Some early reflections on the impact of Brexit

This article appeared in the latest issue of South-East Farmer:

Many farmers breathed a sigh of relief when a last minute trade deal was agreed between the UK and the EU, avoiding the threat of tariffs and quotas on agricultural exports.   Of course, this would have affected some sectors more than others, notably those farming sheep.  Such enterprises exist within the south-east of England, but they are more characteristic of remote hill farming areas in all the four nations of the United Kingdom.

I must admit to having a personal interest as my brother-in-law and nephew are sheep farmers in a remote part of Wales.   They have merged three farms in order to run as lean and efficient an operation as possible.   However, the whole enterprise is reliant on selling sheep for meat and the price they receive is influenced by the 40 per cent or so of total output that goes to mainland Europe.   The price received for wool scarcely covers the cost of shearing, if that, and rental income from properties and telephone masts is very much secondary.   The suggestion made by one politician that sheep farmers could shift to beef ignores the realities of production.

Farmers are generally enterprising and keen to keep input costs under control.   One farmer I know in Yorkshire produces honey with a distinctive taste from the moors, but still principally relies on his contract with a leading supermarket.   The more general point here is that the basic payment received by farmers under the Common Agricultural Policy is being replaced by a smaller domestic payment that is being phased out more quickly than some had anticipated, particularly for larger scale farms.

Other new forms of payment will be available, principally the Environmental Land Management Scheme, although that is still being developed and tested.  Along with other payments, it will fall well short of compensating farmers for the loss of the basic payment which made the difference between profit and loss for many farm enterprises.    It will also involve form filling to obtain, along with monitoring of outcomes, and is likely to be more suitable for farmers in remoter areas.   This is not necessarily a bad thing from an overall policy point of view, but it may prove challenging for, for example, larger scale arable farmers in south-east England.

In areas like the south-east there are, of course, opportunities for diversification that may not exist in remoter areas, particularly those that are less suited to tourism.   In this area as well, farmers have been very innovative in the range of ideas they have put into practice.   There can, however, come a point where one is no longer running a farm business, but a farm that enhances other projects such as wedding venues, restaurants, shops and petting zoos.  [I have just read about a farmer who is made £50,000 by loaning out a goat for video calls].

It is, of course, a personal business decision how far to go down this route.   A note of caution is necessary for late adopters.  Much of the low hanging fruit has already been taken.   The capital costs can be considerable and the skills required can be very different from decisions about what to plant, when to spray and when to harvest.   That said, many farmers manage to both farm and run complementary businesses.

Agriculture was the dog that didn’t bark in the night time in the very long legal text arrived at between the UK and the EU.   Indeed, listening to the discussions during the negotiations, one was left with the impression that fisheries were the really vital sector despite the fact that it accounts for a smaller share of the economy than agriculture.   Fish did enjoy considerable symbolic value in terms of ‘taking back control’.

There was an annex on trade in wine.   This is not really my area of expertise, apart from enjoying it and investing in one well-known business in the South-East.  As with most such agreements, the devil is in detail, but I would have thought that at first glance it was broadly acceptable to those growing grapes and producing wine in England.  [A subsequent article in the Financial Times refers to certification costs which could add £1.50 to a £12 bottle of imported wine.  This, of course, could make domestically produced wine more price competitive, although factors other than price can play a big part in purchase decisions].

In simple terms what the annex says is that EU and the UK should import and consume each other’s wine, although the flow is clearly from the EU direction.   The documentation required is limited to a certificate which can be produced electronically.   The self-certification is limited to eleven relatively straightforward questions.  The agreement will be reviewed after three years, a shorter period than for fisheries.

The CAP in review

The CAP will continue after Brexit, albeit with somewhat less money, but will needed changes be made, particularly in terms of 'greening'?   I give an overview here: https://www.europenowjournal.org/2020/11/09/the-common-agricultural-policy-an-overview/

This has attracted some attention on Twitter and I am grateful for the feedback received.   One comment was that 'Seems to suggest that nitrates have been addressed by the ND....if only that were true. There is large scale non compliance with the ND standards never mind the more ambitious water framework ones.' This is a fair criticism, I simply didn't have the word budget to deal with the issue in more depth.

I should have remembered that 'many years ago the OECD “Producer Subsidy Equivalent” was renamed the “Producer Support Estimate” because not all policy transfers are subsidies but some are payments for public goods.'

'Another quibble, but not so minor: at over 30% of its budget, EU expenditure on agriculture is called "substantial", because agriculture is only 1.6% of EU GDP. Unfair comparison: the whole EU budget itself is less than 2% of EU public expenditure.' I can see where this comment is coming from and it is not without validity, but agriculture still secures a disproportionate share of the EU budget.

EU lays down the gauntlet on biodiversity

The EU has set out a new biodiversity strategy.   When I have studied it in detail I will provide some analysis, but for now the summary can be found here: https://ec.europa.eu/environment/nature/biodiversity/strategy/index_en.htm

The full Communication can be found here: https://ec.europa.eu/environment/nature/biodiversity/strategy/index_en.htm

It is clear that a particular vision of farming is inherent in the document which states: 'certain agricultural practices are a key driver of biodiversity decline. This is why it is important to work with farmers to support and incentivise the transition to fully sustainable practices. Improving the condition and diversity of agroecosystems will increase the sector’s resilience to climate change, environmental risks and socioeconomic shocks, while creating new jobs, for example in organic farming, rural tourism or recreation.'

In other words, intensive forms of farming may face challenges.

The Commission's new Green Deal also has implications for agriculture and it has been leaked ahead of publication: https://www.euractiv.com/section/agriculture-food/news/commission-hikes-caps-second-pillar-spending-to-deliver-green-deal/

The recovery plan from Covid-19 'aims to digitalise and modernise the farming sector to increase the EU's resilience and to lower EU's dependency on third countries.'

Something similar may find favour in the UK after Brexit.

How can the CAP reduce GHG emissions?

Climate change has been an absent element of the CAP. A proposal for a third pillar was put forward in the last round of reforms, but was quickly squashed - I suspect by agri-business interests. However, the pressures to do something are now substantial, but what policy instruments should be used?

In that respect an article in the latest Journal of Agricultural Economics is helpful: M Himics et al, 'Setting Climate Action as the Priority for the Common Agricultural Policy: a Simulation Experiment.'

They examine the possibilities of re-directing the direct income support provided to farmers to a direct greenhouse gas reduction subsidy. They find that such a reallocation of financial resources could reduce agricultural non-carbon dioxide emissions (nitrous oxide and methane) by 21 per cent by 2030, compared to a business-as-usual baseline. Two-thirds of the emission savings are due to changes in production levels and composition.

A table lists various technological mitigation options, e.g., feed additives for livestock and breeding programmes to increase ruminant feed efficiency. Crops could use measures such as precision farming and better timing of fertilisation.

The special needs of remote island farming communities like the Orkney Islands would be respected

The greening top up of Pillar 1 would be retained, as would coupled supports for sectors and regions in competitive disadvantage. There would also be support for farmers in areas with natural constraints. My example would be the Orkney Islands which receive coupled support via the Scottish Government.

However, the removal of the basic payment could be associated with accelerated structural change and variable income effects. This does raise questions of political feasibility.

In future member states will have more flexibility to choose from a menu of greening policy options. However, it is not clear how the new CAP design would enable agriculture to meet the EU's emission reduction targets.

One area of difficulty in terms of the article's proposal is the impact on the livestock sector, already under economic pressure. 'The ruminant meat sector is most affected (-10% decrease in herd size and -9% in production), but pig production is also negatively affected.' Prices for beef and sheep and goat meat would go up, but would be offset by increasing imports and decreasing exports.

There would also be a six per cent decrease in the total utilised agricultural area, particularly of fodder activities and a 34 per cent increase in set aside activities and fallow land.

Emission savings in the EU are partially offset globally due to increasing production in less emission efficient trading partners. (Not given as an example, but Brazil comes to mind).

The scheme might also penalise farmers who have already invested in emission-efficient technologies and might require above average financial incentives to achieve further GHG reductions.

The authors argue that 'taking the current status quo of the regional pattern of basic CAP payments as a benchmark for direct agricultural GHG emissions-reduction policy would be suboptimal'. In terms of political acceptability, that might be problematic.

Nearly half of Kiwi greenhouse gases come from farming

Caroline Saunders, the president of the Agricultural Economics Society writes in its latest newsletter: 'Climate change is impacting on agriculture, both through consequences such as extreme weather events and through major changes in policy.'

'New Zealand [where she is a professor] is in an unusual position with 48 per cent of its greenhouse gases coming from agriculture. The New Zealand government has passed a Zero Carbon Bill with zero emissions by 2050. The agricultural sector has until 2022 to show how it will achieve this; otherwise, it will go into the Emissions Trading Scheme in 2025. In the UK, agricultural emissions are about 10 per cent of the total, but the UK also has the ambition of net zero emissions by 2050.

Both countries must work out how to measure the emissions, the point of obligation, the treatment of methane and the methods available to farmers to reduce emissions, and how to support farmers through the transition. There is also the issue of trade and the potential substitution of imports produced with higher emissions (New Zealand has relatively low carbon emission per unit of output).

New Zealand and the UK have strong links and it will be interesting to see how negotiations between the countries address these issues. Given WTO rules, this may be through a new trade agreement and/or through promoting consumer preferences for products with low carbon footprints. New Zealand was the first country to adopt a formal well-being budget in 2019.

Whilst it is early days to see how this will transform policy, it is a step in the right direction. One consequence is a shift in policy thinking to put more weight on the well being of those in the agricultural sector, given the changes mentioned above. A key challenge for the [agricultural economics] profession is to research the distinctive role of government to ensure transitions that consider farmer wellbeing.'

One interesting consideration is how Brexit will affect any future trade agreement which is likely to be sought by the UK. One issue could well be trade offs between financial services (for the UK) and agriculture (for New Zealand).

A new type of CAP?

The French Government has supported the idea of a CAP based on creating farmer employment rather than being based on the area cultivated: Supporting farmers jobs

The second pillar would become a set of incentives and penalties with an emphasis on tackling climate change.

New farm commissioner from Poland

With Phil Hogan promoted to be trade commissioner, the new agriculture commissioner is from Poland. Janusz Wojciechowski is a 64-year old Polish politician and has 15 years of experience in European politics, having been elected to the European Parliament in 2004, a seat he held until 2016 when he went to the Court of Auditors.

He has specific experience in agri-politics at European level, having served as the vice-chairperson of the European Parliament Committee on Agriculture and Rural Development for most of that time.

Wojciechowski was nominated as a commissioner by the Polish government after the countries original nominee for this commission, Krzysztof Szczerski, decided to withdraw his candidacy. This was because, as Szczerski explained in the Polish media after it was first mooted that he would be given the agriculture and rural development job, he felt that someone with experience in agriculture would be better suited to the role.

Wojciechowski started his European political career as part of the European People’s Party (EPP), of which his national party, the Polish People’s Party. However, he was dismissed from the Polish People’s Party after leaving the EPP for the Union for Europe and the Nations, a political grouping that is considered more conservative and eurosceptic.

He will face the challenge of dealing with a reduced farm budget after Brexit.

Intergenerational renewal in farming

An interesting report on the challenge of intergenerational renewal in European farming, an important issue given the current age profile: Farm demographics

The report argues, 'farming as occupational choice often becomes a very particular lifestyle choice. Hence, policies to increase the attractiveness of farming as an occupation should consider the fact that it often becomes a lifestyle choice. Several features of this lifestyle choice are considered unattractive, such as the hard work, often isolated occupational activity and the difficult work-life balance. Policies that address these issues can have a positive impact on the attractiveness of farming and thus enable intergenerational renewal.'

The report recognises that the increasing capital intensive nature of farming raises financing issues for those that do not inherit (and inheritance raises often difficult succession issues). In the UK the reduction in county council tenancies has reduced the availability of one entry route.

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.