Food production is no longer profitable

Minette Batters has completed her review of farm profitability which some see as the Government using the former NFU president as political cover.

Nevertheless, I agree with her that Defra has lacked good political direction, being treated as an up or out way station for ministers (my words, not hers).  It pains me to say it but the only minister who showed any real leadership was Michael Gove,   Certainly not Liz Truss with her selfies and disastrous trade deals.

Batters reckons that Brexit left a policy void created by exit from the CAP (in my view something better could have been put in its place but wasn't.)

For the average farm, food production itself is no longer profitable, the report found. In the 2023-24 financial year, the average English farm made a net loss on agricultural activities, with state funding and diversification out of farming “providing the bulk of an average farm’s income”. 

Rising input costs such as fuel, fertiliser and animal feed following Russia’s invasion of Ukraine — as well as increasingly volatile weather — have battered confidence in the sector, the report found. But constant shifts in government policy, including the swift removal of agricultural support schemes, had weighed on real farm incomes. 

In March the government suspended one of its post-Brexit support schemes, the sustainable farming incentive, because the budget had run out, leading to a sharp drop in income for many farms. The government has not confirmed when it will be restarted. 

In 2023-24, the average income from farming in Great Britain was £41,500 per farm. A review by land agents Strutt & Parker found fewer than half of England’s farms made more than £34,500, the minimum income they define as economically sustainable.

In addition farmers are still smarting from the (partial) imposition of inheritance tax where a prolonged campaign has led to only minor government concessions.

US targets more of UK agriculture for tariff cuts

The US is eyeing a multibillion-dollar slice of Britain’s pork, poultry, rice and seafood sectors, as it looks to expand its trade agreement with the UK, Donald Trump’s agriculture secretary said on Tuesday. 

Texan Brooke Rollins said these sectors were “at the front of the line” in ongoing negotiations to build on the trade deal announced last week, which gave US beef and bioethanol producers expanded access to the UK market.

Washington has touted the deal as a $5bn opportunity for American farmers, ranchers and producers, but the initial text of the agreement only covers about $950mn of trade in hormone-free US beef and ethanol. “Certainly pork and poultry are at the front of the line, along with rice and seafood,” Rollins said at a press conference in London on Tuesday, when asked about further products under discussion.

She added: “Food security is national security. The UK, for example, really relies on China and Russia for your seafood. America has extraordinary best-in-class seafood. Let’s talk about that.”

The remarks are likely to stir concern among British farmers and food producers, who have already raised alarms about potentially being undercut by cheaper US imports that may not meet UK or EU production standards.

 The UK has high tariffs on many agricultural products including up to 72 pence per kilogramme on pork, 107p on poultry, and 18 per cent on shrimp.

“We are more than happy to compete on a like-for-like basis,”  Richard Griffiths, chief executive of the British Poultry Council told the Financial Times. “But if we allow imports that are produced to standards beneath ours, that’s unfair competition.” 

Rollins suggested some US exporters would adjust to meet British expectations, in a softening from last week when she said no industry had been “treated more unfairly than our agriculture industry”. While she defended the safety of hormone-treated beef and chlorinated chicken, she said beef producers may be prepared to ditch hormones in order to sell to the UK and stressed “only about 5 per cent” of US chicken is now washed with chlorine.

 American producers “are constantly watching what the markets look like, and if the markets are calling for a specific type, or they have more opportunity somewhere, then I think that we, potentially, do see some movement in the market”, Rollins added.

Griffiths countered that among US producers “it’s standard practice to clean up at the end” with chemical washes — including but not limited to chlorine. British poultry farmers have to promote hygiene throughout the whole process, and can only use water. This is much costlier, he added.

UK ministers have repeatedly insisted that chlorinated chicken and hormone-treated beef would remain illegal in Britain. Rollins also stressed the reciprocal benefits for UK exporters: “While, in fact, we are excited about getting American beef, ethanol [and] hopefully down the line, rice, seafood, other products are coming into your country, this is also about getting more of your country’s products into ours as well.”

 Steve Reed, UK environment, food and rural affairs secretary, said the trade deal with the US would “protect Britian’s farmers and secure our food security”. “We have always been clear that this government will protect British farmers and uphold our high animal welfare and environmental standards,” he added.

Food security for some

The UK Government has produced its new food security index using nine indicators which it claims paint a 'broadly stable' picture: https://www.gov.uk/government/publications/uk-food-security-index-2024/uk-food-security-index-2024

Writing in the Financial Times today, Professor Tim Lang says that the indicators 'ignored internationally agreed definitions and indices of food security.'  He points out that food prices are 25 per cent higher than a few years ago and that a Food Standards Agency classified 25 per cent of consumers as food insecure. Poor diets feed through to healthcare costs.

'Back to the future' risk on food security

It could be 'back to the future' as farm organisations use the war in Ukraine to bang the food security drum.  There are, of course, real issues here, given the importance of Russia and Ukraine in wheat production, but there is a risk of reverting to old fashioned blunt instrument subsidies and downgrading the sustainability agenda.

In particular one could create a false dichotomy between food security and sustainability: https://www.foodnavigator.com/Article/2022/03/07/Ukraine-war-detonates-EU-food-security-debate-but-will-sustainability-be-collateral-damage#

Farmers may hope for a halt in the phasing out of the basic payment, but the Government faces heavy expenditure pressures with a likelihood of increased defence spending and more support required for household and industrial energy bills.   Rather than providing a general subsidy that is not tied to outcomes, it would be better to spend more on boosting productivity through capital investment and new technology.

I will write more about this issue in the coming days.

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.

Britain dangerously dependent on two countries for its food supplies

I have always been sceptical about food security arguments for farm subsidies, particularly as they have been framed by farming organisations.   They have always seemed to me to rather Soviet style in their domestic production targets and I am not fan of autarchy.  My classic response was that one should only worry about security issues if one was reliant on just one or two suppliers.

John Maynard Keynes is claimed to have said 'When the facts change, I change my mind' or something like that.  Presumably he didn't change his mind about supporting Aston Villa or disliking Ramsgate!   

I have been influenced by an important new study by the distinguished international political economist Tony Heron in.which he argues that Britain is 'dangerously dependent' on fruit and vegetable supplies from a small number of European countries with 60 per cent coming from the Netherlands and Spain.  The food system is not as global as we often suppose.

The Netherlands does, of course, draw some of its supplies from elsewhere because of its entrepot role. Many large scale fruit and veg producers up sticks and work from Spain in the British winter.  There is less carbon impact from growing tomatoes in Spain than using heated greenhouses on the Sussex coast.

You could read his article for yourself here: https://www.nature.com/articles/s43016-020-0097-7

It certainly has implications in current circumstances given the pinch points provided by the Channel ports which could become a more serious issue after a no deal Brexit.  It also has implications for migration policy in relation to seasonal agricultural workers.

What I hope does not happen is that the article is used to back up the argument for blunt policy instruments of the kind represented by the EU's Basic Payment.   We need to be much more sophisticated and targeted in our policies outside the EU.

Farming not important says Treasury adviser

Treasury adviser Tim Leunig has said that Britain could do without its fishermen and farmers: Farming and fisheries are not important

Whilst he was expressing a personal view, this will reinforce a fear already held by farmers that the Government will give a low priority to their welfare in trade talks.

The NFU does tend to overplay food security arguments, given that there is a variety of suppliers, but a country with plenty of agricultural land would look odd if it did not grow some of its own food.