Why subsidy phase out is unlikely to be halted

The National Farmers' Union have asked for a two year halt in the phasing out of support payments to farmers in the form of what was the EU's Basic Payment.   In this article for South-East Farmer I explain why this is unlikely to succeed.

The war in Ukraine has strengthened concerns about food security.  The Ukraine and parts of Russia are regarded as the bread basket of Europe.  Ukrainian farmers would normally be planting crops at this time of year.   Admittedly, a large proportion of their output goes to the Middle East and North Africa, but the threat of shortages of supply has already pushed up wheat and other global commodity prices. 

These developments have led to hopes by farmers and their representatives that there may be more support for them from Defra.   Although the terms of the debate in Europe have changed, I think that it is unlikely that there will be any major changes in UK policy.

Farmers are facing a perfect storm in terms of input prices.   Red diesel prices have increased substantially despite the lower level of taxation on them.   Electricity costs for businesses are increasing significantly, a major concern for dairy farmers or those with on farm processing businesses. According to the US Department of Agriculture fertiliser prices have doubled in the past year and in some cases supplies have been difficult to obtain.  Russia and Belarus are leading producers.  

For fruit and vegetable producers there are serious concerns about the availability and cost of labour.  Ukrainians have formed a key part of the harvesting force since Brexit.  67 per cent of the almost 30,000 people recruited in 2021 under the seasonal workers' scheme came from the Ukraine.  They are now fighting in the army or are unable to obtain visas.  

A spokesman for Kent salad grower LJ Betts told the Financial Times that he had managed to recruit 38 Romanians to replace 40 Ukrainians but these workers would require training and would be less productive than experienced workers, pushing up costs.

All these factors are contributing to what is expected to be substantial food price inflation which particularly affects less well -off families as food forms a greater proportion of their budgets.  There have been some signs of a shift of emphasis in the Common Agricultural Policy (CAP), urged on by President Macron who faces a presidential and then a legislative election.  Green transition and farm to fork objectives may be modified, but this is only indirectly relevant to Britain.

There are a number of reasons why, for example, there is unlikely to be a reduction in the phasing out of the UK’s continuation of the basic payment which for many farms represents the difference between a profit and a loss.  Defra seems disinclined to change its policies, in particular to place less emphasis on a still ill-defined environmental support scheme.   

However, even if there was a change of heart at Defra, it is questionable how much influence it has on broader government policy.  It was particularly hollowed out as a department under the austerity policies of the coalition years and lost many experienced and knowledgeable staff.   In any case many farmers would doubt its commitment to their concerns and, of course, the main purpose of replacing the Ministry of Agriculture by Defra was to give it a wider remit and change its perspective and emphasis.

What is evident is that the Treasury has long been opposed to the farm support payments that were provided under the CAP.  Its reasoning would be that they were a blunt instrument which could be used for consumption rather than production, or even if they were used for production support might not be invested in a way that boosted productivity.   

If there is a food poverty problem, then one should increase payments to poorer consumers rather than to producers.   If world commodity prices increase, this will offset rising input costs, although livestock and dairy farmers will be hit by rising animal feed prices.

It also has to be realised that there are substantial expenditure pressures on government.  The NHS and social care is not far short of accounting for nearly half of day-to-day expenditure.   Although the Chancellor has so far resisted pleas to increase defence expenditure, these are not going to go away.  The cost of servicing government debt has rocketed as interest rates have gone up (about a quarter of it is inflation linked).

So how can farmers secure better support to help them through the costs cisis?  After the Brexit referendum, but before the conclusion of the negotiations, I was invited to give a presentation at the Foreign Office on the future of agriculture to civil servants from a range of departments.   It must have gone down reasonably well as I was invited to meet the Foreign Office cat afterwards!

One good question was how would I convince the Treasury to support British farming?  My answer was that the industry was on the verge of a digital revolution with opportunities to improve efficiency and productivity.    However, farmers needed support for capital investment and training. There are some grants available to boost investment and productivity, but they amount to at best toonly 10 per cent of total funding.   A convincing argument could be made boost this type of funding and hence improve domestic resilience.