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.

Farmers face early SFP hit

Farmers are likely to face an immediate hit in their 2013 subisdy payments. 'If farmers budget the same as for 2012, they may be in for a nasty surprise,' warned Richard King, head of research at the Andersons Centre.

The proposed EU budget includes a 9 per cent in CAP funding. But one of the oddities of the system is that this year's single farm payment (SFP) will be based on the new CAP budget, but under the current SFP regime. The result could be a cut of about 10 per cent in the single farm payment. This comes at a time when many farmers have been hit by the unseasonable weather. This particularly applies to livestock farmers in higher areas who tend to operate on small margins.

The 10 per cent figure may be a little high, although Richard King insists that it contains a margin for safety. The Commission envisages a cut in single farm payments of marginally under 5 per cent (4.98 per cent) in 2013, equivalent to an overall cut of €1.47bn from the Pillar 1 budget of €44.1bn. This figure will have to be approved by the European Parliament. The cut is the first time that the 'financial discipline' included in the 2003 Fischler reforms has been triggered.

The difficulty is that farmers have become very dependent on subsidies to make a profit. This is the problem with subsidy dependency. Faced with cash flow problems, farmers have been borrowing more. Bank of England agricultural lending figures show farmer borrowing increased to almost £13.5bn for January 2013. This compares to £12.2bn in January 2012 and £11.7bn in February 2011 (albeit there is an inflation component in those figures).

One recommendation is that farmers should consider hedging at least part of their single farm payment to protect against exchange rate fluctuations. This could make thousands of pounds difference, but it is only an option for larger scale farmers.

Other farmers need to consider whether they want to stay in low margin businesses like dairying. There is a risk that if farmers sell their cows and machinery they may then be tempted to live on the assets while the capital value of the farm (if owned) deteriorates. They need an alternative business plan in place.

Fans of The Archers will note the controversy caused by Tom Archer's argument that Bridge Farm should stop milking its own cows and buy in the milk it needs on the market. Although the scriptwriters had the character put it tactlessly, he is right: milking cows is time intensive and the real money is to be made adding value to milk by making niche products such as organic ice cream and yoghurt.

The real difficulty for farmers is that they do not face a level playing field given the buying power of supermarkets. That is not going to change any time soon. But farmers need to recognise that subsidies are going to fall more in real terms than they have in the past.

Why there is a case for county farms

The demographic profile of farmers in Europe, not least in Britain, is an ageing one. To some extent the figures may be misleading as younger members of a family may be involved in the farm enterprise, but as junior partners or salaried employees. Tensions between the generations are a recurrent theme in fictional programmes like The Archers. They happen in real life on farms, too.

Farming does need an influx of younger people who are not only more energetic but are open to new ideas and new ways of farming and have a recognition of the importance of dialogue with the consumer. Some older farmers have modified their views and taken new initiatives, but they are often more resitance to change and accustomed to a world in the task was maximising production with generous assistance from the taxpayer.

It is, however, very difficult to get into farming except through inheritance. Of course, you can be a farm manager and many go down that route. But ownership or even tenancy is more difficult. The entry price in terms of start up capital is too high a barrier for many.

That is why county farms have played an important role. They were originally provide for under the 1908 Smallholdings and Allotment Acts, although most of them were created between the two world wars to provide smallholding opportunities for landless agricultural workers and soldiers returning home from the war.

They are rented out by county councils and sometimes it is possible to progress from a smaller holding to a larger one and then eventually to your own farm. Of course, many farmers stay on the county council farm.

Many of them are not really large enough to support a family. Most of the county estates are made up of farms of around 100 acres, too small to compete with larger farms, but arguably too large for smallholding type enterprises serve the local market. In practice the tenant often relies on the farmer's partner (usually a woman) obtaining paid employment as, for example, a teacher or a nurse.

This week the full extent of the cuts being made to local government budgets will be made known, but it is evident that local authorities are going to taken a big, front loaded hit. Some county councils have already sold off their farms, e.g., Oxfordshire, while others such as Buckinghamshire and Somerset look like going down that route.

It's a way of paying down debts, but it potentially harms the structure of farming. When asked about the sale of county farms the leader of Somerset County Council argued, 'It's not our core business.' Maybe it isn't, but it is still arguably worthwhile business for rural county councils.

The case for these farms is made by Simon Fairlie in a special issue on Land in the latest edition of the excellent Food Ethics journal published by the Food Ethics Council. See: Food Ethics

I'm not sure I agree with Fairlie's argument that there is an opportunity for the revival of smallholdings to meet demand for local food. To me this seems like a reversion to the nostalgic idea of spade husbandry advocated by some Chartists in the early 19th century.

Semi-subsistence farming is not the way ahead for the Global South or developed countries, but there is a case for providing opportunities for motivated and innovative farmers to pursue farming as a career. The case for government intervention can be made on food security grounds.