Uphill struggle
1 Dec 08
Environmental sustainability, health and safety considerations on the farm and in the supermarket, the rising price of land and the falling price of produce – as Anthony Harrington reports, agriculture is tough
by Anthony Harrington
The business of farming would be demanding enough, whether we are talking about arable, hill, dairy or mixed farming, but the multiple layers of bureaucracy farmers have to deal with really do add to the load.
Not only is there the food safety regime, with its goals of control and traceability, which everyone recognises is essential. There is also the constant stream of legislation from Brussels, one instance of which is the proposals on electronic tagging of sheep. If this goes through, it will vastly decrease the number of sheep on Scotland’s hills.
Along with increased bureaucracy, there is also the fact that while some farmers have benefited from the commodity price boom over the past year, far more have seen their input costs rise sharply with little rise in output prices.
Non-farmers might point to the subsidy granted to farmers as something that should smooth the path. However, the subsidy, as the vast majority of farmers will quickly point out, is not a “nice to have”, it is a “must have” if the UK is to retain its agricultural base.
The subsidy is designed to deliver a public benefit, such as access to the beautiful countryside, the maintenance of flora and fauna and so on. As Anna Davies, communications manager at the National Farmers Union Scotland points out, it is not as if farmers can sit back and enjoy the subsidy. They are being asked to do a great deal of public benefit work, around the country, to earn it.
As the recent Lloyds TSB Scotland Scottish Agricultural Survey 2008 shows, 77 per cent of Scottish farms, and 94 per cent of all livestock farms, would be unprofitable – and hence would rapidly go out of business – without the single farm payment (SFP). This payment is relatively new, having been introduced in 2005 in place of a collection of specific subsidies.
EU countries have some flexibility as to how they implement the payment. Scotland opted for “full decoupling” with the SFP replacing all the support schemes that had existed until then (with one or two exceptions, of course – EU legislation is never that simple). The English system is based on area payments rather than historical payments.
As Sarah Cudworth, a partner in the law firm Tods Murray explains, the “decoupling” part means that the SFP is no longer linked to production as it had been. Decoupling was a good thing. “The problem with coupling subsidies to production is that farmers across the EU ended up doing more of what they did in order to get more subsidy,” Cudworth says.
That was a perfect recipe for milk lakes and butter, wheat and barley mountains, which is what the EU duly got. The new system is based on a link to the reference years 2000 to 2002, and the whole scheme is undergoing a health check to see how it is working out.
The primary delivery system for the SFP is the Scottish Rural Development Programme (SRDP) and, as Cudworth explains, there are still a good few teething problems with that. As befits a “bleeding edge” Government programme, it is Internet based, which seems sensible until you recall that we do not have 100 per cent Internet coverage of rural Scotland.
Remote farms, which particularly need the SFP, cannot readily download the forms they need to apply from the Internet as they have no access on the farm. They could travel to a metropolitan centre and visit an Internet café or book into a wi-fi equipped hotel, but that seems a little extreme when you are trying to get on with the afternoon’s milking…
Cudworth points out that there is also a good deal of complexity associated with the process and farmers can lose out by inadvertently failing to comply with a particular rule.
However, there are good things about the SRDP. Old programmes such as set-aside are gone but there is now much more emphasis on environmental awareness and on rewarding farmers for restoring hedgerows, upgrading paths and so on.
Another strong plus point has been the Sears Scheme implementation where the Scottish Environment and Rural Delivery Service now co-ordinates farm inspections by different bodies. The farmer gets one inspection which covers multiple areas, instead of having to break the working day to accommodate numerous separate visits. In this respect Scotland is ahead of England, where the overarching body is DEFRA and unified inspections are still a wished-for item.
“There is no doubt that there have been good changes which will improve the business of farming,” Cudworth comments. “But people would now like to be able to draw breath for a while with no further changes.”
The Lloyds TSB survey had some positive news, in that with the exception of hill farms, more Scottish farmers said that they expected their business to be profitable in 2008 than last year (82 per cent compared with 76 per cent). However, as the NFU’s Davies notes, the Scottish Government’s June 2008 agricultural census shows that Scottish agriculture is losing livestock numbers “at an alarming rate”. England is being impacted in a very similar way.
Figures show a 5 per cent drop in sheep numbers last year, with pig numbers down by more than 6 per cent and a small drop in cattle numbers. “This further confirms the fears in the industry that many livestock producers are questioning their future and that many are leaving the industry due to poor returns,” Davies comments.
One of the real problems if Scotland, or indeed, the UK as a whole, were to experience a sharp fall in farming numbers, is that this is an extremely difficult sector for new people to enter. Mark Wilken, manager at the Forfar office of EQ Chartered Accountants, points out that the good returns recently on arable land have pushed prices up from £3,000 to £5,000 to £8,000 an acre. Factor in the industry average 450 acre farm and you are looking at a £2.25 million entry price for the land alone.
Then there is the subsidy issue. Wilkins says: “Because the subsidy is based on historical grants and a newcomer has no history, they have, in effect, to buy the subsidy. This is trading at two to three times the gross annual value of the subsidy, so when you add this in, plus the livestock, plus buildings, plus tractors and machinery, it is actually impossible for anyone who is not extremely well capitalised to enter the farming industry.”
That said, he reckons that the chances of a mass exodus from the land are slight. Where farmers do sell up, their land and all the rest of it are often taken over by larger neighbours. Wilken’s view might be biased by the fact that the east coast of Scotland is largely arable, and farmers have done very well over the past year from increased grain prices.
However, Wilkins points out that that was then and this is now. The price per tonne of barley, for example, has dropped 50 per cent from the high point of £200 towards the end of last year, to just £100 now. Some farmers will have forward sold contracts at a good price for the 2008 harvest, but on the futures market the 2009 price is £10. Added to this dramatically higher fertiliser prices, and the profits for the arable sector are definitely going to be sharply reduced, he warns.
Davies says that there is a real succession problem in farming across the country, and this is something that farmers need to take up with their financial and legal advisors. The average age of farmers is in the high fifties and rising so this problem is now reasonably acute.
The tax position for passing on a farm to the next generation is very benign, but often in a small farm there is not a sufficient return for the son or daughter to work with the farmer. So they will often go off and forge a career and when retirement time looms, they are often well ensconced in their chosen career and unwilling to step in to continue the family farm.
Wilken argues, however, that farming is, above all, a life choice for those who practice it. “This is why farmers go on long after the owner would have thrown in the towel in any other business,” he says.
It is very clear that with rising population levels, farmers everywhere are going to have to rise to the challenge of producing far more food. In fact, the target being set by the developed countries is to increase agricultural production by at least 100 per cent by 2050.
“If this is to happen, we need much greater emphasis on investment in research and development, trade and competitiveness,” NFU president Peter Kendall warned at a recent conference.
His call was backed up in mid-October by one from the NFU in England and Wales for the Government to reverse the current trend in under-spending on R&D in agricultural science. This is a call that will resound well in the ears of Scottish farmers.
The NFU has managed to drum up considerable support for its bid to prompt some Government action. About 70 MPs, industry stakeholders and opinion formers attended the launch of its campaign in the House of Commons. Kendall wants the Government to shift priorities to recognise the need to make productive and efficient agriculture a key goal of R&D spend, instead of channelling science funding solely towards mitigating the environmental effects of farming.
“From the mechanisation of farming more than 150 years ago, farming today remains a high-tech industry and there are a wide range of technologies in daily use to reduce inputs, improve efficiency and increase productivity,” he reminded government. An effective, well funded science programme can make a real difference to the UK’s farmers, he argued.