Wednesday, January 26, 2011

The subsidies dilemma

A farmer writing to Farmers Weekly says of Caroline Spelman's support for phasing out the Single Farm Payment, 'Surely she must realise the subsidy keeps most farmers in business?'

The correctness of this view in the short term, for livestock farmers at any rate, was confirmed by HSBC's head of agriculture Allan Wilkinson who said that livestock and dairy enterprises are likely to be even more reliant on subsidy payments to make a profit this year.

He told Farmers Weekly that while arable producers will benefit from the dramatic upturn in commodity markets, relatively static meat and milk prices, combined with big increases in feed costs, will put margins for beef, sheep and dairy producers under significant pressure.

Part of the answer is, of course, not subsidies but the response of the individual farm business to admittedly difficult market conditions. Mr Wilkinson acknowledged that output and costs varied significantly and that top-performing producers and those who had managed to secure higher end prices or cheaper inputs would fare better.

He commented, 'It's clear that volatility is here to stay and the successful busineses will be those that devote more effort to marketing strategies, in conjunction with a continued focus on technical efficiency and lowering production costs.' In other words, farmers have to get smarter.

Subsidies may not help them to get smarter. With Simon Marsh of Harper Adams University College, Farmers Weekly is following the month-by-month progress of an upland suckler herd that's consistently performing in the top 1 per cent of all costed herds. Mr Marsh commented, 'For too long, the UK beef industry has relied on support payments and it has stifled incentive to strive for efficient production.'

I was recently talking to a journalist from an esteemed weekly who has written on the CAP. He commented that when prices were low, the French (as the main defenders of the CAP) said that subsidies were needed to boost farm incomes. When prices were high or volatile, they were needed to ensure food security. He once asked a French minister if there were then any conceivable market circumstances in which an argument could not be produced in favour of subsidies.

We do not start with a blank sheet of paper and a sudden withdrawal of subsidies would seriously disrupt the market. But we should be starting down that road. Many farmers would be happier getting their return from their market without all the transaction costs of filling in forms to claim subsidies and the hazard that you may be denied part or all of your entitlement because of an inadvertent error.

What is more the UK is facing up to £1bn of fines from the EU in large part because of incompetent handling of Single Farm Payments (some £664m appears to relate to Defra). This was described in 2009 by the Commons Public Accounts Committee as a 'singular example of comprehensively poor administration on a grand scale.' Britain has now joined Italy and Greece among the worse offenders on farm funding

1 comment:

Anonymous said...

The CAP is an artificial price distortion,that protects EU and UK farmers, but costs are really just passed onto the shopper and consumer.

In any other business model this is a bankrupt and out dated idea. A small business in trouble cannot go cap in hand to either the UK or EU for tax subsidies and bailouts for there financial problem.

UK and EU farmers are so addicted to the CAP, they truly believe it is there God given right to receive Tax money,and this is wrong. They are not protecting consumer prices, they are protecting there own farm incomes?