Farmers need financial guarantees from government post Brexit if a decimated industry is to be avoided, argues former Labour agriculture minister Lord Rooker: Need to avoid Brexit cliff edge
He said that there was no sign of the promised agriculture bill and no indication of what might be in it. [It looks as if the first step will be a white paper and a period of consultation].
My latest reflections after Michael Gove's Oxford speech: The future of farm policy after Brexit
The AHDB has produced a Horizon report on the productivity challenge facing UK farming: Driving Productivity
British farmers are falling behind their competitors in terms of productivity. For example, the USA and the Netherlands have raised their annual agricultural productivity by 3.2 per cent and 3.5 per cent respectively in recent years, while the UK has been limping along at 0.9 per cent.
The report argues that spending on research and development is heavily skewed towards 'blue sky' rather than 'near market' research and is heavily fragmented. There is also a lack of training with British farmers under investing in their skill base.
It's an argument we've made before, but this is a good blog article by Richard Byrne at Harper Adams pointing out that the migrant labour crisis is already here and cannot be solved in the short term by agri tech: Migrant labour shortage
Irish beef producers have not been reassured by Theresa May's pledge that cross-border trade would continue uninterrupted after Brexit. The promise of regulatory alignment was essentially a fudge that got round an awkward issue and allowed talks to proceed to the next stage. It was kept vague for political reasons.
Ireland's beef exports to the UK are worth €4.4bn a year. The largest groups have operations in the Irish Republic, Northern Ireland and mainland Britain.
Beef exporters remain concerned that the UK might yet seek to enforce different food safety and animal health rules to the EU. They fear delays when exporting to the UK; disruption to meat shipments to continental Europe via Britain; and the prospect of having to compete with cheaper imports from the likes of Brazil.
There is a concern that without full regulatory alignment, the UK could take imports from the US, Brazil and Australia - countries with different food safety and animal welfare standards to the UK.
Farm subsidies will stay at their current levels (presumably without an inflation adjustment) for five years after Brexit, Michael Gove will announce today: Farm subsidies
After 2024 they will be replaced by a new system designed to secure environmental outcomes and support rural infrastructure. There is also reference to giving greater access to the countryside which may worry livestock farmers who already have problems with out of control dogs.
The extension of subsidies represents a considerable victory for the NFU and gives farmers more time to plan for the future. The downside is that it may lead them to delaying necessary adjustments to their businesses to prepare for a life without existing blanket support payments. It will create something of a 'cliff edge' in 2024. I have always been an advocate of tapering payments to facilitate adjustment.
The largest landowners may have their payments capped before 2024. The government has yet to make a decision on the cap, but it could be implemented using a sliding scale with the 3,500 farmers who receive more than £100,000 each annually getting a lower amount per hectare above a certain number of hectares.
Mr Gove is expected to tell the Oxford Farming Conference today: 'Paying landowners for the amount of agricultural land they have is unjust, unfair and drives perverse outcomes. It gives the most from the public purse to those who have the most private wealth.'
Mr Gove hopes that the UK will leave the CAP when Brexit happens in March 2019. Whether the UK remains a member of the CAP during the transition period is still a matter for negotiation. but most officials in London and Brussels believe that Britain will still be a member for a period of time after Brexit.
There have been a considerable number of reports on Brexit and the agri-food sector and Birmingham Food Council has compiled a list of them with links: Brexit reports
Perhaps the question I am asked most often is, 'Why did farmers vote for Brexit?' Well, the short answer is that they didn't. Or, at least, we don't have any reliable data. Opinions have been based on self-selected polls by Farmers Weekly and my hunch is that they tend to over represent supporters of Brexit.
However, they are the only data we have. The latest poll suggests that, just like the population as a whole, most farmers have not changed their mind about the way in which they voted, despite being more pessimistic about the outlook for their businesses. The Remain camp gained just one percentage point.
The latest poll of more than 1,400 respondents (two-thirds of them farmers) shows that 53 per cent of them voted to leave the EU and 45 voted to remain with two per cent not voting. This would imply a 98 per cent turnout among farmers and reinforces my view that the more committed are over represented in the poll which would tend to be Brexiteers, given that many Remain voters were not enthusiastic about the EU but thought that on balance the UK was better staying in.
The non-farmers taking part, mostly those in ancillary occupations and the wider food industry, voted 57 per cent to remain and 36 per cent to leave, 7 per cent not voting.
It is no surprise that support for leaving was highest in those sectors that have not received much in the way of subsidies: 67 per cent in sugar beet; 66 per cent in; and 57 per cent in horticulture. Dairy and sheep farmers would be more inclined to stay in the EU.
It would seem that for many leave farmers concerns about sovereignty and immigration trumped purely agricultural issues. One farmer commented, 'My biggest hope is that we will get away from the strangehold Brussels has on this country. The EU has got too Big Brother and dictatorial.'
12 months ago 45 per cent of farmers were confident that Britain would get a good trade deal after Brexit, but that figure has now slumped to 35 per cent. Among non-farmers 67 per cent have little faith in a good trade outcome.
Just 28 per cent of farmers now think they will be better off after Brexit with 46 per cent expecting to see an income decline. Before the referendum 37 per cent thought they would be better off and 43 per cent thought they would be worse off. Just 22 per cent of those in the non-farming group see a benefit to their businesses from Brexit compared with 54 per cent who they will be worse off.
Medium-term confidence among farmers has hit an all time low according to the latest NFU survey: Business confidence goes into the red
One in five plans to cut investment and there is concern about rising input prices, regulation and Brexit. NFU president Meurig Raymond commented, 'everyone is concerned about the trade deal that we'll have with the EU, the domestic policy that will replace the Common Agricultural Policy and labour shortages.'
The survey showed that arable and sheep and beef producers were most pessimistic about the medium-term outlook.
The weak pound led to higher subsidy payments and helped exporters, but the devaluation has recently fed through to higher import costs including feed, fertilisers, energy and machinery.
Following the recent workshop of the Brexit working party of the Yorkshire Agricultural Society we have produced an interim report on policy instruments in a domestic agricultural policy after Brexit: Interim Report
A more detailed report is in preparation.
Defra secretary Michael Gove has told the House of Commons Defra committee that subsidies for hill farmers will continue beyond 2022. He said, 'Farmers in less favoured areas, and upland hill farmers who are producing sheep meat as well as wool ... will need support for several years to come.'
Whether payments would still be made on an area basis is unclear.
Mr Gove was not sympathetic to the NFU argument that subsidies were needed to prevent the UK becoming more reliant on imports. I have always been sceptical about the idea of self-sufficiency targets.
Theresa May has said that Britain will leave the Common Agricultural Policy at the same time as it leaves the EU in March 2019. She said, 'The relationship we have on [the CAP] continuing through the implementation period with the European Union will be part of the negotiation of that period, which will start very soon.'
She added: 'Leaving the CFP and leaving the CAP gives us the opportunity to actually introduce arrangements that work for the United Kingdom.' What these arrangements might be remains unclear, as is the issue of whether the basic payment would cease in 2019.
Michael Barnier has said that Britain would remain in the CAP in the transition period. In practice the political priority, certainly for Michael Gove, might be getting out of the Common Fisheries Policy. In any event there is now more uncertainty about the future of British farming.
A new report Assessing the costs of environmental land management in the UK commissioned by The Wildlife Trusts, RSPB and the National Trust, shows how much Government might need to pay farmers and land managers for their role in looking after our natural heritage.
The report estimates that meeting existing government commitments to improving natural assets such as water quality, soil health and biodiversity will cost £2.3 billion per year. But meeting existing commitments will not be sufficient to halt the decline of the UK’s wildlife and reverse this trend.
£2.3 billion is five times more than is currently spent through agri-environment schemes – the source of most current environmental land management funding. This figure does not include wider financing required in the farming sector, for example for research and development or providing advice to farmers.
The total includes £876m for protecting and improving priority habitats, which include woodlands, marshes, bogs and fens; £402m for hedges and stone walls; and £78m for flood plains.
Ellie Brodie, Senior Policy Manager, of The Wildlife Trusts said: 'Farmers can sell the food they grow through the market. But they can’t sell a whole range of services that society needs them to provide, whether it’s reducing the risk of floods downstream, creating habitat for bees or improving the health of our soils. The Wildlife Trusts believe that farmers should be paid for this as it benefits us all. A healthy, wildlife-rich natural world is valuable in its own right and is also at the core of people’s well-being and prosperity. We must be prepared to pay for these benefits.'
Christopher Price, head of policy at the Country Land and Business Association said that government agri-environmental schemes were over bureaucratic and fragmented and drew attention to the CLBA's vision of a land management contract.
The associated policy briefing can be found here: Policy briefing
A hard border between Northern Ireland and the Irish Republic would create particular problems for the agriculture and food sectors.
Food and live animals account for the largest share of trade with Ireland. Northern Ireland is reliant on the republic for more than 60 per cent of its food and live animal exports. Agri-foods are particularly important to Northern Ireland and the sector is 'one of the few economic bright spots' according to the CBI.
Aiden Gough of InterTradeIsland told the Financial Times that 'The food industry is absolutely predominant in the cross-border trade in the island. The vast majority of trade is supply chain and goods cross the border multiple times before coming final products.'
A quarter of Northern Ireland milk and more than one-third of its lamb are processed at plants across the border. Baileys liqueur is produced in Ireland and sent north for bottling before returning to the republic for export.
Shaun Murphy at KPMG says that agriculture is 'the sector that is most at risk' because 'integrated cross-border supply chains are complex and costly to unravel'.
Given that the UK Government is not prepared to countenance Northern Ireland staying in the customs union or internal market, it is apparently prepared to consider continued regulatory convergence between the north and south of Ireland to prevent border problems.
However, that solution is unacceptable to the DUP whom the Government depends on for its majority. It would in effect create a border in the Irish Sea. It might also attract objections from other member states who could portray it as giving an unfair advantage to Northern Ireland.
The controversial herbicide glyphosate which is used by Monsanto in its Roundup products has been given a reprieve. It has been the subject of a battle between agrochemical and farming interests and environmentalists. However, the EU has given it a five year licence after Germany changed its position.
German environment minister the SDP's Barbara Hendricks has been against renewal of the licence while Christian Schmidt, the conservative agriculture minister has been in favour. Schmidt decided to change the vote from abstain to in favour, Hendricks accusing him of acting behind her back.
Up to now the Christian Democrats have been constrained by their 'Jamaica' coalition negotiations with the Greens, who are against the herbicide, but these have now broken down.
After Germany changed its vote, and following some tweaking to the wording of the licence, Bulgaria, Romania and Poland followed suit and switched their vote from abstain, allowing the EU committee for plants, animals, feed and food to give its approval for another five years by qualified majority vote.
Despite their apparent victory, farming organisations are concerned that renewal was only for five years rather than the 15 years they think was justified.
The NFU is 'disappointed' with the Budget which it saw as offering little to help farmers to prepare for life outside the EU or to help rural communities more generally: Budget response
The NFU should not be that surprised at the urban focus of the budget. The more general question that arises is whether tax reliefs are a better policy instrument than direct support payments.
If we gave farmers more tax allowances, it would not alter their behaviour in any way in accordance with policy objectives, but it would give them an additional financial cushion against the effects of Brexit.
Liberal Conservative think tank Big Blue has produced the latest analysis of the future of agricultural support in Britain, A Greener, More Pleasant Land. It's certainly in tune with the emerging conventional wisdom. Read the full report here: Green and pleasant
It sets out a vision for a new market-based commissioning scheme for rural payments after Brexit, which would replace the EU’s Common Agriculture Policy (CAP) and fund ecosystem services, such as woodland creation, restoration of peatlands and removing invasive plant species. Under the scheme, ‘suppliers’ would bid to supply ecosystem services to paying ‘beneficiaries’ in specific catchments via online market-places. Suppliers would include farmers, landowners, and land managers.
Beneficiaries would include the general public (represented by central, devolved, and local government), private interests (such as water companies, other land managers, and insurers), and other groups (such as conservation NGOs, civil society groups, land trusts, philanthropists, local communities via town and village halls, or crowd funders). Contracts for supplying ecosystem services would pay quarterly based on results, potentially with incentives to encourage performance.
It calls for ensuring that as current CAP subsidies are phased out, public funding for market-based commissioning scheme and means tested livelihood support is phased in pound for pound. It advocates the creation of a single rural payments budget from central government that identifies exactly and merges existing government budgets for production and land management support (under CAP), natural flood management, and payments for ecosystem services. Merging these current expenditures into a single rural payments budget would result in at least £3.1 billion being made available per year. It appears that prices for ecosystem services would be derived through an online market place designed by users for users. Striking a price may not be as straightforward as the paper assumes.
Three forms of income for farmers
The elimination of all production subsidies in agriculture would ensure instead that farmers have three forms of income available to them. The first from the new market-based commissioning scheme for rural payments, the second from a form of means-tested livelihood support, and the third from agricultural produce or other monetisable services sold at market prices without production subsidies. These sources of income are not mutually exclusive.
In my view means-tested livelihood support is a matter for the benefits system and not for specific policies directed at farmers. It seems that these are meant for small farmers, but there is a case for keeping area based payments in some form in marginal upland areas.
All things bright and beautiful
It is claimed that market-based commissioning of rural payments combined with a properly enforced system of environmental regulations, targeted livelihood support (particularly for smaller farmers), and consumer demand for high-quality UK produce will together drive higher environmental standards across the UK.
Senior Associate Fellow Ben Caldecott, who co-wrote the report, says: 'Commissioning ecosystem services efficiently and effectively using the dynamism of market-based approaches will bring significant public benefits, including a more sustainable farming industry, enhanced natural beauty and landscapes, greater biodiversity, increased carbon sequestration, improved natural flood defences, better water quality, better mental and physical health, and better air quality.'
Commenting, Zac Goldsmith MP, member of the Environment Audit Committee, said: 'The biggest opportunity by far [on leaving the EU] is the ability we now have to redesign the way we subsidise rural activity via whatever regime replaces the Common Agriculture Policy, something environmentalists have long dreamed of being able to do. Instead of simply paying people for owning land, no matter what they do to it, we can finally tailor that support to reward good stewardship of the land to boost biodiversity, minimise floods, improve water quality and access, and deliver food security.' Of course, it could be argued that one of the things that the current system does is support food security.
The usual targets
Press commentary on the report has inevitably brought up the £1.6m in subsidies going to Sir James Dyson. In a sense he is fair game, but he has been investing money in his farms and losing money on them.
No one wants to retain blanket area based subsidies in their present form, but we have little practical experience of pricing ecosystem services (there is one public-private scheme covering forests and peat bogs). As it is, area based subsidies represent the difference between profit and loss for most farms, so one has to be careful how one replaces them if one doesn't want to see a forced restructuring of the industry which might hit food production and would certainly disadvantage smaller farmers.
I return to this issue in a contribution to the LSE Brexit blog: The migrant labour dilemma
Talking to farmers recently, it is clear that quite a few of them see merit in the idea of land management contracts put forward by the CLA. This 'would be a legal agreement between the farmer and the government for provision of goods and services that the market doesn't pay for but provide valuable benefits to society.' Examples include safeguarding and increasing carbon storage; mitigating or reducing flood risk; creating better connectivity of habitats and species; maintaining the distinctiveness of historic landscapes and heritage; managing soil structures to maintain productive capacity of land for future generations.'
The motivations of the CLA are clear. President Ross Murray states, 'The best retort to accusations that the acreage payment merely rewards the wealthy is to promote a compelling and revolutionary new system based on contract where the farmer or manager is rewarded for public service'.
Policy instruments that are envisaged are:
There would not be a standard contract. 'Farmers will choose what sort of land management activities are right for them and their rural business ... The importance of specific outcomes will vary across the country ... The land management contract will be locally adaptive'.
This is reasonable enough, but it does raise the question of the transaction costs of negotiating contracts with individual farm businesses with variable payments reflecting the public benefits delivered. The CLA calls for 'simplicity of administration' and 'keeping bureaucracy to a minimum'.
However, public money is involved and accountability is necessary. It is admitted that 'new and existing evidence from mapping' is involved which invariably involves a checking process. Proposed outcomes need to be realistic and there needs to be some means of checking that they have been achieved.
This is an ingenious idea and a good one in principle, but how would it work out in practice?
Chatham House (the Royal Institute of International Affairs) has produced a new paper on the implications of Brexit for UK, EU and global agricultural reform: Chatham House
The briefing paper looks at four broad agricultural policy options for the UK after leaving the EU. It considers how these four models might perform in the context of future EU agricultural policy decisions and wider global trends and challenges.
The paper argues that for the UK, only a market-oriented model – aligned and integrated with a more effective commitment to the environment and climate change mitigation – would enable the country to benefit from free trade while keeping the government’s promise to improve the environment for the next generation. Applying such a model in the UK could lower prices for consumers, lift the economy’s productivity and allow for substantial budget savings to support the environment and public finances.
It would mean significant disruption for agricultural producers, and the political challenge of market reform should not be underestimated, but, the paper concludes, implementing a sustainable, market-oriented agricultural policy is a genuine opportunity for UK global leadership outside the EU in the next decade.
It is admitted that, 'A move to a genuinely market-oriented model would result in imports displacing UK products, and the removal of all forms of subsidies would cause some farming operations to fold. While the resulting lower prices would benefit consumers, importing businesses and the economy overall, it would also mean unviable agricultural businesses closing, being taken over or having to reinvent themselves. The livestock sector in particular is vulnerable in this regard, with rural communities, especially upland areas, likely to suffer the most commercially.'
