Thursday, March 09, 2017

Brexit: Farming faces an uncertain future

Agriculture Minister George Eustice was in the spotlight for two hours yesterday, (March 8, 2017) being ‘grilled’ by people from both Houses of Parliament on the future for farming after Brexit. 

This Blog covers:
Useful pointers to the post Brexit direction provided by the Minister in answer to questions from Neil Parish, Kate Hoey and others. 
  • Our headings:  
  • The issue of Ireland
  • Opportunities for farmers post-Brexit
  • How the new policy will be constructed - decided after negotiation or a load of Ready-Mix?
  • Will the Treasury dominate the decisions?
  • How will The Great Repeal Act work? 
  • A General Election is likely in 2020. Farm policy needs to be sorted before the campaign starts.
  • The supply of foreign workforce.
  •       A 19th century parallel:
  • The repeal of the Corn Laws took away farmers’ and landowners’ huge trading benefits. 
  • Lessons for today. 
  • The contribution of Practical Farm Ideas magazine. 
Readers will be more than familiar with the farming issues raised at this Parliamentary Committee. The post-Brexit access for UK farmers to their EU markets; import controls from non-EU countries such as NZ; the continuation of subsidies including Basic Payment; the future supply of foreign workers; the environment and others are all a serious worry to farmers at the present time. 

Many readers will themselves have spent time discussing these with their local NFU, neighbours, MPs and others. In addition there have been numerous conferences on these issues, and will be more. The Brexit coals can be raked over endlessly and I believe there’s a danger the topic will become all consuming taking the farmer’s focus away from the business. Uncertainty can easily lead to inaction while the industry waits for government decisions to be made. 

Yet businesses need effective and progressive management irrespective of what happens in Whitehall. This means looking for useful cost-cutting, looking also for areas of risk which can be reduced. In this article I review the Minister’s contribution to the House of Lords meeting, and compare the likely changes with those of a previous time in agricultural history. 

Some useful pointers to the post Brexit direction. 

We have been told that nothing can really start until the EU Article 50 to leave the EU is triggered, so it was hardly surprising that Minister Eustice was unable to provide anything too concrete. Nonetheless the meeting identified the areas of greatest concern, the measures which can be taken, and the direction of ministerial and hence government thinking. Two issues stood out: his thoughts on area payments (Basic Payment) and the second on environmental schemes. Farmer, MP and Defra chairman Neil Parrish had a major role to play in the meeting. The following is a selection of topics raised. 

Neil Parish (NP): Ireland needs special attention. At present agriculture works as a single entity with farm produce and goods crossing the border continually. It presents a major problem. Borders will need to remain open even when the industry in North and South is working under rules.
George Eustice (GE): Let’s see what happens when we get there. Negotiations about Ireland, and indeed the channel crossings will be a priority.

Kate Hoey: What opportunities are there for UK farmers post Brexit?  
GE: South America and Asia are big markets, and UK farming is internationally competitive. The USA market for organic is large and expanding. EU food producers in Spain, France, Poland and Italy have been lobbying hard for continued access to the UK - which calls for reciprocation. 

NP:  How are you going to put a new farm policy together? is the process to be given a budget and then fit an ag policy around it, or is it the other way round - a policy which needs funding? NP is concerned that there will be detailed stakeholder discussions and consultations and then the policy will be presented “like a load of Ready-Mix”.
GE: Neither at present, and certainly no budget. The opportunity is to devise a program which works for farmers and consumers.
NP: Experience shows that the Treasury always has the whip hand in Cabinet. Given the promise that £350m/week will be available for the NHS, farm payments will cover 10 weeks - something which the Treasury might be happy to get their hands on.
GE: The great benefit of Cabinet government is that these decisions are made collectively, with checks and balances.

NP: Will The Great Repeal Bill work by transferring EU legislation in one block and approving it so it continues to be law, and then unravelling parts over time. Will agric policies be repealed? 
GE: Yes, but there will be pressure to amend the legislation. 
NP: There is likely to be a General Election in 2020 and the government will want a farm programme in place before the campaign is under way. Which means decisions in 2019 or before, not leaving much time.
GE: That’s true, and there will be reform. I am not a fan of area payments, which might appeal to theoretical economists but Single Farm Payment and Basic Payment present many problems. A decoupled payment system has the potential of delivering greater benefit. 
NP: A farmer recently said “It’s not leaving the EU that’s of concern, it’s what we do with our new-found freedom”. Fears the Treasury will strip the industry of much of its public finance. 

Question: Concerned about UK farm foreign workforce which is already being recruited for 2018. What happens in 2019/20? 
GE: Well there’s no change in rules for this and next year, and may well continue for 2018/19. The situation is fully appreciated and Cabinet will make its collective decision. 

Question: The future of environmental schemes are of concern. Will they remain the same?
GE: Mindful of making changes to increase simplicity. The EU regulations on woodland are a good example of complexity. First it needs defining, and we say that a group of 100+ trees constitute a wood. What about saplings? So we define the size of a tree that complies. But then some grow faster and larger than others. What about Christmas trees? Likes the Wildlife Enhancement Schemes of the 1980s and 90s. Working with partners such as Woodland Trusts, and others. Wanting schemes which work well and are simple, less bureaucracy. 

The influence of politicians - the Repeal of Milk Quotas 2015

The first version of this article read:  'exiting the EU posed the greatest event in farming since the Agriculture Act 1947'. Luckily it took me only a few moments to realise the basic mistake - the ’47 Act protected farmers while Brexit is going to reduce the public funding of the industry. 1947 introduced a price guarantee and was followed by the farm price protection through the EU Common Agriculture Policy.  
Brexit is likely to do the reverse. In fact the current fear is that concessions will be made on imports of food so UK exports of cars and other manufacturers will not be interrupted. 
Government actions play a crucial part in farm incomes. There was comparative stability after 1947, even though farmers’ leaders were keen to complain. The CAP has supported farming through a wide range of measures, even if they have involved hours of form filling. 
A recent step back from this occurred when milk quotas (1985 - 2015) were removed. The NFU was broadly supportive of the change and claimed there was no risk of over-production as in the past as the guaranteed price “now merely serves as a safety net”. They went on to say “Volatility is a normal characteristic of agricultural markets.” And they were right. Farm gate milk prices have diverged hugely depending on contracts - from 18 to 30+ p/l. The abolition of milk quotas caused major disruption to those in the sector, and resulted in prices dropping from around 30p to less than 20p in a matter of 18 months. Not at all what the NFU forecast or wanted for its members. The consequence was real difficulty for a those producers on highly volatile contracts while others were sitting reasonably comfortably. The Milk Quota issue showed farmers that the business side of farm management is of equal importance to the efficiency of production. Under the MMB all farmers worked to the same contract while today their sale contract is the most important factor for profitability.   

A 19th century parallel?  The Repeal of the Corn Laws
We need look further back in time to 1846 when the highly protective and lucrative Corn Laws, enacted in 1815, were revoked. And here’s what actually happened:
In 1813, a House of Commons Committee recommended excluding foreign-grown corn until the price of domestically grown corn was 80 shillings a quarter (a Winchester quarter equals 8 bushels or 291 litres* making 5 quarters to the ton) or 4 x 5 = £20/ton in their money or around £1,500/t today. The corn price never reached 80/-, but it did trade at 70/- a quarter for some of the time the Laws were enacted. The Laws halted corn imports, and created a shortage. Those unable to buy went hungry. Whole family budgets went on buying food, and a high proportion of this was corn. With no money for clothes, demand for cloth dropped and mill workers were laid off. Similarly for shoes, candles, anything which could be economised on. Meanwhile farmers and landowners were making considerable, huge, profits. They built themselves large farmhouses and farm buildings, and bought land which went up significantly in value. As landowners the Church, colleges and institutions also benefitted. The effect of the Corn Laws on the UK economy (which then included the whole of Ireland) was huge and made worse with the Irish Famine (1844-8). The political controversy became fierce as the effects on the wider economy became more severe. Liberals under Charles Villiers proposed motions for Corn Law repeal every year from 1837 to 1845, and it was the great Irish famine which finally forced their repeal. 
On January 27, 1846, Peel gave a three-hour speech saying that the Corn Laws would be abolished on February 1, 1849, after three years of gradual reductions of the tariff, leaving only a 1 shilling duty per quarter. The price of corn dropped to average 52/- per quarter between 1850 - 1870 and in 1886 was 31/-. Imports counted for 2% in the 1830s, 24% in the 1860s and 65% in the 1880s. By 1885 the cereal acreage was reduced by a million acres (the total today is 7.7million acres) and the number of farmworkers dropped 92,250 between 1871 - 1881. 
Farmers survived this turmoil by changing the way they managed their businesses. Practical changes to the way they farmed, ending enterprises that became unprofitable. Those who clung to what they did in when corn was 70/- found themselves making heavy losses when the price was in the 40/-s. Yields at the time were 20-30 bushels/ac (1/2 - 3/4 ton/ac).

Lessons for today

Today's uncertain future concerns both imports and subsidies, and both are very much part of the Brexit negotiations. Nobody is making the parallel with the Corn Law Repeal, but farmers need to be prepared for a considerable change.   
The farmer's focus must be on his business, and the huge changes that the British public has voted for need to be looked at through the prism of the farm, it assets and liabilities, it's management.
The wider EU issue is in danger of becoming a huge distraction for farmers. There are a multiplicity of conferences and events all hinged around Brexit, and all well attended. No wonder. The issue is the biggest shake-up in the industry but let us hope not the huge effect which the Corn Law repeal had those years ago. 

The contribution of Practical Farm Ideas magazine

Focussing on soil condition has been a longstanding subject area and in Summer 2013 (issue 22-2) we created a new major section which joined the “Made it Myself”, “FarmWorld”, “Financial Focus” and other sections. The “Soil+ Cover Cropping International” section has now totalled nearly 100 pages of editorial. No-till, zero-till, conservation agriculture, call it what you like, represents the most effective way to reduce costs of cereal growing while improving soil condition and fertility at the same time. 
Adding value to conventional farm products have been another regular feature. From the man who nets £1,000 from an acre of sweet corn which he sells during the season from a roadside table and honesty box to the livestock man who sells at retail prices all the meat produced on 400 acres - we have reviewed and continue to explore business ideas for regular farmers. 
Managing farm finances are never easy, especially when practical work on the farm dominates the working week. The regular family farmer not only is pushed for time, but has less understanding both of the importance and techniques of finance. Financial Focus makes the complex topic understandable.

* There's confusion about 'quarters' which reader John Raven has kindly pointed out in an email. Google it and you'll find many saying a quarter is half a hundredweight, 28 lbs. But it seems that grain was priced by the Winchester quarter which makes much more sense. John also says "As an aside, just to show how profitable farming must have been in the 19th century, we bought a farm in 1970 for £247/acre. That farm was sold in 1870 for £300/acre. No allowance for then and now values , just the price of the day." 

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