The CAP after Brexit

The EU will lose about eight per cent of its current income after Brexit and is thinking about how to adjust to this loss. Given that the CAP accounts for 39 per cent of EU expenditure, it is at the forefront of concerns.

The European Commission has published a 'reflections' document on possible ways forward: EU finances

In terms of what it has to say about agriculture, it is an interesting mix of sticking to old orthodoxies and some signs of new thinking.

On the negative side, it sticks to the discredited argument that direct payments offer a form of 'income support that partially fills the gap between agricultural income and comparable income for other economic sectors.' It is a highly inefficient and poorly targeted means of delivering income support. Later down the same page, we are told that 80 per cent of support goes to 20 per cent of farms. (Actually, this is a stylised fact based on the Pareto rule: the actual figure is lower than 80 per cent).

We are also told that 'thanks to the CAP, European citizens have access to safe, affordable and high quality food.' One could argue that this is the result of technological advances and the innovations made by many farmers in response to changing patterns of consumer demand. Do the citizens of New Zealand lack access to food with these qualities despite the absence of subsidies?

The paper does admit that 'There is no consensus on the level of income support necessary when taking into account competitiveness within the sector.' This is because the policy does not have a competitiveness objective and is not designed to promote competitiveness.

Indeed, high tariff barriers allow uncompetitive practices to continue). A graph makes the claim that 'Agricultural trade balance shows a competitive sector', but makes no reference to the way in which tariffs keep out price competitive imports. Indeed, it is admitted that 'In some cases, these [CAP] payments do not contribute to the structural development of the sector but tend to increase land prices that may hinder the entry of young farmers into the market.'

There is a greater recognition of the need to deliver 'climate public goods and services', a serious omission in the current policy. There is also a recognition of the need to encourage farmers to invest in new technologies which is forming part of the UK debate on a new domestic agricultural policy.

The document envisages 'the introduction of a degree of national co-financing for direct payments in order to sustain the overall levels of current support.' This will not go down well in countries such as France which benefit from the current distribution of CAP funds.

There is also reference to reducing direct payments for large farms. It is suggested that there should be a new 'focus on farmers under special constraints, e.g., small farms, mountainous areas and sparsely populated regions.' Again, care will be needed to ensure that the chosen policy instruments do really tackle problems such as rural depopulation. For example, improving rural broadband might be a more effective way of stimulating new economic activity rather than propping up farms that lack viability.

Challenges for grains post-Brexit

The AHFB has produced a comprehensive report on the challenges facing the grain sector post-Brexit: Grain challenges

The report emphasises that the global grain trade is driven by competitiveness. It is a high volume, low margin business, dominated by relatively few multinationals. The UK is a small player in a big market. In the past four seasons the UK exported 11 per cent of its wheat and 17 per cent of its barley crop. Competition for barley export business is likely to get tougher in future. There is no doubt that the UK faces tough competition from lower cost producers with higher outputs.

Any change in trade and support arrangements is likely to lead to structural changes on farm. Further farm consolidation could follow to achieve economies of scale.

The loss of preferential treatment in relation to the EU market is likely to mean loss of access agreements with non-EU countries such as Morocco and Algeria in the absence of new access arrangements and probably tariffs.

Strawberry prices could soar

Growers have warned that strawberry prices could soar if they no longer have access to seasonal EU workers after Brexit. Already this year the number of seasonal workers has fallen by 17 per cent because of the fall in the value of sterling and uncertainties about the future: EU workers

Former Defra secretary Andrea Leadsom suggested that farmers should invest in machinery as an alternative, but this is not an option for some crops. Machinery would damage soft fruit.

No need for experts at Defra

There will be no need for experts at Defra after Michael Gove was appointed Secretary of State at the department in the reshuffle of the Cabinet.

It had been widely anticipated that Andrea Leadsom would be replaced and she becomes Leader of the House of Commons.

Confidence levels among farmers falling

Confidence levels among farmers are falling, despite a good short-term outlook, according to this report from The Guardian.

However, it repeats the myth that farmers were among the 'staunchest supporters' of Brexit. Where is the evidence for this statement? To generalise from rural voting to that of farmers is to commit an ecological fallacy, a basic methodological error.

Read the report here: Gloomy farmers

More time for farmers before subsidy phase out

The Conservative manifesto promises to keep farm support at current levels for the lifetime of the next Parliament. This means that farmers will have until 2022 to adjust to a reduction in subsidies, although the downside risk is that the longer time span may lead them to postpone necessary changes, especially when future policy remains uncertain.

According to farm manager George Eustice the intention is to focus on supporting small enterprises and those new to the industry. The introduction of government backed loans could see a revival of a version of the Agricultural Mortgage Corporation set up by Stanley Baldwin's government (it was sold to Lloyds in 1993).

The Government is also considering schemes to help older farmers retire and changes to tenancy legislation to create slightly longer tenancies.

A farmer writes

In an interesting article a Northamptonshire farmer who has a mixed farm writes about how Brexit will affect him and other farmers: The impact of Brexit

Labour crisis in agriculture

The House of Commons Environment, Food and Rural Affairs Committee was not able to complete its inquiry into labour constraints in agriculture because of the dissolution of Parliament, but has produced a report that highlights some of the key issues: Feeding the nation

The committee does not share the Government's view that the sector does not have a supply problem. It took the view that government statistics are inadequate for measuring agriculture's labour needs, particularly where migrant labour is concerned.

The report says there about 75,000 temporary migrant workers employed in UK agriculture. The NFU says that the sector will need 95,000 seasonal workers by 2021.

Improved living standards in Eastern Europe, the fall of the pound and uncertainty following Brexit have contributed to a labour shortfall in the sector.

Government giving mixed messages to agriculture

With Parliament now dissolved, the House of Lords Energy and Environment Sub-Committee has produced its report on Brexit and agriculture: Brexit report

The report implies that Government has not sorted out its priorities in relation to the sector: 'The Government is currently giving mixed messages to the agricultural sector. Its vision for the UK as a leading free-trade nation with low tariff barriers to the outside world does not sit easily with its declared commitment to high quality and welfare standards in the UK farming sector. Combining and delivering these two objectives will be a considerable challenge.'

The report notes the reliance of the UK agri-food sector on both permanent and seasonal labour from other EU countries. 'This is an immediate challenge which the Government must address urgently.'

The report warns, 'Farmers risk high tariffs and non-tariff barriers on exports, which could render their business uncompetitive, while simultaneously having to adjust to a new UK policy for funding.'

Growing soya becomes more popular

Soya is a subtropical crop largely grown in Brazil, Argentina and the US. The UK imports £1bn worth of soya each year, 95 per cent of which goes to animal feed for chickens, sheep, pigs, cattle and farmed fish. It's also an essential ingredient in a wide range of things from bread to ice cream.

New varieties of soya can cope with the cooler, less sunny climate in England. In the past year there has been a fivefold increase in the area planted in the southern half of England, with about 4,500 acres this year.

The world price for soya has soared as growing demand for meat in China has pushed up the cost of livestock feed. Soya now sells for about £400 a tonne, compared with about £140 for wheat and £330 for oil seed rape.

It also cheaper to grow than traditional crops because it does not suffer much from pests and diseases, a key consideration when plant protection products are becoming less readily available. It fixes nitrogen from the atmosphere in its roots and can help to break up blackgrass, a growing weed problem in cereal fields. This makes soya a valuable break crop in spring rotations to help to kill off diseases, pests and weeds in the ground.

How farmer attitudes affect farm profitability

A fascinating study explores the association between farmers' attributes and profitability.

PhD candidate Niall O'Leary at the University of Reading has found that a large proportion of the variation in farm profitability can be predicted by the attributes of a farm's manager. Two studies of dairy farmers in Great Britain were carried out and almost 40% of the variation in farm profitability could be explained by five variables in one study and by three variables in the other.

The major predictors of farm profitability identified fall under the following five categories.

• Detail Conscious behaviour - farmers are generally not Detail Conscious but high scorers are much more profitable. A high scorer 'focuses on detail, likes being methodical, organised and systematic'. A low scorer is 'unlikely to become preoccupied with detail, less organised and systematic, dislikes tasks involving detail'.
• Leadership behaviour described as 'Inspiring and guiding individuals and group. Leading by example and arousing enthusiasm for a shared vision' is strongly associated with profitability.
• Those who 'lose their cool' when things go wrong and also those who are generally relaxed or laid back are less profitable. A motivated and proactive person who can handle problems is likely to be much more profitable than either a laid back, relaxed person or an overly anxious person prone to frustration.
• Attitudes and beliefs, in particular how entrepreneurial / profit orientated farmers view themselves are associated positively with profitability.
• 'Growth Mindset', those who have a fixed view of their own and staffs abilities are much less profitable. Education and training provision are tangible indicators of a Growth Mindset.

The effect of Detail Conscious is significant with 24% of variation in profitability covarying with it. A high scorer 'focuses on detail, likes being methodical, organised and systematic'. A low scorer is 'unlikely to become preoccupied with detail, less organised and systematic, dislikes tasks involving detail'. A one point difference in Detail Conscious on the 1 - 10 scale is associated with 1p per litre or £72 per cow greater profit per year.

Leadership is described as 'Inspiring and guiding individuals and group. Leading by example and arousing enthusiasm for a shared vision.'Relaxed is negatively associated with profitability. A high scorer on the Relaxed measures 'finds it easy to relax, rarely feels tense, generally calm and untroubled' and a low scorer 'tends to feel tense, finds it difficult to relax, can find it hard to unwind after work'.

The need for resilience

Participants in the panel on Brexit and agriculture

The Agricultural Economics Society conference in Dublin in the earlier part of this week attracted a number of interesting presentations and a speech by EU agriculture commissioner Phil Hogan.

One point that he made was that any free trade agreement with the UK would have to cover food standards, food quality, food safety, animal welfare and environmental issue. The aquis wold have to be imported into a FTA. The UK could not be used as a backdoor mechanism for inferior goods.

One theme that emerged from the conference was the need for farmers to show 'resilience' in the face of changing conditions and uncertain circumstances. However, that may not be a quality they all have.

One poster presentation by Niall O'Leary investigated the personality traits of farmers. It showed that 'independence' was the most common trait, in the sense of 'I'll do it my way.'

Agricultural economist Alan Swinbank said that high tariffs were a relic of a 1980s CAP when there was a fear that imports would undermine the intervention price. If one lowered tariffs to ten per cent that would still give more protection than enjoyed by other sectors.

There was considerable discussion of ecosystem services, although I was still left uncertain about how this concept could be operationalised. In policy terms it was seen as a means of challenging the 'agriculture first' element in policy. The objective would be to promote the total social value of rural land resources.

It was uncertain whether we had identified all ecosystem services. How could a balance be achieved between marketed and non-marketed services? There was the question of trade offs between different ecosystem services. Local environmental governance organisations (LEGOs) could be a mechanism for coordination at a local level.

How will Brexit affect British farming?

Share Radio talks to myself and NFU Vice-President Guy Smith: Brexit and farming

From crop protection to crop health

As a member of the Farmer-Scientist Network at the Yorkshire Agricultural Society, I was involved in getting this project off the ground which is using field trials to see if we can make more use of biologicals in plant protection. View the introductory video here: From crop protection to crop health

Roma Gwynn and other experts look at the future for pesticide regulations here: Horticulture Week

The benefits of stability

The round of talks on Brexit and agriculture, at which one often meets the usual suspects, continues. Next stop Dublin, yesterday it was the Public Interest and Environmental Law (PIEL) conference at Cass Business School, ably organised by students.

My central focus was on the need for well-designed policy instruments in a domestic agricultural policy that would meet their objectives without imposing undue transaction costs.

Our chairman from the RSPB made an interesting observation. He said that the CAP was slow to reform, but the other side of the coin was that it offered stability through the legislative framework. Moreover, it offered a multi-year budget but in future we would be facing an annual budget with competing demands on resources.

Incidentally, I never knew that red diesel was used at Heathrow and for the refrigeration compartments of food lorries.

New agri-business Brexit coalition formed

Eight trade associations or organisations concerned with agri-business have formed a new coalition to advise the Government on the implications of Brexit for farming: Voice of agribusiness

It will be interesting to see how this new grouping relates to the NFU.

Successful diversification

Farmers have diversified in all sorts of ways to provide new streams of income for their farms. For dairy farmers, one option has been to process their milk on the farm to provide high value added products such as yoghurt, speciality cheeses or ice cream.

Troy Town Farm on St. Agnes in the Isles of Scilly is the most westerly farm in Britain. I think they have just nine cows, but they produce high quality ice cream. I can vouch for that as I have walked across St. Agnes to taste it.

This short video gives a brief account of their story: Troy Town Farm

Four new papers on Brexit and agriculture

The Brexit working party of the Farmer-Scientist Network of the Yorkshire Agriculture Society, which I chair, has produced four new papers on Brexit and agriculture. They can be found here: Brexit papers

I have written papers on the future of Pillar 1 subsidies and migrant labour; Michael Cardwell and Fiona Smith have written on agri-food trade; and Alan Greer has covered devolution aspects.

More threats than opportunities

The agricultural trade dimension of Brexit posed more threats than opportunities according to NFU Director of Strategy Martin Haworth. He was speaking at a EurActiv seminar on 'After the CAP: what future for British agri-trade?' in London yesterday.

He thought that there was a lot of optimism about how easy it would be to negotiate a free trade area with the EU. How far could one replace EU markets with third country markets? With no frictionless access to the single market, we were looking at second best outcomes, the question was how second best?

Even with tariff free trade, there would be barriers with customs procedures. There was a great potential for disruption with perishable goods. He had a number of campaign medals from the past, but none of these problems had arisen since we had been part of the single market.

He noted that the horticulture sector was very integrated through importing and exporting. (Later, this led to discussion of how it was not in Spain's interests to have salad exports to the UK disrupted).

Our food exports to Belgium were three times those of China, India, Russia and Brazil combined.

Peter Hardwick of the ADHB noted that the advantages of proximity and speed of delivery in EU markets. Logistical issues around rules of origin were far more difficult than tariffs.

Molly Scott Cato MEP noted that it was difficult to justify paying people for owning land. There needed to be a discussion in government about what the future farming model should look like. A Defra staff member confirmed that no green paper was in prospect.

Phil Stocker, chief executive of the National Sheep Association, said we were not having a discussion about how we wanted agriculture to look like in the future. Upland farmers could respond by intensifying.

Lord Teverson said that the future relationship with the CAP was critical. The sequencing of agri-trade deals was important. Supply chains were now important even for SMEs.

Martin Haworth emphasised that a defined transition period was needed for everything.

Fall in farm land prices

After many years of above inflation increases, the price of agricultural land fell by 7 per cent last year with the average price per acre dropping to £10,223. The Royal Institute of Chartered Surveyors blamed a sense of uncertainty linked to the prospective loss of EU subsidies.

A survey by Knight Frank found that farmland prices had fallen last year at the fastest rate since 1999. Its survey of bare agricultural land (not including homes or farm buildings) found that prices fell by 9 per cent to £7,470 an acre. Nevertheless, a pound invested in agricultural land in 2009 would still be worth twice as much as a pound invested in a house or the FTSE 100 share index.

It is thought that the price of farmland could continue to fall this year because of higher input prices resulting from the fall in the value of the pound. Prices are, however, being propped up by lifestyle farmers who are estimated to account for a quarter of purchases.

A fall in land prices might be seen as a benefit of Brexit, making it easier for new entrants to come into the industry, reducing the average age of farmers and boosting innovation. However, the real consideration here is whether rents for tenants fall significantly as this is the usual entry route other than in cases of succession.

Even then, new entrants face the cost of machinery and, other than or arable farms, livestock. What may be needed is new means of building up a herd such as share farming which is being experimented with, following the Nee Zealand example.