Farmers back no deal Brexit

A surprising number of farmers back a no deal Brexit given that many of them would suffer financially as a result. At least that is the case if one believes polls from Farmers Weekly. A health warning is always necessary about these polls as respondents select themselves and the Ns are often small. A poll which purported to show that a majority of farmers backed Brexit in the referendum has nevertheless embedded itself in the public mind.

43 per cent of 'about 300' farmers said they would be happy with a no deal Brexit while 57 per cent said they would not. Concern about leaving without a deal was strongest in Northern Ireland, Scotland and Yorkshire and Humberside. Optimism about farm business prospects is at its lowest level since the survey started a year ago.

A snapshot 24 hour poll found that 53 per cent would choose to leave the EU with no deal if they could vote again. 38 per cent said they would vote remain and just 9 per cent said they would back the withdrawal agreement backed by Theresa May.

It is interesting that the first poll is below a story about the impact of a no deal Brexit on the sheepmeat sector. About one-third of the UK's production of lamb is exported and 95 per cent of this goes to the EU. 40 per cent tariffs and regulatory barriers would almost wipe out exports.

The Government has ruled out culling as a response to such a crisis. It looks as if they favour a combination of a headage payment on breeding ewes and a slaughterhouse premium. The UK breeding flock already reduced by about 30 per cent in the 2017-18 breeding season as farmers responded to an uncertain future.

Mike Gooding, director of Farmers' First, one of Britain's biggest lamb exporters, told Farmers Weekly: 'Essentially, Brexit risks excluding UK produce from the EU market. A no-deal Brexit would result in the same outcome - but with that risk greatly increased.'

He predicted a substantial fall in sheep farming in the UK. 'My own personal view is that there will be far fewer farmers managing what sheep there are in larger flocks - possibly across multiple holdings.'

The New Zealand experience of removing subsidies

Caroline Saunders, the current president of the Agricultural Economics Society, writes about the experience of removing subsidies in New Zealand in the organisation's latest newsletter.

'New Zealand famously removed all subsidies to agricultural producers as part of its post-1984 reforms. Prior to those reforms, New Zealand (NZ) had a relatively high degree of regulation throughout its economy. With a change in government in 1984 accompanied by an exchange rate crisis and a looming fiscal crisis, NZ undertook widespread liberalisation.

The pace and extent of the reform programme was impressive (Paul Dalziel, New Zealand’s economic reforms: an assessment. Review of Political Economy, 2002). In summary, NZ removed all financial controls, floated its exchange rate, undertook major privatisation of state enterprises, relaxed labour market controls, and removed most import tariffs and regulations.'

'The agriculture subsidies were relatively short lived. Until the mid-1970s, support levels were relatively low. However, the introduction of Supplementary Minimum Payments (SMPs) in 1978 – a form of deficiency payment that favoured the sheep breeding flock – followed swiftly by a raft of other measures, marked a rapid escalation in support levels. These measures included: incentives for land development; concessionary livestock valuation schemes; preferential credit for farm purchase; tax concessions; and fertiliser subsidies. Most were phased out in 1984, with some transitional arrangements persisting until 1986.'

'The main impacts were a drop in sheep production and increases in beef and dairy. Farm incomes for beef and sheep farms fluctuated from NZ$23,000 in 1983 to NZ$18,000 in 1984, NZ$34,000 in 1985 and $15,000 in 1986 before rising again to around $25,000 from 1987 to 1990. The impact of the reforms on fertiliser use was significant, since fertiliser subsidies had been in existence since 1963. Between 1986 and 1991, fertiliser use fell considerably, from around 2 million tonnes per annum, to around 1.2 million tonnes. The real value of farmland doubled from 1972 to 1982, then falling from 1982 to 1988 by 58 per cent.'

'The New Zealand experience of liberalisation of agriculture offers some useful insights. There were clear changes in land prices and production decisions in response to the changes in incentives. However, some caveats also need to be observed, notably that New Zealand had a relatively simple and short-lived support system and the removal of subsidies was accompanied by liberalisation throughout the wider economy. The impact was felt by those who had changed or bought farms during the period with subsidies, and subsequently had debt that was not sustainable after the prices fell. The changes also happened within a generation, which certainly would not be the case in the UK.'

Why are there more GIs in Southern Europe?

Geographical Indications (GIs) can be seen as a way of giving consumers more information about the provenance of niche food products, but they can also be seen as protectionist instruments. The EU has the most GIs in the world (makes the Americans suspicious) but they are concentrated in the south of the EU.

In the Journal of Agricultural Economics Martijn Hysmans and Johan Swinnen explore this phenomenon. They set out a series of hypotheses for further testing, although some already look more likely runners than others.

Historically, GIs were first developed in the EU wine sector. 89 per cent of wine GI are to be found in the south of Europe, but southern member states also account for 70 per cent of food GIs (excluding wine).

H1 relates to better and more differentiated food in the south, but there is little evidence to support this (and see the discussion of Scotland below). There may be some evidence for H2 that more GIs are to be found in regions with low productivity, leading to protectionist lobbying. H3 is that globalisation may have an effect, although I would word it rather differently in terms of resistance to globalisation by informed consumers leading to a search for authentic local products.

H4 is that the decline of traditional protectionist instruments may lead to their substitution for new instruments. But why particularly GIs?

I found H5 and H6 on spillover effects persuasive. Economic spillover relates to the use of the knowledge and capabilities derived from the development of wine GIs. H6 relates to the political capacity to design successful lobbying strategies.

No Terroir in the Cold? But what about Scotland?

A farm on Sanday in Orkney which, as the name implies, has particularly good topsoils.

Scotland is one of the more northerly places in the EU, particularly in the Highlands and Islands. There are currently 15 GIs in Scotland. Four are cheeses and three are fish products and, of course, Scotch whisky is there. Four are from the northern isles of Orkney and Shetland, three from Orkney. Orkney has a very well organised farming community with its own farming magazine (Orkney Farmer) and was a pioneer in relation to action on the cattle disease, BDV.

One of the products from Orkney that has a GI is cheddar cheese ('Orkney Scottish Island Cheddar') which might often be regarded as a commodity product. However, the cheese has its own special method of production: Our tradition

There has been concern that Brexit might threaten the system of GIs seen as key to the success of traditional food and drink products in Scotland: Scottish Parliament. In particular, there has been concern that a future trade deal with the US might threaten GIs.

Trade deal with China offers hope to beef farmers

A trade deal with China that has ended a ban on exports of British beef offers new hope to beef farmers, but also raise broader issues about UK strategy post Brexit.

A ban on British beef exports to China was imposed following the BSE crisis in 1996. The UK-China Beef Protocol is expected to generate £230m of trade over the next five years. China is the world's largest importer of beef. However, it is expected to be 2021 before supplies start flowing.

In the meantime beef prices are at a low level. Large stocks of frozen beef bought ahead of the original Brexit deadline are still feeding into the system. There has been a collapse in the global leather market affecting hide prices.

More significant in the long run is growing consumer antipathy to red meat because of health concerns and the impact of cattle on the environment, particularly in relation to climate change. 'Flexitarians' are a bigger challenge than vegans.

The broader issue is how far Britain wants to move closer to China after Brexit rather than the United States. There are export opportunities, but also broader concerns about human rights, not least in Hong Kong.

UK agriculture and the current political landscape

My presentation to the Geo-Agriculture conference in Beverley this week discussed the political landscape as it related to agriculture. I got it wrong in the preceding year when I forecast an eleventh hour fudged compromise given that EU decision-making was characterised by last minute deals. This would have left 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.

Why did I make a false prediction?:

• An exit decision for a member state could not be fudged like a CAP reform
• The member states showed more solidarity than I had anticipated
• MPs were more intransigent than I had thought likely

The Agriculture Bill has been the victim of Brexit chaos. It finished its progress through committee in November 2018 and continues to wait for its Report Stage debate to be scheduled, now over 200 days since it was debated The NFU would like to see more emphasis on food production and food security, help for farmers to better manage risk and periods of poor market returns.

It is important to bear in mind that farm businesses vary considerably and this affects their ability to respond to Brexit. Some of the variations include climate/terrain; soil type; ownership structure: owned, tenanted, mixed (increasingly common).

Resilience enables farmers to withstand unexpected shocks and changing conditions. Farmers are being urged to unite, build resilience and look after one another, but there is a limited record of cooperation in the UK. It can lead to an emphasis on survival rather than adjustment and adaptation.

Farms are reliant on EU subsidies

16 per cent of farm business make a loss, but that is forecast to increase to 42 per cent as basic payments are phased out. Direct payments account for 61 per cent of farm net profits. An accountant who represents 100 agricultural businesses in the Highlands estimates just one would be profitable without subsidy. Average Highland estate receives two-thirds of its income from EU subsidies.

Some farms and sectors are more challenging than others, but enterprises can be well managed in difficult conditions. AHDB/Andersons study found that top-performing farms are generating £50,000 more, on average, than those in the bottom 25 per cent.

Top beef and sheep farms in less favourable areas (LFA) yielded an income of £45,200 a year compared with -£1,600 in the bottom 25 per cent. On lowland grazing systems, the difference between top and bottom was £55,100. The study states, ‘Almost all the determinants of success are down to the individual; the decisions made on the farm and how they are implemented.'

Brexit

Farmers Weekly sentiment tracker for April shows a continuing upturn in how farmers view their prospects (+3.18). There has been a slight improvement in commodity prices. Even though more see input prices rising faster than outputs, the gap is narrowing. There has been a slight improvement in how they think Brexit will affect their business. Overall producers remain more negative than positive about Brexit with half thinking it will be bad for their businesses, compared with 21 per cent who think it will be positive. Index (1.0 negative, 5.0 positive) has increased from 2.51 at the beginning of the year to 2.66.

It is difficult to get good data on how farmers voted in the referendum or what they think now. The Knight Frank rural sentiment survey (N just 200) shows they are deeply divided (as is the country). 26 per cent want a hard ‘no deal’ Brexit; 25 per cent want a second referendum leading to ‘remain’ (would it?); 22 per cent the EU/May deal; 16 per cent soft Brexit customs union;10 per cent other; 2 per cent, 2nd referendum leading to leave.

How are farmers preparing for Brexit? 51 per cent said they were making not making any preparations, which may not be irrational given the prevalent uncertainty. Top changes: Diversification; more land into conservation; make existing business more efficient; plant more trees; buy/sell land (the 'bigger is better' orthodoxy is being challenged, although there are still economies of scale).

As far as diversification is concerned, most low hanging fruit has been taken. It does require different business skills and capital costs can be high. Popular options include farm contracting; tourism; on farm niche food production (ice cream; yoghurt; cheese); farm shops; storage facilities or office space; leisure activities; eventually the farm can be just a context for the business.

We should not forget that 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 were poorly designed and often impact farm businesses without securing desired outcomes. It encouraged intensification of agriculture.

New policies in England

In England current land-based payments to farmers will be phased out over a seven-year period starting in 2021. They will be succeeded by public funding for public goods at the core of which will be the Environmental Land Management System (ELMS). Under the new system, farmers and land managers can enter into a contractual agreement with the government to produce environmental land management plans providing outcomes, for which they will be paid.

The National Audit Office has issued a highly critical report. Farmers will have little time to prepare for participation in a three year national pilot of ELMS, which will run from 2021 to 2024, because Defra is not planning to set out the environmental outcomes it will pay for or how much it will pay until April 2020. This is less than a year before the start of the pilot and when their payments will start to be reduced. Defra has consulted with farmers as it designs the Programme, but it has not provided the necessary guidance to enable farmers to plan how to adapt their businesses or how to work collaboratively with other farmers.

Defra has recently scaled back its ambitions for the level of take-up of ELMS during the first year of the three-year national pilot, from 5,000 farmers to 1,250, but is seeking to increase participation as the pilot progresses. It is not clear whether this lower number in the first year of the pilot will provide sufficiently robust evidence across the range of farm types and locations to inform further development of the Programme. This means that Defra only has two years to test how well ELMS will work at scale.

What the NAO is saying in coded language is that preparation is poor and it could blow up in Defra's face. Defra currently has no plans to test its assumptions about the level of take-up of the new system. If take-up is low, Defra will need to find alternative ways to achieve environmental benefits. Farmers that do not participate may leave farming or replace direct payment income by adopting more intensive farming methods that could damage the environment.

Trade effects

Under a no deal scenario, tariffs would apply to UK food exports (I do not think GATT 24 applies). Fresh lamb carcase and barley exports are likely to feel the largest impact given that the UK is a net exporter The sector facing the most challenges in a ‘no deal’ scenario is sheep meat. Tariffs under a ‘no deal’ Brexit would make exports uncompetitive, the sector is very reliant on exports to the EU.

There is concern about terms of trade agreements with third countries (the focus is often on the US, but there are problems elsewhere). Agriculture may be sacrificed for gains in other areas of the economy. There is concern about price competition from countries with lower standards, e.g., on animal welfare. But some countries are simply more price competitive.

The AHDB suggests that critical to doing things better on farms is to minimise overhead costs. Higher outputs account for 10-30 per cent of higher profits in top quartile farm businesses, but lower costs contribute 65-95 per cent. Farmers should set goals and budgets (business plan); benchmark; improve people management; be self-critical and use skills effectively.

It is difficult to say what the future holds. A no deal Brexit would be damaging. Perhaps Boris could deliver a compromise that he could get past the hard line Brexiteers, but the chances aren't good.

As far as the EU are concerned, the negotiated deal is one between the EU and the UK and it won’t be re-opened. Why would a different PM be able to persuade them otherwise? They will not abandon a small peripheral member state like Ireland. They don’t want to encourage others to exit.

A no deal Brexit is not in the EU’s interests, particularly Germany. There is scope for further negotiation on the political arrangements. It might be possible to offer a timetable on the backstop and alternative arrangements. The changing dynamics of the Franco-German relationship is the biggest uncertainty.

In questions, I was asked if I would advise sheep farmers to bail out now, given that production decisions need to be taken well in advance. My advice on balance was to hang in there.

I was asked how the attitude of banks and other finance providers might change. This is something I have researched in the past. The attraction of agriculture for lending is that it has been a stable sector with asset security. This will change to some extent after Brexit, but banks have considerable understanding of the sector and will be able to make informed decisions about future lending.

Brave new world in farming

Beverley: Max Perris of Crawford and Company gave a fascinating presentation on the technological frontier in agriculture at the Geo-Agriculture conference here today. I will deal with what he had to say about robotics below, but his overall theme was that there is going to be more technological change in farming in the next twenty years than in the last two hundred.

He forecast that by 2040 only forty per cent of protein would come from animals produced for meat. Insects would become important as they offered protein, well balanced nutrients and were high in fibre along with low carbohydrates. We had a sample of crickets on our table. I must say they reminded me of the fried wasps I was offered as a delicacy in a remote part of China: fortunately my driver ate them. But attitudes could change. The Guardian reckons that the 'yuk' factor could decline: Fashionable food of future

Vertical farming using hydroponics offered many possibilities with the speaker referring to an operation under Clapham Junction in London. The produce was non-seasonal, there were fewer food miles and uniformity of product was achievable. However, the initial capital cost was high and it was important to get the lighting right. One could produce crops like salads and tomatoes but not wheat.

Risks included machinery breakdown with replacement parts having to be sourced from abroad. If there was a fire, debris removal would be costly. I wouldn't like to be one of the troglodytes that worked there!

What are the pros and cons of robotic milking?

Some dairy farmers see this as a way of 'Brexit proofing' their businesses. It is. however, a relatively expensive solution and one more appropriate to larger units. It requires a different style of working and presents new animal welfare challenges.

As far as cost is concerned, a farmer would need one unit per 55 low yield milkers. Each unit costs £100k - £120k and a new shed may be needed as well. So a farm with 100 milkers, not a particularly large farm by today's standards, would need to invest £300k. This would be spread over 15-20 years with bank borrowing, but units typically have a life of 10-15 years.

EU productivity grants have been available which cover 40 per cent of the capital cost, but I am uncertain whether these would be available after Brexit, although they would be consistent with a technology oriented investment strategy. No one knows what will happen to the milk price over the next decade, but I would be surprised if it went up in real terms.

With a robotic unit the cow is typically asked to find her own way to the milking unit and milk herself. This necessitates training for the herd person and the cow. It is important that there are no obstacles in the way of the cow, hence the need for a new shed in many cases. The cow will need access several times a day during an unhindered and uncomplicated route.

Staff need to be available 24/7 as the units send out alerts if there is any kind of problem and they need to be able to sort out software glitches. We all know how IT problems can drive us crazy, especially in the early hours of the morning. Staff need to learn new skills.

It does imply a new way of working with less repetitive work: being in a traditional herring bone parlour with cows urinating in all directions can be challenging. However, farmers need to think through how well they would adapt to this new technology and about its impact on impact on animal welfare, potentially positive but with new challenges.

Pesticide rules could be weakened after Brexit

Concern has been expressed about the way in which EU pesticide rules are being translated into UK law by the University of Sussex Trade Policy Observatory: Not just a technical exercise

The commentary notes, "These changes to pesticide regulation in the UK can hardly be characterised as ‘technical’; they will weaken the rigour of the process by which pesticides are approved and monitored in the UK."

The EU could, of course, prohibit the import of crops from the UK produced with pesticides of which it did not approve.

Farmers divided about Brexit options

Farmers are divided about how or whether they want Britain to leave the EU according to the Knight Frank 2019 rural sentiment survey. It should be noted that the sample size is just 200, but it probably does reflect a measure of confusion and uncertainty among farmers.

26 per cent of farmers wanted a 'no deal' Brexit, which would certainly be damaging for at least some of them, but 25 per cent wanted a second referendum leading to a remain conclusion. 22 per cent backed the deal with the EU negotiated by Theresa May and 16 per cent preferred a softer Brexit including a customs union.

30 farmers said they would change how they voted in 2016 and 80 per cent of them would switch from remain to leave. They blamed Brussels for the UK's inability to reach a deal.

51 per cent of respondents said they had no plans to adapt how they farmed to deal with leaving the EU. Those planning for Brexit envisaged diversification, putting more land in conservation schemes and making existing businesses more efficient.

The report can be read here: Knight Frank

Warning on government's new farm policy

The National Audit Office has issued a report on the government's new farming policy. Gareth Davies, the head of the NAO comments, 'Defra is moving forward with a policy which is a radical departure from the CAP farm payment regime we have known for forty years. Because it is such a big change, from acreage-based direct payments to an environmental stewardship scheme, we have looked at Defra’s approach to implementing its policy at an early stage.'

'We urge Defra to give itself time and space to fully test and evaluate the policy, and for comprehensive planning, to avoid any unintended consequences for the farming community, our environment or ability to feed ourselves.'

The report notes that 'The government’s new farming policy will be a significant change for farmers in England and the Department for Environment, Food & Rural Affairs (Defra) has a lot to do to prepare for its implementation at a time when its resources are already under immense pressure from its preparations for EU Exit. The National Audit Office warns that government must approach its roll-out carefully to ensure farmers can prepare in the way they need to.'

'The UK farming industry provides over half of the food the UK eats, employs 474,000 people and comprises 217,000 farms. While a member of the EU, the UK takes part in the Common Agricultural Policy (CAP). Under CAP, farmers in England received €2.4 billion in subsidies in 2017. To prepare for exiting the EU, Defra is developing the Future Farming and Countryside Programme (the Programme) to implement a new agricultural policy and regulatory arrangements to replace CAP.'

'The key part of this new programme is the Environmental Land Management System (ELMS). Defra hopes to have 82,500 farmers enrolled on ELMS by 2028. Under CAP, most payments to farmers are based on the amount of land they farm. These direct payments will be gradually phased out over a seven-year period starting in 2021. Under ELMS, farmers will be encouraged to enter into a contract with the government to produce environmental land management plans, and be paid for the environmental outcomes they deliver, often working in collaboration with other farmers. The policy represents a major shift away from traditional farming towards a system that pays public money primarily for delivering environmental benefits.'

'Farmers will have little time to prepare for participation in a three year national pilot of ELMS, which will run from 2021 to 2024, because Defra is not planning to set out the environmental outcomes it will pay for or how much it will pay until April 2020. This is less than a year before the start of the pilot and when their payments will start to be reduced. Defra has consulted with farmers as it designs the Programme, but it has not provided the necessary guidance to enable farmers to plan how to adapt their businesses or how to work collaboratively with other farmers.'

'Defra has recently scaled back its ambitions for the level of take-up of ELMS during the first year of the three-year national pilot, from 5,000 farmers to 1,250, but is seeking to increase participation as the pilot progresses. It is not clear whether this lower number in the first year of the pilot will provide sufficiently robust evidence across the range of farm types and locations to inform further development of the Programme. This means that Defra only has two years to test how well ELMS will work at scale.'

'Defra currently has no plans to test its assumptions about the level of take-up of the new system. If take-up is low, Defra will need to find alternative ways to achieve environmental benefits. Farmers that do not participate may leave farming or replace direct payment income by adopting more intensive farming methods that could damage the environment.'

'The success of the Programme depends on government assumptions about how the farming community will respond to the new policy. Direct payments from the EU currently account for an average of 61% of farms’ net profit. Without these, 42% of farms would have made a loss between March 2014 and February 2017. The Department expects the withdrawal of direct payments to be offset by improved business approaches, new entrants to the sector taking over farms that have ceased to be viable, and productivity gains across the sector. However, there is limited evidence that many farms are equipped to increase their productivity.'

'Defra is starting to specify its digital requirements for the Programme before key decisions have been made about how the new policy will work in practice, increasing the risk that it will need to make significant technology changes late in the Programme. For example, Defra has not yet decided which environmental outcomes will be rewarded or how much farmers will be paid.'

'The NAO recommends that Defra gets a plan in place with realistic timescales, that has sufficient flexibility to allow changes to be made as more is learned about how farmers react to the new farming policy. It should extend participation in its pilots to a wider range of farmers and land managers to test their willingness and ability to participate in ELMS, and determine the level of ELMS take-up it needs to justify investment in its design and development.'

The report can be found here: New farming programme

Defra pledges to cushion basic payment withdrawal

Defra has pledged to cushion the impact of the withdrawal of the basic payment against a background of concern about the mental health and well-being of farmers: Defra pledge

Defra’s own statistics show that 16% of farm businesses are already unprofitable – even while direct payments continue to be made. That would rise to 42% without direct payments, which the government intends to phase out over seven years from 2021.

Much emphasis seems to be placed on resilience, and farmers are resilient, perhaps sometimes too much so for their own good. However, resilience can turn into a resistance to adaptation to changing circumstances.

Spanish interlude

I recently spent a few days in the vicinity of Alcalali in the Jalon Valley in Spain which is roughly halfway between Alicante and Valencia. Farming in this area is focused on fruit and vineyards. Oranges are not getting a good return with competition from South Africa and it is sometimes hardly worth picking them: I saw 5 kilos of oranges for converting into juice offered at one euro and there weren't many takers. Almonds, lemons and avocados are among the other crops grown.

In many ways vineyards are potentially a commercial crop and I saw an extensive flat area planted with vines. I visited the cooperative in Jalon (aka Xalo, depending on the language used).

This was set up in 1962 and takes grapes from a radius of 15-20 kilometres, all organically grown. The plant is highly mechanised.

In some ways it was the marketing techniques that interested me. They have a very impressive shop, beautifully laid out, with a range of wines (and spirits). This generates 20 per cent of their revenue. It is possible to fill reusable plastic containers of wine for just a few euros and this is clearly a very popular offer. A very acceptable bottled white retails for just under three euros.

However, they do have high end wines at, for example, 18.5 euros. I saw a case of a dozen of these being dispatched to a purchaser in the United States. Once again farmers outside the UK show an ability to cooperate which is far less common here.

Farm income drops under two Brexit scenarios

The AHDB has modelled two Brexit scenarios, UK-EU free trade area and WTO UK tariffs: Assessment report

Farm business income drops under both Brexit scenarios for nearly all of the farm and enterprise types covered. For most sectors the main driver of the fall is expected increase in labour costs. However, in the Less Favoured Area (LFA) and lowland beef and sheep farms falls in production returns (from cattle and sheep sales) are much more substantial.

Most sectors fare significantly better under a UK-EU FTA scenario. In general terms trade impacts vary depending on whether the UK is a net importer or net exporter. Net importing sectors generally gain from rising prices, whereas net exporting sectors see falls. Under the WTO: UK tariffs scenario some net importing sectors (beef and pigs) also experience a price fall as the model expects cheaper world market product to make its way to the UK market.

As with the original 2017 study there is substantial variability of results by farm size and performance levels. The high performing farms, in terms efficiency of converting inputs to outputs, remain profitable under both scenarios.

US opens offensive on agricultural trade

The United States is playing hardball on agricultural trade as part of any future US-UK trade deal after Brexit. Last week the office of the US trade representative (in effect, America's trade minister) issued a document that said the US was seeking 'comprehensive market access for US agricultural goods in the UK' through the reduction or elimination of tariffs. The US is also looking for the removal of 'unwanted barriers' related to 'sanitary and phytosanitary' standards.

The US Ambassador followed up with an article in the Daily Telegraph on Saturday which said that the UK risked getting trapped in the EU's 'museum of agriculture' approach: Smears on US farms

The EU has shown itself more than capable of innovation in agriculture with a new era opening up with the digital revolution. However, what the so-called 'museum of agriculture' about is a vision for European farming which emphasises the production of high quality products in an environmentally sensitive way, including observing animal welfare standards. An ecosystems compatible agriculture reflects the preferences of European consumers and voters who have no enthusiasm for corporate, industrialised American models.

Brexit and Wales

A vibrant and innovative food movement is growing in Wales and there could be new opportunities post Brexit. But is England holding Wales back? Brexit and Wales

The report argues that Brexit poses particular risks for Wales’s export-dependent farmers and food producers. It also gives Wales an opportunity to make a step-change into a new approach to food and farming. Wales has a forward-looking government with sustainability high on the agenda, and a diverse geography. The size of the country gives it an advantage: small enough for individuals and projects to make a difference, big enough for economies of scale, and diverse in its landscapes and culture.

It has several innovative pieces of legislation that could support a transition to fairer and more environmentally sustainable farming and food production, if political authority and public support can be mobilised to link them together.

Gove wins tariff battle

Recent events may give the impression that a no deal Brexit is off the table, but it may merely have been postponed until the end of June. It is therefore significant that Theresa May has ruled in favour of Michael Gove in a battle over tariffs on sensitive agricultural goods.

There was a clash between Gove and chancellor Philip Hammond with the latter taking what he saw as the side of consumers while Gove argued for tariff protection.

Existing high EU tariffs will be maintained on beef and lamb. General duties will retained for pork products, milk and cheese. Products such as sugar will have tariffs to maintain duty free access from developing countries.

Quite what the Irish Republic will make of the prospect of high tariffs on beef, which will have to apply to them, remains to be seen. It may increase their efforts to find a workable solution to the Irish border issue.

The perils of a no deal Brexit

Addressing the NFU conference yesterday, Michael Gove made it clear that a no deal Brexit would be highly damaging for UK agriculture. Tariffs of at least 40 per cent could be imposed on sheep meat and beef, rising to 100 per cent in some cases. SPS checks would be imposed on exports, slowing down their processing which would mean they would be less fresh on arrival: Full text of Gove speech

One piece of good news for farmers is that there will not be zero tariffs on food imports which might have been politically attractive as a way of reducing the price of food. However, as always, the devil is in the detail. It is not clear which sectors would benefit although Mr Gove implied it would be sheep meat, beef, poultry, dairy products and pig meat. There was no mention of grains, fruit, vegetables or flowers.

The Government could also provide direct cash support for hard hit businesses, although it is not clear what the budget would be or how it would be allocated. The vulnerable livestock sector would presumably benefit.

Farming on the edge

With Brexit uncertainty continuing, this analysis by well-known authors looks at the risks associated with Brexit for farming and the agri-food supply chain. In particular, zero tariffs for food might be politically attractive in a 'no deal' scenario but would hit farmgate prices hard: Farming on the edge

Public goods scheme may run into trouble

The Government's intention to switch to public goods payments for farmers after Brexit may fall foul of the poor record of implementation of existing agri-environmental schemes. About 30 per cent of the farmers signed up to the various green programmes are still waiting for payments from 2017.

Payments often come up to a year late. By the government's own assessment, delivery of the country stewardship scheme has 'fallen short' and 'the situation is unacceptable' according to the latest annual report from Natural England.

The new schemes are likely to be even more complex and will have more money going through them, making even more delays likely.

Given the likely complexities of making applications, farmers could simply opt to farm their land more intensively, reversing previous environmental gains.

Gove warns of Brexit farming woes

The text of Michael Gove's speech to the Oxford Farming Conference: Defra Secretary

He comments, 'I cannot, here, entirely pre-empt the outcome of the Government’s Spending Review.' Indeed, but it is of crucial importance and the Treasury has a long held suspicion of farming subsidies. Gove claims, 'Embracing change, supporting reform is the key to unlocking the Treasury’s special box.'

The Secretary of State admitted, 'It’s a grim but inescapable fact that in the event of a no-deal Brexit, the effective tariffs on beef and sheep meat would be above 40% - in some cases well above that. While exchange rates might take some of the strain, the costs imposed by new tariffs would undoubtedly exceed any adjustment in the currency markets.'

In addition, 'The combination of significant tariffs when none exist now, friction and checks at the border when none exist now and requirements to re-route or pay more for transport when current arrangements are frictionless, will all add to costs for producers. As will new labelling requirements, potential delays in the recognition of organic products, potentially reduced labour flows and the need to provide export health certificates for the EU market which are not needed now.'

'Nobody can be blithe or blasé about the real impact on food producers of leaving without a deal.'

The CAP and farming resilience

What contribution does the CAP make to farming resilience? An in depth report on the subject: Resilience Assessment

The resilience of farms and farm systems has become more of a concern in agricultural policy-making. In recent years, European farming systems have generally experienced more pronounced and overlapping challenges: on the one hand, a build-up of shocks such as more frequent extreme weather events, increased price volatility on liberalised markets or unpredictable political interventions to trade policies.

These are accompanied by significant long-term stresses, such as changing consumer preferences, climate change, rural outmigration or the lack of skilled labour. The accumulation of these overlapping environmental, economic, social and institutional challenges could render many farming systems in Europe vulnerable and threaten their functions, i.e. the production of food and fibre as well as the provision of public goods.

The analysis reveals that the CAP and its national implementations do enhance the resilience of most farming systems in the case studies. However, there is a clear bias towards a robustness-cum-adaptability orientation. The main reason for this is that the bulk of resources go into payments that provide buffer resources for farms and enable the continuation of otherwise less profitable business models, thereby stabilising the status quo.

Fewer resources are funnelled into measures that enhance adaptability; this occurs mostly through rural development programs and in some cases producer organisations. An open question is whether the relatively ample support for robustness creates disincentives for adaptation or transformation and therefore impedes these other resilience dimensions.

Demand for oat milk oustrips supply

Global sales of liquid milk from cows fell by 3.5 per cent in the five years to 2017 and one factor has been the growing popularity of plant based alternatives. However, these have not been without their challenges.

Almond-based milk has the largest share of the plant-based market in the US with 64 per cent, but some consumers are concerned about the amount of water used in almond cultivation. Soya milk sales have fallen after a debate about its health benefit and risks.

In contrast oat milk sales surged almost 50 per cent in the US in the twelve months to August. That compares with 9 per cent growth in overall plant-based milk. One reason is that it is really good with coffee and consumers like its texture.

Demand has expanded rapidly that leading Swedish producer Oatly has been forced to pause international expansion so that it can supply existing markets in the US and UK. PepsiCo, owner of Quaker Oats, is hoping to cash in by launching oat milk lines to US consumers.

Biotech starts ups are developing dairy free proteins using biological fermentation techniques.

A crucial turning point for agricultural policy

Dieter Helm from Oxford University in a video presentation of policy options for agricultural policy after Brexit: Dieter Helm

He argues that we are at a critical historical turning point for agricultural policy, as important as the post-war settlement embodied in the 1947 Act and joining the then common market in 1973. We need to be clear about what the problem is you are trying to answer in agricultural policy. Why do we have to intervene at all? Post-war policy across Europe was influenced by a 'dig for victory' narrative which is no longer relevant.

He argues that we no longer need policies to deal with volatile prices given the availability of futures markets and financial instruments. I am not convinced that these address all the challenges, particularly for smaller farmers.

What earlier policies failed to address were negative externalities and public goods. Economists have a tight definition of public goods, but public perception equates public goods with the public interest. The Treasury may be tempted to transfer non-agricultural policies to the agricultural budget, e.g., rural broadband access.

There is an asymmetric information problem between farmers and those implementing public policies. Helm suggests the use of auctions and discusses this in the context of river catchment areas.

Pesticides policy after Brexit

The Food Research Collaboration has produced a briefing paper on pesticides policy after Brexit: Pesticides at a crossroads

It is noted, 'With Brexit looming, there is an opportunity for the UK to reshape its relationship with pesticides. It could choose to mirror or even surpass the standards of EU pesticide rules. On the other hand, it could bow to the pro-pesticide lobby and use Brexit as an opportunity to deregulate. This would allow a greater variety and larger quantity of harmful pesticides to be used, thereby putting the environment and the public’s health at risk.'

Among the recommendations are that the UK should maintain the EU’s hazard-based approach (rather than revert to a risk-based approach) to pesticide regulation and introduce a clear, quantitative target for reducing the overall use of pesticides in agriculture. A new government body should be created to support Integrated Pest Management (IPM) techniques. A pesticide tax should be introduced to drive reductions in pesticide use and fund research, development and innovation.

Farmers are, of course, concerned about the removal of active substances they see as essential to plant protection.

Panel to look at farm funding across UK after Brexit

The question of how farm funding should be divided up across the UK after Brexit has been a thorny political issue, not least because the Scottish Government in particular has been concerned about a loss of powers. It also has an ambition to continue some form of basic payment after Brexit, although that would depend on funding being available (the Welsh Government does not intend to maintain a form of basic payment).

The Government has appointed an independent panel chaired by Lord Bew to review the issue: Fair funding for farmers. Each of the devolved administrations will be represented on the panel.

It is also stated that the intention is not to maintain the Barnett formula in relation to agricultural spending after the end of the lifetime of the current Parliament.

Under the present distribution of funding, Northern Ireland does best on both a per capita and a per hectare basis: Funding for farming across the home nations

Agriculture Bill lacks clarity

The House of Commons Environment, Food and Rural Affairs Committee’s Scrutiny of the Agriculture Bill report is calling on the Government to ensure imported food products are held to current British standards as part of any future trade deal. The inquiry was launched alongside the Agriculture Bill, which was introduced in the House of Commons in September 2018 and examines the provisions that will be needed in the agricultural industry following the United Kingdom’s exit from the European Union.

Due to the inquiry running parallel to the Bill, the Committee focused on three key areas of the Bill, including future trade deals. The Committee is calling on the Government to ‘put its money where its mouth is’ and accept its amendment to the Agriculture Bill regarding trade. The amendment stipulates that food products imported as part of any future trade deal should meet or exceed British standards relating to production, animal welfare and the environment.

The other two key areas prioritised by this Report are the transition from the EU Common Agricultural Policy (CAP) to a new system based on public money for public goods and fairness in the supply chain The Committee recommended that there should be a multi-annual financial framework to provide a long-term commitment to agriculture. The Committee also concluded that the Groceries Code Adjudicator should oversee the proposed fair dealing obligations for first purchasers of agricultural products, rather than the Rural Payments Agency.

Given the importance of this Bill in shaping UK agriculture in the future, the Committee expressed disappointment that it was not given the chance to scrutinise the Bill pre-legislatively. This unsatisfactory precedent has been swiftly followed by the publication of the Fisheries Bill.

Neil Parish MP, the Chair of the Environment, Food and Rural Affairs Committee, said: 'The United Kingdom currently has exceptionally high environmental and food standards and an internationally recognised approach to animal welfare. This legacy cannot be ripped apart by the introduction of cheap, low-quality goods following our exit from the European Union. Imports produced to lower standards than ours pose a very real threat to UK agriculture. Without sufficient safeguards we could see British farmers significantly undermined while turning a blind eye to environmental degradation and poor animal welfare standards abroad.

This Bill lacks clarity and gives any future Secretary of State the opportunity to avoid scrutiny and make crucial decisions while going somewhat unchallenged. We would like to see sufficient opportunities for parliamentary scrutiny before any new systems or policies are rolled out.

The report can be found here: Defra committee report

The scale of Italian food fraud

The very complexity of the Common Agricultural Policy provides opportunities for fraudsters. One recalls that a British farmer claimed for fields which turned out to be in mid-Atlantic. A herd of cows was supposedly living on the upper floors of an office block in Rome. Italy has been particularly prone to systemic fraud involving organised criminals.

According to the Rome-based think tank, the Observatory of Crime in Agriculture and the Food Chain, the Mafia have infiltrated the entire food chain. The value of the so-called agromafia business has almost doubled from €12.5bn in 2011 to more than €22bn in 2018 (growing at an average of 10 per cent a year) according to the Observatory. It now accounts for 15 per cent of total estimated Mafia turnover.

According to a recent article in the FT Weekend Magazine 'the cartels have developed white collar expertise in infiltrating the local councils and committees that award tenders and subsidies.' A Mafia family could claim about €1m a year in EU subsidies on 1,000 hectares, while leasing it for as little as €37,000.

In part the Mafia's interest in land deals stemmed from lower earnings from its drugs business and a drop in public money for public works contracts. With margins as high as 700 per cent, profits from olive oil can be higher than those from cocaine and with less risk. According to police, about 50 per cent of all extra-virgin olive oil sold in Italy is adulterated with cheap, poor quality olive oil.

Counterfeited organic food also offers the opportunity for big profits. Italian gangs were discovered importing wheat from Romania and labelling it as organic, which commands a price three to four times higher.

Apart from the opportunities to make money, the move into food also reflected the organisations's growing propensity to enter legitimate businesses. Of course, laundering profits in this way is not a new tactic.

However, there has been a crackdown. Even the smallest leaseholders have to pass police checks, enforced retrospectively, and there have been numerous confiscations of land. Specialist police tasters work to uncover adulterated foods, especially in olive oil.

CAP reform plans fall short

This is not the first time the Court of Auditors has criticised the CAP and it probably won't be the last, given that its findings are generally politely brushed aside: Plans fall short

It is argued that 'The proposed reform of the Common Agricultural Policy after 2020 falls short of the EU’s ambitions for a greener and more robust performance-based approach. The auditors identify a number of other issues with the proposal, notably in terms of accountability.'

The auditors note that many of the proposed policy options are very similar to the current CAP. In particular, the largest part of the budget would continue to be direct payments to farmers, based on a given amount of hectares of land owned or used. However, this instrument is not appropriate for addressing many environmental concerns, nor is it the most efficient way of supporting viable income.

Why operating under WTO rules is not simple

The nature of WTO negotiations is changing, argued Professor Fiona Smith in her inaugural lecture at Leeds Law School last night. The agricultural trade specialist said that diplomatic negotiations were replacing regulation, although it was a messy process, but one that would mean a less central role for lawyers and technocrats. Diplomacy and regulation were in tension in some ways. That tension could be creative, but it could also be destructive.

Without regulation, the strongest and richest could get the best deal. The WTO had been far from ideal for least developed and developing countries, but what had gone before had been worse. For agriculture trade would effectively cease under a hard 'no deal' Brexit.

Professor Smith reminded us of the complexity of WTO rules, 30,000 pages of them and a 500 page handbook. Brexit was not something that WTO rules had been designed for, a country leaving a regional trade arrangement. There was more to trade than goods and services. The trade regime covered subsidies, quality agreements and the environment.

The question of whether the UK was a WTO member had in a sense been resolved, but its schedule of commitments had been absorbed in those of the European Community in 1973. The UK did not have the benefit of an accession treaty, She noted that the UK did now have its own representative in Geneva who was actively attending meetings, although what the UK's stance would be on various issues was unclear.

It was evident from her remarks that following WTO rules was not the simple matter that it was claimed to be. One might add that this is why countries around the world enhance them with regional trade agreements, not least the super regionals like the EU. WTO rules do not accommodate someone leaving a regional trade agreement.

Brexit could push up fruit and vegetable prices

Some of the claims made in relation to Brexit do seem to be exaggerated, particularly when one considers that we do not know what the final settlement will be (my best guess is that the EU and the UK will reach a deal and it will get through the House of Commons with the support of Labour dissidents).

However, this article suggests that higher fruit and vegetable prices could lead to a large number of early deaths: 5,600 deaths a year

Indeed, the article admits: 'Analysing the potential implications of Brexit is a tricky business. The concrete details of Brexit remain unclear. Proposals range from various forms of “soft Brexit” that include a new trade agreement with the EU, to a “hard Brexit” in which the UK falls back on the (higher) tariffs set out by the World Trade Organization.'

What is needed is for domestic policy to have a greater focus on growing fruit and vegetables, both for health reasons and to respond to the greater number of consumers who are vegetarians and vegans. That is lacking in current proposals.

RSA report on food, farming and the countryside

Reports on food and farming keep appearing. The latest is from the Royal Society of Arts and this is just a halfway stage report: Our Common Ground

The basic message is that 'We cannot carry on treating our food, farming and countryside as we do currently. We are failing our citizens, our communities and our environment.'

We are almost at a point where analysis of the problems is far outpacing necessary action, but it was ever thus.

Brexit could compromise biosecurity

The House of Lords European Union Committee has produced a report on plant and animal biosecurity after Brexit: Publication

The report notes, 'The UK currently follows EU legislation on biosecurity, with decisions on implementing biosecurity measures made predominantly at an EU level. The UK also benefits from EU-wide intelligence gathering and disease notification systems, systems for tracing plant and animal movements, and coordinated research efforts. When the UK leaves the EU, it will no longer automatically be part of this framework.'

It states, 'We urge the UK Government to negotiate continued participation in as many of the EU’s notification and intelligence sharing networks as possible. We note also the significant work that remains to be done to ensure the UK has a replacement legislative framework in place, along with the monitoring, inspection and enforcement mechanisms, staff and IT systems to support it, by the time the UK leaves the EU. It seems doubtful this could all be achieved by March 2019, when it would be needed in the case of a "no deal" Brexit, potentially leaving the UK’s biosecurity compromised.'

Brexit and agriculture in Northern Ireland

A House of Commons Select Committee report has just been published on this topic: Northern Ireland

The report states, 'We are concerned that Defra’s consultation on Post-Brexit agriculture policy does not look in detail at the sector in Northern Ireland. We have also heard that there has been little direct engagement with farmers in Northern Ireland on this consultation, and consequently there has been insufficient recognition of key differences between Northern Ireland’s agriculture sector and that of other parts of the United Kingdom.'

'This is a particular concern given the absence of a Northern Ireland Executive, which means that an agricultural policy for Northern Ireland cannot be developed independently at this time.'

The report notes, 'Direct Payments are essential to the viability of much of the agriculture sector in Northern Ireland, and the level of support available to Northern Ireland farms must not be reduced following Brexit. Northern Ireland’s agricultural funding should be maintained until at least 2022.'

The report also notes, 'EU farming regulations have been frustrating for farmers, and at times counterproductive. Brexit is an opportunity to redesign farming regulation and inspection to simplify compliance and to reflect the circumstances in which Northern Ireland’s farmers operate. The Government’s ambition is to introduce smarter regulation and enforcement, but we heard that this may be easier said than done. There is also a tension between reducing regulatory burdens and maintaining the high environmental and animal welfare standards that the public expects.'

Is the UK ready for new challenges in food production?

The Financial Times yesterday had a 'Big Read' article about the transformation of food production by new technology. Like all FT articles on new technology, it's a bit 'gung ho'. It doesn't consider that many farmers may be resistant to new technology or may not have the resources to acquire it. Nevertheless, it makes some good points.

The central thrust of the article is to be found in a sentence some way down: 'Once an unfashionable backwater, agricultural technology has started to capture the imagination of investors.' It reckons that 'annual global investment in food tech, from farm management systems to robotics and mechanisation, more than tripled to $10bn' in the five years to 2017. The main areas of innovation are identified as gene editing, artificial intelligence and digital technology.

Consumer demand is, as always, of key importance. As the populations of developing companies become wealthier, they demand protein products, especially meat. The total amount of meat consumed globally is forecast to rise by 76 per cent by 2050. But, as we know, meat production is not good news for climate change (fossil fuels, methane), nor is increased red meat consumption good for health.

Coincidentally, The Economist has a big feature on the vegan trend. Veganism as such, it concluded, is a niche market, but large numbers of people who are not vegans or vegetarians are interested in healthier eating which has led to an increased demand for plant based products.

One of my concerns about Brexit was the impact of the loss of migrant labour on fruit and vegetable production in the UK. Food miles issues can be exaggerated: it makes more sense to produce tomatoes in Spain in the winter than to heat glasshouses around Littlehampton.

I am somewhat sceptical of claims made about automated picking. The FT notes, 'Given that fruits and vegetables are not of uniform shape and ripeness, the technological challenges are extensive. On top of the mechanical dexterity and spatial cognition that the machines need to demonstrate, researchers hope that AI can help them to learn to pick only the ripe fruit and vegetables.'

The FT rightly praises what is going on in the Netherlands in this area, particularly in 'Food Valley' near Wageningen University (it is, of course, as flat as a pancake). When I was doing research on biological alternatives to chemical pesticides, I was impressed by the way in which the Netherlands was ahead of the curve. As the FT notes, 'The country has made food science one of its strategic priorities and hosts one of the world's most efficient agricultural systems.'

Among the advantages that the Netherlands has is Rabobank, one of the biggest lenders to the food industry and a central location in Europe with an excellent port in Rotterdam.

The FT notes, 'Some investors believe that the food business is about to face the sort of disruption that technology has based on hosts of other industries.' Is the UK ready? Is domestic policy prepared? I doubt it.

Boost for dairy futures

Now that we no longer have devices like milk marketing boards and large scale intervention buying to manage dairy markets (both of which had big problems), there has been an interest in the deployment of novel financial instruments to help farmers cope with market fluctuations. However, you have to be quite a financially sophisticated farmer to be able to use them and they potentially working best in cooperative arrangements.

Indeed, the traditionally conservative cooperatives are now becoming more active as they look for ways to hedge against fluctuating prices. Big processors are using futures to fix their prices and the big retailers are also involved.

A total of about 20,000 tonnes of skimmed milk powder, butter and whey were traded on the EEX dairy futures market in September, the highest monthly volume on record. Skimmed milk futures were launched in 2010, but there has been a lack of liquidity.

The market is still illiquid, but analysts believe that we are at a tipping point.

Record summer temperatures across Europe affected supply. Brexit is also driving volatility in Britain and Ireland.

John Lancaster, a senior analyst at a commodity broker, told the Financial Times:'It's become more obvious to people that high volatility is not going away.'

Stakeholders prioritise outcomes over process

The Government has issued a response to the EFRA Committee report on its consultation document on domestic agricultural policy after Brexit: Response

The Government praises itself for the extent of its engagement with stakeholders on the trajectory of policy and certainly there is a lot of interest and concern from many different quarters on its future direction and content. Stakeholders are interested in outcomes not process and what those will be remains to be seen.

Defra states that, 'It is incorrect to say that there have been minimal discussions between Defra and the Treasury over the future funding of the new agricultural policy. We have been in regular contact with HMT at both ministerial and official level.'

Again it is not the regularity and level of contacts that matters, but the content of those contacts. We are now in a period where the end of austerity has been proclaimed alongside continued fiscal responsibility. The reality is that it is politically difficult for the Government to increases taxes, but it has pledged substantial new funding to the NHS before one even starts to think about, for example, the needs of the police and the prison service.

Spending on agriculture is likely to be squeezed over the coming years. Normally reliable sources suggest that the Treasury is happy with the direction of travel of policy towards payments justified by public goods arguments. However, they are not impressed by food security arguments, although they are interested in the possibilities of a new technological revolution.

What is still largely missing is any link between agricultural policy and health policy in relation to issues such as obesity. Healthy eating is an interest of large sections of the population, not least younger voters.

The Government's view is that 'eating healthily is ultimately a consumer choice'. This is true, but that choice can be guided and that is what Public Health England is trying to do, possibly sometimes in too hectoring a tone.

The Government argues, 'We take the view that the market remains the best way to reward the production of good-quality food. Paying farmers to produce healthy food would not necessarily result in the desired outcome of a wider contribution to public health. Farmers may be the wrong target to incentivise consumers to eat healthy food, especially where primary produce travels through the supply chain via food processors and manufacturers before it is turned into the final product that consumers purchase.'

Whilst there is something in these arguments, policy needs to go beyond a reliance on the market mechanism. For example, there is a climate change argument for eating less meat. We need to ensure that there is a good fruit and vegetable supply at an affordable price. Of course, that raises much wider questions about the roles of the state and the market.

End of basic payment challenges National Park farmer

It was a pleasure to open my Financial Times on Monday and see a photo of a fellow member of the Farmer-Scientist Network of the Yorkshire Agricultural Society, Richard Findlay. I had just finished the draft of our submission to the EFRA inquiry into the Agriculture Bill which received its second reading this week (attracting attention because the Democratic Unionists abstained).

Drawing on the expertise of our academic and farming members we have made a detailed response which hopefully will appear on our website before long. You can read our earlier reports and documents here: Brexit

Richard has 700 sheep on 1,250 acres of the North York Moors national park. In a good year he makes a profit of about £12,000, but he receives £44,009 in subsidies under the CAP.

As he points out, the moorland is a managed landscape which would revert to trees and bushes if he was not farming it. Hopefully, he will be able to demonstrate that he is providing a 'public good' under the new arrangements, although the income stream is likely to be more uncertain and involve form filling.

GM bonanza after Brexit?

Producers of GM crops have called on ministers to abandon European environmental rules after Brexit. The Agricultural Biotechnology Council repesents BASF, Bayer, Dow AgroSciences, Monsanto, Pioneer (DuPont) and Syngenta.

Top biotech companies have long been frustrated by rules that have prevented the sale and development of new GM products in Europe. They have the support of the American administration which is likely to make access for GM seeds one of the conditions of a US-UK trade deal.

Mark Buckingham, chairman of the council, said that under the existing system 'a generation of British farmers have operated without technology that is taken for granted around the world while the EU is known for its political regulatory decisions.'

Any move to allow the commercial cultivation of GM crops in the UK would be strongly opposed by environmental groups. The Government might wonder whether it would be worth spending political capital on the issue when they are under pressure on many other fronts, but the US would push on the issue. This is a more serious concern than chlorinated chicken, although I am not taking a position one way or the other on GM crops.

It should also be noted that the EU would be unlikely to accept exports of GM grains from the UK, just as they would not accept crops grown with pesticides they have banned. It is not realistic to think that UK agriculture can become a regulation free zone after Brexit, although some farmers may have been swayed by that hope when they voted in the referendum.

The limits of new technology

The new conventional wisdom is that agriculture is on the verge of a fourth revolution and that once the UK has Brexited this digital revolution can get under way in earnest, supported by domestic policy and unshackled from the CAP.

I am no fan of the CAP, but I think that some caution is necessary. One farmer commented to ‘Yes, however, there are challenges with farmers getting to grips with the very many and varied types of tech, as my latest tractor testifies, I am generally mystified by the number of possibilities and so find myself being overwhelmed. Tech needs to be simple and intuitive. It’s also expensive.’

Appropriate policy could, of course, help with the question of expense. But much of the AI and digital tech is still at a relatively experimental stage and not ready for on farm use.

Of course, farmers have been using data from near earth satellites for some time and that is now being supplemented by more fine grained information from drones. That enables decisions to be made, for example, about what quantities of fertiliser or agrochemicals are to be applied where with both business savings and environmental benefits.

It is also claimed that machinery using AI can spot when strawberries are ripe and ready to be picked. A downward facing camera is used. However, the berries still have to be picked by hand.

We do face the challenge of producing more food from a given area of land and in an environmentally friendly way. Technology is the key to sustainable intensification. But we also need to think more broadly. Should we try and move away from meat heavy diets which require large quantities of animal feed and livestock that produce methane, a particularly damaging climate change related emission?

US faces challenge in shifting food mountain

We all know that government policies often have unintended consequences. So it has proved in the United States with President Trump's trade war leading to a mountain of food that hunger charities are finding it hard to cope with.

The US administration intends to buy up $1.2bn of foodstuffs over the next year to help out farmers suffering from new tariffs on their produce in China and elsewhere. Sales of US soyabeans to China have been badly hit while pork, a staple product in many mid-western states, faces a 60 per cent tariff in China and 20 per cent in Mexico. Indeed, nearly half the purchases to be made will be of pork.

The purchases will increase by more than 50 per cent the amount that USDA purchases for donation. It is estimated that 40 million households in one of the richest countries in the world are 'food insecure'. However, the challenge is to find enough trucks and drivers to mood the before it spoils. Milk may be the biggest difficulty because of its short shelf life and one is often talking about distances between the producing and recipient areas.

With the average farm business earning 20 per cent less this year, if nothing else it shows the continuing political clout of farmers. There are mid-term elections coming up and although farmers are not numerous, the votes of them and their families can be crucial in tight Senate races, of which there are a number this year. Moreover, many farmers are bedrock Trump supporters.

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.