Brexit impacts on trade

The AHDBB has produced a very useful report on the impact of Brexit on UK trade in agricultural products which includes detailed sector by sector analysis, focusing on threats and opportunities: AHDB report

What is the future for agri-environmental schemes?

What is the future for agri-environmental schemes post Brexit? This blog post considers some of the issues: The fate of agri-environmental schemes

The record of the schemes has been mixed and they are context dependent. The recent emphasis has tended to be on the reduction of species loss. Will there be a greater emphasis in future on agricultural landscapes?

As with other aspects of post-Brexit agricultural policy, there needs to be a debate about what the policy objectives should be and what priority should be attached to different objectives.

Brexit and the food and drink industry

Nick Clegg takes an in depth look at the implications of Brexit for the UK food and drink industry, including agriculture, and concludes that there will be a series of negative impacts. He sets out a number of questions to be answered: Food and drink paper

Goblygiadau Brexit i amaethyddiaeth Cymru

Yesterday I gave evidence to a Welsh Assembly committee on the implications of Brexit for Welsh agriculture. The paper I prepared for them is reproduced below. The standard of the questioning was high and a central theme was whether Wales would be able to develop a sufficiently differentiated agricultural policy that took account of its special needs and concerns.

Scenarios for the future relationship

Considerable uncertainty attaches to the nature of the relationship between the UK and the European Union after Brexit, and the form of that relationship will have considerable implications for agriculture. A worst case scenario would see tariffs imposed on exports of Welsh sheep meat to France, depressing the domestic price. It is quite possible that there will be a transitional period in which our relationship with the EU would be governed by WTO rules. However, the most likely outcome is a deal in which the UK has access to the single market but has make to concessions in terms of a contribution to the budget and relatively few limits on the access of EU labour, e.g., confining access to those with employment offers or providing for some kind of ‘emergency brake’.

Structural characteristics of Welsh agriculture

Clearly the sheep sector is of crucial importance to Wales which accounts for over a quarter of the total UK population. Cattle are also important with a greater share of the UK total than the share of the land mass. Milk is particularly important in Carmarthenshire. However, the horticulture sector is small so that migrant labour issues are of less significance in Wales.

It is important to bear in mind the importance of farming to the rural economy, particularly in the remoter parts of Wales where a traditional Welsh culture remains strong. The physical geography and climate in these areas is often challenging. Many people who are not farmers depend on the continued success of the farm sector for employment, e.g., agricultural contractors, tree surgeons, mechanics, veterinary practitioners etc.

Farm support

The Basic Payment in its present form and at its current level is to continue until 2020. For many far, businesses, this represents the difference between making a profit and running at a loss. What will happen after 2020 is uncertain, but there is a growing consensus among policy analysts that any future general support should be focused on marginal farms in upland areas where the need is greatest. Large-scale arable farms in East Anglia should be able to be competitive without the large subsidies that they receive at the present.

There is a case for some continuation of general support given that farmers remaining in the EU will continue to receive CAP payments and there will not be a competitive level playing field. Some attention also needs to paid to price volatility in terms of its impact on levels of production and hence on food security. Vulnerabilities to climate change could increase global price volatility.

Conservation and agri-environmental schemes will continue to be significant. There is a broader basis of political support for them. However, they are relatively short term, for example over periods of five years. All farms only have a limited area that can be taken out of production, or subject to special treatment; and still allow the farm to be a viable producer of food. Conservation and environmental protection will only be successful if the industry feels secure financially.

One sheep farmer I talked with noted, ‘if the family farms are not maintained then they will not be there in the future and then who is going to look after the environment?’ This farming family has been active in creating habitat areas with some grant help and noted ‘This was all possible because over the years we have had a fairly reliable income source which has allowed us to improve the farm.'

One issue with such schemes is that of ‘additionality’, whether payments lead farmers to behave differently from what they would have done in the absence of the scheme. Whether this is the case is very difficult to assess conclusively.

Mechanisms of support

Payments that are based on head of stock produce quantity rather than quality which is not the best outcome either for the industry or the environment and they may not be compatible with WTO rules. Whether it would be possible to devise a policy instrument that rewarded quality without placing too great an administrative burden on administrators and farmers is an interesting question.

Farmers in Wales have sought to move up market and add value by producing more speciality products that can command a higher return from the market. Anything that can be done to encourage and support these efforts would represent a good strategy. However, the buying power of the supermarket chains remains a challenge.

Regulations

The EU has devised a wide range of regulations that apply to agriculture. These are embodied in numerous EU directives such as the Nitrates Directive and the Water Framework Directive. These have been transposed into law by the introduction of primary legislation or by the introduction of statutory instruments under the European Communities Act 1972.

As well as environmental legislation, there are extensive measures relating to animal health and welfare reinforced by the recognition of animals as sentient beings in the Lisbon Treaty. There are 18 EU laws setting standards on the way farm animals are produced and reared, transported and slaughtered. There are 12 laws covering wildlife.

Existing regulations should remain in place after Brexit while they are reviewed in terms of their objectives and whether they are efficient means of achieving those objectives, in particular whether they place disproportionate compliance burdens on farmers.

Conclusions

How far Wales can pursue a differentiated policy after Brexit that is sensitive to Welsh needs and priorities depends in large part on funding arrangements. (The Barnett formula came up in discussion.

Four threats to global food security

This blog piece looks at four threats to global food security and what we can do about them: Food security

The four threats identified are drought, emerging diseases, salty soils and over dependence on fertilisers.

SAWS scheme to be revived?

Ministers are discussing with farming leaders the possibility of reviving a version of the SAWS scheme after Brexit to meet the need for migrant labour in the fruit and vegetable sector. Some producers have considered relocating abroad. A farmer in Suffolk recently placed on hold an order for £500,000 worth of cherry trees because of uncertainties about Brexit.

Planting and harvesting these crops is labour intensive and hard, monotonous work. About 75,000 workers a year are needed as British workers are reluctant to do the work. It's temporary and they would lose most of their benefits. Replacements such as robots are a long way off.

The seasonal agriculture workers (SAWS) scheme, which allowed people to come to Britain for six months to pick fruit and vegetables, operated for sixty years until 2013. It is felt that a larger and more flexible scheme is needed so that labour could be recruited from anywhere in the world. It is estimated that 90,000 workers will be needed by 2019.

Thinking about the consequences of Brexit

On a hot day a group of leading experts on the CAP and related issues gathered in a basement in London to discuss the challenges from Brexit on Chatham House terms.

Concern was expressed about the capacity of a hollowed out civil service to deal with the issues. How could we administer the more targeted policy that was likely to emerge after Brexit? Government departments were structuring and organising themselves with some staff transfers taking place, e.g., from Defra to the Brexit department.

It was somewhat ironic that the first trade pact being talked about was with Australia with which we had a small volume of trade. They would free access for agricultural products, not least for sugar. What would the EU think about that?

There was no idea how tariff related quotas or the amber box could be shared out.

After Brexit, should the focus be on labour saving technology development? But how near and how feasible/financially viable were some of the big developments like crops being picked by robots?

It was pointed out that existing domestic regulations were backed up in terms of compliance and enforcement by the possibility of reference to the ECJ.

The CAP was designed to slow down structural change, so we could expect more farm amalgamations after Brexit. Asset prices would fall. However, it was agreed that there were many variables that affected land prices, not least the availability of tax relief. There was no simple relationship between farm support and land prices.

The issue of price volatility was noted and it was pointed out that the 2010 food security study was very reliant on the fact that we were in the EU. Vulnerabilities to climate change could increase price volatility. A lot of things that were not really about price volatility were badged as such.

As far as food security was concerned, the biggest problem was the lack of storage in the food supply chain and the resilience of the system.

A farmer writes

A contribution from an upland sheep farmer, reflecting on prospects after the Brexit decision.

'At the moment we have a reliable source of revenue from our lamb sales but are concerned to what will happen when our exit from the EU takes place as it seems no negotiations with old or new partners can take place until that point. This could leave a gap of several years before anything is agreed. There have been discussions with the US taking place for a couple of years via the EU I believe for the sale of lamb to the States, these of course will come to a stop and we will have to start again. More than one country has indicated that we will be at the end of the queue.

The British government is being rather vague over the continuation of any support after 2020. Conservation support will not pay the bills commendable as it is. It is also very short term usually in 5 year blocks, you are then on your own and must come up with new areas of the farm to enter into a new scheme for another five years.

All farms only have a limited area that can be taken out of production and still allow the farm to be a viable producer of food. Conservation will only be successful if the industry feels secure financially. Some form of support is certainly needed to counteract the volatility in food production as we all need to eat.

Of the type of support even we are not sure. Any payments per head of stock only produces quantity not quality which is not good for the industry or the environment. Payments on the number of hectares held has caused some problems in Wales as to how you value different areas of land. Perhaps something more on the quality of stock produced and sold successfully, but I don't know how that would equate in the more arable areas.

One thing is for certain, if the family farms are not maintained they simply will not be there in a few years then who is going to look after the environment? Those making an income from the land see and understand the healthy balance of the land for all concerned, and that certainly includes the wild life in all forms.

Also the local communities who rely on agriculture, there are many people working self employed, be they fencing contractors, tree surgeons, agricultural mechanics, shearers- to name some who would find themselves having to move away for work. Our villages will become ghost areas or holiday parks. even those with holiday cottages I hear are sometimes finding it difficult to fill the vacancies as there seems to be so many of them.'

Pressure for green farm subsidies is mounting

Pressure for a greening of domestic farm subsidies after Brexit is mounting. Indeed, one might say that it is becoming the new conventional wisdom.

Such pillars of the agricultural establishment as former Defra ministers Caroline Spellman and Richard Benyon, along with agriculture select committee chair and former MEP Neil Parish, are among 36 MPs who have written to Theresa May urging her to shift farm subsidies towards protecting the environment. It may be that they think that this is the best way of maximising continuing payments for farmers.

The influential RSPB is expected to launch its 2016 State of Nature report this week, claiming that intensive farming methods are putting more than 120 species of wildlife at risk.

The NFU is seeking to put food security, which it sees as its strongest subsidy card, back at the heart of the debate. They claim that the food and farming industry is worth £108bn a year, but that includes second stage food processing which is not reliant on domestic ingredients and necessarily has to import ones like cocoa.

Tim Lang from City University admits that farmers are being squeezed by a vicious cycle of increasing costs and lower returns. He says that what we need is less farming and more horticulture.

However, the sector is being hit by a double whammy of the National Living Wage and difficulties in recruiting labour after Brexit. Wages are a particular problem in Scotland where the National Living Wage is not age banded so that you cannot pay less to under 25s. Foreign workers are concerned about Brexit and a large UK supplier of foreign workers to UK agriculture has seen applicants to its Bulgarian office drop by 70 per cent compared with a usual 25 per cent at this time of year.

Concentration in seeds supply causes concern

Concern is growing about the extent to which the global seeds market is dominated by a smaller and smaller number of agribusinesses. The bid by Bayer for Monsanto has caused particular concern.

Twenty years ago there were 600 independent seed companies. Most of them have now been bought out by the six big players that control 63 per cent of the global seed market: Monsanto, Syngenta, Bayer, DuPont, Dow Chemical and BASF.

That could soon be just four companies. Dow and DuPont announced a $130bn merger last year, while ChemChina is pursuing a $44bn takeover of Switzerland's Syngenta. A takeover of Syngenta would be China's biggest overseas transaction.

The European Commission has launched an in depth probe into the effect of Dow-DuPont tie up on competition. However, Dow and DuPont do not think this will affect the deal going through. They propose to split the combined company into three parts after the merger.

A Bayer takeover of Monsanto would combine the two largest cotton seed sellers in the US into a single company, responsible for almost 70 per cent of crop acreage, according to Verdant Partners, a consultancy.

Campaigners are worried about the possible impact of these mergers on biodiversity. They are concerned that the diversity of plant varieties available to farmers would shrink even further.

Supply, demand and the dairy industry

Supply and demand are key forces in economics and the dairy industry is beset by excessive supply and flagging demand, leading to a situation in which prices for many farmers have fallen below the cost of production, although there are signs of a revival in prices.

The supply crisis was started by the end of milk quotas in 2015 and the Russian embargo on European dairy products. However, there has been a seven per cent fall in UK milk production and both global prices and those paid by milk processors are edging upwards.

On the demand side, the EU has brought in a milk reduction scheme which pays 12p for every litre not produced compared with output in the same period the year before, up to a maximum of 50 per cent.

The problem with schemes of this sort is 'additionality': do they change behaviour, or are they simply taken up by farmers who intended to reduce output anyaway? For example, it may be attractive if bTB has taken cows or calving has slipped. In any event, the effect on the total volume of production will be marginal and short-term.

On the demand side, younger people are drinking less milk. Celebrities advocating a vegan diet and concerns about the contribution of cattle to climate change are helping to persuade teenagers to switch to soya milk and other plant-based alternatives, according to Dairy UK. There is also concern about the fat content of milk, although it has other nutritional benefits.

According to research by Kantar Worldpanel, those over 65 consume milk 875 times a year compared with only 275 times for 5 to 24 year olds. Other research shows that 19 per cent of 16 to 34 year olds do not consume milk at all.

A critical look at the CAP and its possible replacements

A number of papers have been produced on the consequences of CAP and the policies that may replace it, but this is one of the better ones. It takes a critical look both at the pathologies of the CAP and the cases that have been put forward for continuing forms of subsidy: Dieter Helm

The paper points out that no other economic sector outside defence has received so much government money. It points out the CAP was the result of a very political deal, reflecting a very particular historical context. The reforms that have taken place addressed some of its deficiencies, but remain sub-optimal.

The paper subjects the three main arguments for subsidy to critical scrutiny: food security; a shift towards environmental subsidies; and public money for public goods. It points out that food security arguments still embody production maximisation. The paper then goes on to consider the key issue of a workable transition.

This is very much an economist's perspective and as a political economist I tend to take a somewhat different perspective. For example, I sometimes think it is necessary to accept a 'satisficing' (in Herbert Simon's terms) rather than an 'optimal' solution. However, I will certainly take its arguments seriously as I prepare my paper for a Welsh Assembly committee public seminar next month.

It looks like a no brainer, but is it?

The latest phase in the debate about the future of agricultural policy in England is the call for a diversion of subsidies from large estates to smaller firms. It is easy to make both an intellectual and a populist case, but one also needs to consider countervailing arguments.

The Campaign to Protect Rural England (CPRE) argues that it is wrong to pay people more subsidy simply because they own more land: CPRE report It proposes that all farmers should receive a higher amount per hectare for the first 50 hectares they own but payments should reduce for the next 100 hectares and then continue to taper.

The CPRE argues, 'Good, resilient farming means cleaner water, less flooding and more carbon storage. It means abundant wildlife and rich soils that underpin beautiful countryside and assist efforts to tackle climate change. And it means a mix of farms more strongly connected to the local community.'

The countryside is, of course, more than an aesthetic asset to be enjoyed by urban populations, it is also a means of food production, although that food production needs to take into account environmental impacts. Particularly valued areas of countryside are designated as national parks, although even here farming contributes to their appearance.

The CPRE says that it is not engaging in 'big farm bashing', but size of farm is not necessarily related to how well farming is undertaken, although there is some evidence that larger farms tend to have higher animal welfare standards. Big estates can be well integrated into their local communities, not least as a significant source of employment.

Some of the payouts to big farms can be substantial, Last year, Farmcare Trading, the former Co-op farms bought by Wellcome Trust in 2014, received £1.7m. Beeswax Farming, owned by Sir James Dyson of bagless vacuum cleaner fame, received £1.4m. Blankney Estates in Lincolnshire got £1.1m. Lilburn Estates in Northumberland, owned by Duncan Davidson, founder of the house builder Persimmon, received £915,000. The Elveden Farms in Suffolk, owned the Earl of Iveagh and the Guinness family, received £915,000.

A recent report from Exeter University, commissioned by the Prince's Countryside Trust, argues that small family farms employ more people per acre (i.e., are less capital intensive), help sustain rural services and provide a wider variety of locally produced food. The number of such farms has fallen from 84,000 in 2000 to fewer than 67,000 in 2013.

What does one consider is how far competitiveness objectives should form part of any future policy. Large farms in countries such as France and Germany will continue to receive CAP subsidies, leaving English farms at a competitive disadvantage. The result could be more food requirements being met by imports and hence a decline in domestic food security.

What is clear is that the present level of subsidy to larger farms will not be affordable. However, a debate is needed about the priority given to different policy objectives, something that never really occurred with the CAP.

Farm subsidies to run until 2020

Philip Hammond as Chancellor has undertaken to maintain current farm subsidies until 2020 when the current EU multi-year programme ends. According to some reports, that may not be that long after Brexit takes place.

Not only does enable farmers to make business plans for the next four years, it allows full time for a debate about the future support regime for farming.

When Brexit does take place it will be necessary to fix farm subsidies with a sterling value.

There is still some uncertainty about exactly what is on offer. Chief secretary to the Treasury David Gaulke has stated that 'the agricultural sector will receive the same level of funding it would have received under Pillar 1 of CAP until the Multiannual Financial Framework in 2020.' Will this be inflation adjusted? Inflation looks likely to rise to a higher level over the next year or two.

Farm business consultants Andersons have pointed out that the final year of the MFF actually pays the 2019 Basic Payment. It is thus possible that the guarantee lasts only until 2019.

It is clear that agri-environmental agreements already under way will be honoured, but there are questions over Countryside Stewardship agreements due to start this autumn. Applications to other rural development projects, including Leader projects that help rural businesses to grow, are guaranteed only if they are agreed before this year's Autumn Statement.

The Government statement says, 'The Chief Secretary to the Treasury, David Gauke, has also written to each devolved administration to confirm the same level of assurances offered to UK government departments in relation to programmes they administer but for which they are expected to rely on EU funding. The Treasury will work closely with the devolved administrations on subsequent funding arrangements to allow them to prioritise projects within their devolved responsibilities.'

This was well received in Northern Ireland where it was seen as removing uncertainty, but declared to be not good enough by the Scottish Government finance minister.

National Trust pitches into farm subsidies

Britain's largest membership organisation, the National Trust, has demanded a complete reform of farm subsidies after Brexit. The idea is that the basic payment would be scrapped and farmers would just be paid for ecosystem services or public goods: Reform call

I heard Dame Helen Ghosh, the director of the National Trust and one time permanent secretary at Defra, interviewed on Radio 5 this morning and she did say that subsidies would have to be phased out over a five or six year period. I would favour seven years and the use of a bond scheme I outlined in an earlier post.

She argued that farmers deserved a better return from the market. No doubt they do, but would the market respond, given retailer power and the limitations of the supermarket ombudsman? Governments in practice welcome oligopolistic price competition between retailers because it holds down food prices for families who are already struggling with tight budgets.

Her views are certainly not without merit and will receive wide support from those who want to see an agricultural policy that places greater emphasis on sustainability. Farmers who voted for Brexit may now start to realise what they have unleashed.

The NFU has responded saying that farmers take their role as custodians of the countryside seriously, but we need to recognise how vital food production is: NFU response

Brexit and agriculture - what now?

My latest reflections for the Landbridge blog: Brexit and agriculture

How universities link with agriculture

One of the components of a post-Brexit agriculture policy needs to be greater 'near farm' applied research that can be delivered to farmers. We are working on that in the Farmer-Scientist Network of the Yorkshire Agricultural Society. Learn more about its work here: Farmer Scientist Network

This blog post takes a look at how many universities have farms: Farming boffins

Unfortunately, our own Warwick Crop Centre (the former Warwick HRI) does not get a mention: Crop Centre

How coupled payments make a difference

The last CAP reform allowed the devolved administrations to make 'coupled' payments in addition to the basic payment for particular schemes. A case in point is the Scottish Upland Sheep Support Scheme where payments to farmers have just started. It was originally envisaged that they would receive €100 per hog ewe, but demand for the scheme has reduced the payment to €78.12, still a significant amount, particularly given the falling value of the pound.

I have just returned from a visit to Orkney which is traditionally a beef area, although there are dairy herds which, among other things, supply the Orkney cheddar cheese factory which is a protected 'geographical indication'. I was surprised by the growth in sheep numbers, but the coupled payment could help to explain it.

The scheme is devised for rough grazing areas and is intended to protect the social and environmental benefits that sheep bring to those areas. There is also a Scottish Suckler Beef Support Scheme. Beef accounts for 22 per cent of Scottish agricultural output over the last ten years.

The farming community in Orkney seems to be in good heart, with their own specialist and informative magazine, The Orkney Farmer.

Some land in Orkney, notably on the island of Hoy, is not even suitable for rough grazing.

TFA produce plan for post-Brexit farm support

The Tenant Farmers Association is the first farm organisation to come up with a plan for a post-Brexit domestic agricultural policy. It should be noted that basic payments often go to landlords rather than tenants so their advocacy of the abolition of general support payments is not surprising,

What they propose is a three pillar scheme. There would be a new agri-environmental scheme that would set out a menu of costed options that farmers can choose from to deliver on their farms and would be judged on the basis of outcomes. It would include options for hill and upland farmers focusing on livestock production. Of course, they form a significant portion of the TFA membership, but many analysts think that support payments should move 'up the hill'.

Second there would be a farm business development scheme to provide annual grants of up to £25,000 a farm a year to assist with the implementation of five year plans for farm development. This would take into account economic, social and environmental resilience. It strikes me that the administrative costs of this would be quite high in relation to the amount available, both for government and for farmers.

Third, there would be a package of near-market research and development, technology transfer, promotion, market development, brand development and other supply chain initiatives focused on supporting British-produced food. Our capability to provide scientifically based advice to farmers has been severely diminished and they have become increasingly reliant on private providers such as agronomists.

Public procurement of British food would be part of this effort, something also supported by the NFU. That sounds fine, but if you are a prison governor with a restricted budget but more autonomy to spend it, are you going to want to buy food that is more expensive?

There is talk of a coalition being formed between the NFU, the CLA and the TFA to provide a united front to government. Other groups might become involved such as the Food and Drink Federation and selected environmental organisations, although the NFU do not seem keen on working with them.

UK farmers are less productive than their counterparts in the Netherlands, France and the US. The CLA rightly argues that there must be an attempt to improve the productivity of the worst performers. The top ten per cent of British farmers are twice as productive as the bottom ten per cent.

Concerns for horticulture

After being hit hard by the living wage which has eroded already thin profit margins, the horticulture industry is now coping with the consequences of Brexit.

Someone familiar with the sector said that growers were 'concerned that Brexit would mean another layer of bureaucracy being placed on top of existing compliance with EU regulations covering plant protection, and that companies would be less likely to get plant protection products authorized in the UK.'

'I can’t see the UK pulling out of [Regulation] 1107 or the Sustainable Use Directive. We would have to comply because of UK exports of cereals and seed potatoes, the press would have a field day (“British farmers to start using bee killing pesticides” etc.) and the retailers would probably insist that their growers comply with EU standards.'

For horticulture, there is already a concern that larger growers will shift their production to EU if they can’t get access to the eastern European labour force. Anything harvested by hand could switch to Poland and other eastern European countries and be sold back to the UK.