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.

Is it useless Eustice?

Despite his farming background new Defra secretary George Eustice got a rough ride at the NFU conference last week when he was booed by angry farmers. Farmers Weekly commented that 'Reassuringly, Mr Eustice already owns a pair of wellies, and knows his way around a farm.' In fact his practical farming involvement was some time ago and I own some wellies and make farm visits quite often, but that doesn't qualify me to be a Defra minister.

As Farmers Weekly admitted, the Defra secretary has tasks other than being a MAFF style spokesperson for farming. (Anyone interested in the history of MAFF and Defra's relations with farmers can have a copy of an unpublished paper I wrote on the topic). FW noted, 'Questions have also been raised over whether he is the big hitter farming needs … Whether Mr Eustice can hold his own against Cabinet heavyweights remains to be seen.' More generally they said, 'Too often in the past the Department has been a dumping ground for ministers of mediocre ability.'

Farmers were particularly annoyed that Mr Eustice was not prepared to relax the notorious 'three crop rule' other than through individual applications claiming force majeure.NFU president Minette Batters said farmers were hugely frustrated. 'We have left the EU, half the country is under water and [yet] we are still going to abide by the three-crop rule and process thousands of force majeure applications. It just seems absolutely extraordinary.'

However, we are still in the transition period and Mr Eustice has no powers to set aside what he rightly described as a 'barking' rule despite shouts of 'rubbish' at the conference. To me it is a classic example of the CAP's ability to come up with poorly designed policy instruments: the relationship with the intended outcome (improving biodiversity) was poor and the transaction costs high. The rule requires farmers with more than 30 hectares of arable land to grow at least three different crops.

Perhaps more importantly, he declined to commit the Government to upholding existing UK food standards in future trade deals with countries, such as the US, that have weaker regulations. 'I can't provide any such assurances,' he said.

A House of Lords amendment to the agriculture bill would bar the Government from signing trade deals that do not require imported foods to meet UK standards on food safety, animal welfare and the environment.

Farm produce may have to be taxed

The Committee on Climate Change has recommended that consumers cut that consumption of beef, lamb and dairy products to combat global warming. If this does not happen, taxes on these products may be necessary: Unwelcome news for farmers

The NFU's response is here: Strong message on climate change

Recent severe weather events, with a higher incidence of droughts and flooding, appear to have enhanced farmers' awareness of climate change, as evidenced by an interesting survey conducted by Farmers Weekly: Cost of extreme weather.

On a visit to my brother-in-law's sheep farm last weekend I learnt that lambing at the 1,000 foot level now starts much earlier than it did in the past as the climate has warmed.

More than four out of five farmers said they are experiencing more frequent extreme weather events on their farm – ranging from severe drought and hot summers to flooding and intense rainfall at unexpected times of the year. Three-quarters of those questioned said it had cost them more than £50,000 – an average of more than £10,000 per year.

More than two-thirds of farmers believe the increase in extreme weather events seen over the past five years is due to climate change – but many believe it isn’t. Some 31% said they believed weather patterns were cyclical and had always changed over the years Many said weather patterns were natural and had little or nothing to do with mankind or the impact of human activity.

I have a family interest in the success of livestock farming, but it is smell the coffee time. Domestic consumption of red meat is likely to decline for health as well as environmental reasons. Given that the Committee on Climate Change thinks there needs to be more woodland, livestock farmers could be given incentives to plant trees - but no regimented conifer forests please.

Post Brexit tariff regime angers farmers

The NFU is annoyed about the removal of tariff safeguards for a number of agricultural sectors in the event of a no deal Brexit: Tariff review

Government policy appears to be driven by a desire to keep food prices low. Minette Batters, NFU president, said that the Government had 'betrayed' the industry.