Farmers leaving is not necessarily bad news

Economist Sean Rickard has warned that one in three farms could be driven out of business in five years in the event of a no deal Brexit.   Those most at risk were smaller, full time producers.

One has to be careful about the distinction between farmers and farms going out of business.  Some farmers could switch to part-time farming by taking on off farm work, although the way in which they farmed might change.

Other farmers might decide to leave farming.  Their farms might be taken on by new entrants or absorbed into larger existing farms.

Individual farmer decisions will be influenced by such factors as their debt load and whether they have a successor.   However, there is a case for enhancing early retirement schemes for an ageing farmer population.

Replacing older farmers by younger ones could boost innovation and productivity.

New form of help for farmers

The Government is trying to devise a system of temporary subsidy payments for farmers to meet the gap between the phasing out of the Basic Payment and the arrival of the new Environmental Land Management Scheme.   That is going to be piloted in 2021 and rolled out nationally in 2024.

An interim system of payments called the Sustainable Farming Incentive is to be made available from 2022.  This will include help to improve productivity as well as to farm sustainably.

Defra research shows that subsidies make up 61 per cent of profit for the average English farm.   Some of the biggest sums go to large scale farmers.  Sir James Dyson revealed in an interview over the weekend that he receives £2.9m in Basic Payment subsidies for his farms.

Farmers are concerned that multiple schemes may be administratively complex leading to delays in payments as has happened with Countryside Stewardship.

Big banks pull out of commodity trade financing

In Monday's Financial Times Rana Foroohar discusses changes in financing in the food chain.  She emphasises the possible implications for food prices, but I am more concerned about the potential for greater concentration and domination by big corporates.

Big banks are pulling out of commodity trade financing or scaling it back.  There have been a variety of scandals involving financial fraud.   Leverage and volatility in the commodities sector make it a particularly risky area for large banks do business (providing finance to farmers is another matter altogether as land is a very secure and asset that can be cashed in if the need arises).

The retreat of the big banks may hit agricultural producers and distributors, as well as grocery chains and SMEs that form a crucial part of the global food supply chain.   Professor Michael Greenberger of the University of Maryland is worried that if second or third tier producers cannot get funding or are forced to pay higher rates to shadow lenders we could see a food price surge.  (To some extent, certainly in the UK, this would be offset by the fierceness of retail competition).

Already, after Covid-19, the big companies were getting bigger.   There could now be bigger gains for big global commodities traders such as Vitol Group or Ametican agricultural giants including the secretive Cargill.

Monopoly power in the food chain can create supply gluts in some areas (forcing down producer prices) and shortages and higher prices in others (hitting the consumer).  A handful of large companies have controlled areas such as meat packing and grain production.   It may look economically efficient, but it is potentially fragile in terms of food security.

What is real food security?

The terms 'food security' and 'self-sufficiency' are often used interchangeably, particularly by farm union leaders arguing for high levels of domestic production underpinned by government subsidies.

But as agribusiness consultant Carl Atkins notes in Farmers Weekly food security and self-sufficiency are two very separate things and should not be confused.  'Food security is the state of having reliable access to a sufficient quantity of affordable and nutritious food,' he said.

Being 100 per cent self-sufficient in a particular foodstuff could actually be risky if there was an interruption to domestic production. 

The current self-sufficiency figure for the UK is 64 per cent, having peaked at 78 per cent in 1985.  However, that figure does not take account of tropical foods we cannot produce in the UK like bananas.  If we take account of them, the figure is 77 per cent.

Part One of the National Food Strategy points out that the UK has been a net importer of food since the 1830.  Part Two will examine whether there is an optimal level of self-sufficiency the UK should target, whether in aggregate or for a particular sector.   Hopefully not: for me, it looks too much like Soviet style planning.

There was also an outbreak of level-headed thinking in the correspondence columns of Farmers Weekly.  A correspondent notes that for many years there has been talk of value added production, but the industry focuses on commodities.   The obsession with benchmarking and least-cost production emphasises this point.

A window of opportunity for biocontrol?

 I have an article on this theme on a new website: https://elc-insight.org/biocontrol-opportunity/