food cultures and the need for a healthier human diet might impact on agriculture in the UK. He says, 'I look at what people are eating, where and how, and I consider some of the key trends in food consumption behaviour, that clearly feed back into what UK farmers produce and where and how their products are marketed.'

The chapter on agriculture looks at the ‘fitness’ of the industry to adapt to change and examines some of the market and science-derived opportunities for farmers to diversify the food commodities and products they produce including the breeding of improved varieties of cereals and reviving ancient varieties, and increasing the production of fruit and vegetables. Key to the approach required is for Sustainable Intensification, as the way ahead for agriculture in a resource-constrained world, to bring human nutrition more fully into its orbit.

He concludes (and I agree), 'There is a need to develop a food and farming strategy for the delivery of safe, nutritious and affordable food in the UK, which will allow UK farmers to respond with confidence to the concerns and opportunities presented by civil and consumer society. There is a clear policy imperative to support farmers through the transition to post-Brexit agriculture and policy needs to be designed to ensure that a strong, competitive and food health oriented industry emerges. Agricultural policy should be more focused on health and nutrition. Nutritional security should be seen as a "public good".'

EU needs to offer leadership on global trade

Alan Swinbank looks at Brexit, Trump and the unintended consequences of incomplete agricultural tariff reform: Incomplete CAP reform

He points out, 'Export subsidies are no more. Taxpayer support for Europe’s farmers is largely decoupled, and unthreatened by WTO disciplines. Despite successive reforms of the CAP, bringing down domestic support prices, these excessively high tariffs remain in place, rather like a whale’s carcass left stranded on a beach.'

'If the global trading system is to be saved, the EU needs to lead. Why not counter Trump’s threats and offer to unilaterally reduce farm tariffs?'