Stuart Reynolds is Emeritus Professor of Biology at the University of Bath. He is a former President of the Royal Entomological Society.
UK farming’s basket-case economics
There’s no doubt that for UK farmers, the next few years will be testing times.
Farming hasn’t been a good way to make money in the UK for a long time. 14% of UK farms failed to make any net income at all in 2017/18, while less than a third of UK farms had a net income of over £50,000. This is despite the fact that agriculture has been directly supported for years by the EU’s Common Agricultural Policy (CAP), originally introduced to boost food production and assure self-sufficiency.
The cost of these subsidies is massive - around 40% of the entire EU budget. Originally this support for farming took the form of price supports, but since 2003 it has been doled out entirely in the form of direct payments to farmers, almost all (around 90%) of which are computed simply on the basis of the area of land farmed. Economists recognise this kind of support (it’s equivalent to the Government paying rent on all farmland) as a sure recipe for inflation in capital value. Accordingly, the price of farmland has boomed; during 2006-2016, UK farmland was a better investment than prime Central London residential property, and from 1966 to 2015 the average price of one hectare of UK agricultural land increased by a factor of more than 50, almost three times the general rate of inflation.
But meanwhile, the price of food (i.e. what farms produce) has fallen in real terms for years. Consumers have become used to cheap food and spend a diminishing fraction of their income at the supermarket. In 2016, British shoppers spent only 8% of their income on food (among major economies only the USA spends less). This has been achieved by the concentration of power in a small number of food retailers who make sure that farmers share in only a small fraction of the profits, and by the globalisation of food markets (the UK currently imports 50% of all its food). This is why the return on capital invested in farms is pathetically small: in 2018-19 the average return on capital of all UK farms was less than zero (-0.1%), and in only five out of the last 10 years was this figure positive. Effectively, in the UK you have to pay to be a farmer; for many farmers only the perception that this is a lifestyle choice keeps the business going at all.
This long-term squeeze on farm incomes has had strong implications for the countryside. The response has been to intensify farming, increase mechanisation, increase chemical inputs, and employ fewer workers. Many smaller farms now employ no-one at all, using contractors to do everything. These pressures operate almost everywhere in the world, of course, but for most of the crops that are grown in the UK, the weather and soils will be better somewhere else, and the overhead costs will be higher, so the incentive for British farmers to intensify is even greater.
The snag is that the inputs for intensive farming are very expensive. Their high cost is one of the factors that limits farmgate profits, but it’s a treadmill that is very hard to jump off. Some farmers have turned to organic farming to take advantage of premium prices for food that is produced with fewer inputs, but there’s a limit to what the consumers will pay, and the organic sector is a relatively small fraction of the market for farm products in the UK (and anyway, an increasing fraction of organic food is imported). Only 2.7% of UK farmland was fully organic in 2018.
Farming and wildlife
Intensive farming also has a cost: it is very bad for wildlife. It’s well known that since the introduction of intensive farming methods, there have been drastic declines in farmland birds and insect pollinators. Although not all species suffer, and a few even prosper, the picture is bleak. In this ‘Second Silent Spring’ it’s not just the birds and the bees that are declining; other less celebrated forms of wildlife suffer too. This is worrying because it’s the little creatures that support the higher levels of the ecosystem. The causes of this damage to the environment are complex, but there’s no doubt that the increasing efficiency of farming is the basic problem. The purpose of intensification is to increase the productivity of the land and as more of the sunlight energy that falls on it is converted into the farmer’s crop, there is less for the other plants and animals that live there.
This has political consequences too. There is public concern about declining wildlife, and farmers have been slow to realise that they have an image problem. Because more than 70% of the land area of the UK is devoted to agriculture, these changes are highly visible, and 45% of the UK population are aware of the threat to biodiversity and claim to be engaged to at least some extent in activities to support and protect it.
By contrast most people have never met a farmer; less than 1% of the national economy is based on farming, and only 1.5% of the population works on the land. Farmers are frequently praised by politicians as the essential producers of the nation’s food, but fine words butter no parsnips. Although farmers own the land, we all like to look at it, and there is increasing pressure on policymakers to reflect this public interest in the countryside. If push comes to shove, politicians won’t hesitate to sacrifice farmers’ interests to curry the votes of the much more numerous voters who like to watch birds and butterflies.
Paying to put it right
The evolution of the CAP has not reflected these environmental concerns well. From 1988 – 1996, the large farmers were required to “set-aside” 15% of arable land, later reduced to 10% (small farmers could do this voluntarily), and they were compensated for this. The policy continued in modified form until 2006.
“Set-aside” as it was called, was originally introduced to curb overproduction, but was also successful in slowing the decline in farmland wildlife. At that point politics intervened, EU agricultural policy changed and set-aside payments disappeared. 90% of farm support (“Pillar 1” of the CAP) was now paid out to farmers simply on the basis of the area of land farmed according to minimum standards. But about 10% of the total money paid out to farmers was then linked to locally implemented “Pillar 2” schemes that sought to enhance “rural development”. Some (but not all) of this highly targeted and much more accountable strand of CAP funding was devoted to conserving farmland landscape and biodiversity. This provision no doubt meant well, but it has proved cumbersome, slow and costly to administer and is unpopular with many farmers. Starting in 2013, the CAP’s Pillar 1 has been “greened” by upgrading the minimum standards of cultivation. Despite this, the evidence is that the pace of wildlife degradation in several European countries has worsened since the end of set-aside.
Brexit and the Agriculture Bill
Now the UK is leaving the EU, what will happen to agricultural policy? How will this affect farm incomes? And what will this mean for the state of the countryside? Although an announcement that UK farm incomes would be protected was among the first post-referendum actions of the Tory Government of Teresa May, the Johnson administration is now backtracking on that promise. In its new Agriculture Bill 2020, introduced in January, the Government now promises to turn everything upside down for UK farmers.
Characteristically, everything that is said to be wrong with the present farming system is now blamed on the machinations of a European Union that is said either to be malign or incompetent. It’s hard not to see the mark of the last three and a half years of Brexit language in the assertion that “landmark legislation introduced today will provide a boost to the industry after years of inefficient and overly bureaucratic policy dictated to farmers by the EU.” Earlier this year, the then Secretary of State for the Department of Environment, Food and Rural Affairs (DEFRA), Theresa Villiers, said “One of the greatest advantages of leaving the EU, after all these years, is that we finally have the chance to sweep away the CAP”. Of course, the language is at the same time relentlessly positive; according to the Government, the bill will usher in “a future where farmers are properly supported to farm more innovatively and protect the environment.” Since saying all this, Villiers has been sacked in the recent reshuffle, and there is as yet no indication of what George Eustice, the new DEFRA Secretary, will do. But after all the trumpeting associated with the new Bill, it’s most unlikely that the Government will simply leave things as they were under the EU.
The final shape of the Bill is still to be hammered out in Parliament, but with a big majority, Johnson’s Government will be able to do pretty much what it wants. But what does it want? It seems obvious that that the UK farm support system is broken. It seems likely that the remedy being proposed will amount to drastic surgery of the UK’s farming sector. Those formerly reliable Conservative voters the farmers will be (perhaps foremost) among the big losers from Brexit. According to the Government, farm “subsidies” are definitely on their way out. The new Bill proposes to completely phase out Direct Payments over a seven-year transition period due to start in 2021.
Seven years is perhaps not a very long time to adjust. The Institute of Chartered Accountants in England and Wales (ICAEW) has pointed out that direct payments currently make up 61% of farm business incomes (this is 83% for tenants), a measure roughly equivalent to profit, and that currently 42% of UK farmers would have no net income at all without Direct Payments. And this is even before the possibility of EU tariff barriers being erected against the import of British farmers’ crops and animal products, thus likely lowering farmgate prices and exposing UK farmers to low price competition from outside Europe.
Why did farmers vote Brexit?
What do farmers think of this? More than half of farmers are believed to have voted for Brexit. What do they think now that direct land-area-related payments to farmers are to be summarily abolished? Unless we are to believe that everything the Government says is just a Brexit negotiation ploy, the UK is apparently now minded to leave the EU with an “Australian style” deal (i.e. no deal at all). This would almost certainly mean that UK food markets would be thrown open to cheap food imports from all over the world. There is little sign of any strategic agricultural planning for such an eventuality.
Are farmers now experiencing Buyers’ Remorse? Without exception, every farmer I have spoken to about this is very worried about the future. The National Farmers Union (NFU) President Minette Batters is trying to be positive but she is rightly nervous. She says: “This Bill is one of the most significant pieces of legislation for farmers in England for over 70 years and it is absolutely vital that it is tailored to farming’s specific needs and ambitions.”
It’s certainly significant for an entire business sector to be staring down the barrel of bankruptcy. If you are a farmer, the only light in the tunnel is that the Government says that it will replace the direct rewards for being a landowner that have characterised the CAP system since the turn of the 21st century with new cash incentives for farming sustainably. During her brief tenure as DEFRA secretary, Villiers claimed that the new Bill sets out “how farmers and land managers in England will in the future be rewarded with public money for “public goods” – such as better air and water quality, higher animal welfare standards, improved access to the countryside or measures to reduce flooding” but although a new Environmental Land Management Scheme (ELMS) is promised, its details still remain under wraps. Farmers have never been very keen on such arrangements in the past, and dissatisfaction with “EU bureaucracy” was a key issue in the referendum campaign. Evaluating and approving lots of new “public goods” deals would be highly labour intensive and inspecting compliance afterwards will be next to impossible. Targeted Pillar 2 payments in the past accounted for only 10% of CAP money but consumed massive amounts of time and effort in applications and awarding them. To increase this by a factor of ten doesn’t sound like a recipe for less bureaucracy.
Farmers may possibly find some comfort in the Government’s statement that the Agriculture Bill will “promote food security”. The NFU evidently regards this as code for “favour British farmers” but we’ll see – there will undoubtedly be tension within the Government between free traders and protectionists. I’d suggest that almost no-one who voted Conservative in 2019 thought that they were voting for more expensive food. Uncomfortable decisions lie ahead.
The NFU is in big trouble here: its job is to speak for the interests of its members but what on Earth should it say? It’s entirely unrealistic to argue for the previous EU rules-based status quo, which is obviously now dead in the water. On the one hand farmers might well welcome relaxation of EU environmental rules (for example the recent banning of the widely used bee-toxic fungicide chlorothalonil, which was opposed by the NFU) , but on the other hand, they also want production standards to be used as barriers to importing low price food from outside. The temperature of the rhetoric has increased relentlessly. On 25 March 2020, the NFU President said “To sign up to a trade deal which results in opening our ports, shelves and fridges to food which would be illegal to produce here would not only be morally bankrupt, it would be the work of the insane”. One wonders whether anyone in Government is actually listening to this. Typical of the present Government’s style, such attempts to provoke a response are met with silence.
What does the future hold for UK farming?
If all Direct Payments were replaced by ELMS-related payments, then farmers need not be worse off, and (at least in principle) the amount of money available to promote the health of the environment would increase by a factor of 10. But is such a huge increase in spending on the health of farmland likely? I suggest that it isn’t, not when all of Johnson’s promised policemen, nurses, new hospitals and railways need to be paid for. Although the 2020 Agriculture Bill promises that it will “support farmers to provide more home grown, healthy produce made to high environmental and animal welfare standards”, farmers evidently fear that some – perhaps a lot - of the money previously devoted to farm subsidies will now be siphoned away from the agriculture budget altogether.
Thus, the future is likely to be more than just painful for UK farmers. If Direct Payments to farmers are not fully replaced, then many will simply go out of business. UK farmers are accustomed to financial challenges (more than half of British farmers have diversified their businesses to include non-farming income), but there has to be a limit to the extent of such change in the farming business model. Perhaps it is significant that DEFRA’s web page on “Diversifying farm businesses” was withdrawn last summer and hasn’t been replaced. The problem isn’t limited to farming alone; if there is a massive exodus from farming, then land prices will fall and investors in agricultural land will feel the draught too.
Even if farmers will suffer, perhaps the Bill will be good for the countryside. Surely, it’s an ill wind that blows no good. But while conservationists might be expected to regard the new Bill as a bit of excellent news that will benefit wildlife, actually they are suspicious that it will be all incentives and no regulation. Moreover, it won’t help the countryside if farmers, its natural stewards, are no longer there to look after it. It seems highly unlikely that government money will be poured into active countryside management. Look at what happened to Natural England, whose budget was cut by more than half in the period 2010-2018.
Tree planting on a large scale is currently being boosted as a potential solution to global climate change because the growing trees will absorb lots of carbon dioxide. Perhaps too, politicians see this as an easy way to offer action. The major parties in the 2019 election all vied to outdo each other in proposing tree planting programmes. So perhaps payments for agroforestry will turn out to be one of the ways that Government tries to mitigate the adverse effects of withdrawing direct payments to farmers. Especially if initial costs are covered by grants, for farmers planting trees represents a way of battening down the hatches on farm expenditure during the coming storm. It seems safe to predict that the fraction of the UK’s countryside occupied by woodland will increase in the next decade.
Much of this tree planting will take place in the western part of the UK, where pastureland is predominant and arable agriculture is less important. In part this is because the yield potential of such land (as reflected in DEFRA’s agricultural land classification scheme) is less than in the fertile soils of eastern England. But it is also due to the likelihood of a continuing decline in demand for the products of animal agriculture, which is likely to be reflected in its profitability. If tree planting is to encourage biodiversity, it will need to be sensitively done with the right mix of species. This may not sit well with the desire to maximise carbon fixation.
Another option for the government to offer succour to farmers would be to support schemes for “rewilding”. This sounds like just abandoning farmland to its own devices, but actually it’s more complicated than that, involving carefully devised regimes for introducing large mammal grazers and browsers (often deer and rare-breed cattle) to ensure as much spatial diversity as possible in the re-growing vegetation. There’s no doubt at all that rewilding offers real opportunities to redress the decades long declines of UK farmland biodiversity, especially on large estates. Wildlife enthusiasts love it. It is, however, of only limited interest to smaller landowners, and it is not yet clear to what extent sustainable farm incomes can be based on rewilding. Realistically, I would suggest that it doesn’t offer a real opportunity to the average UK farmer.
The impending crisis in UK agricultural policy has long been expected. Farmers have become used to feeling that food and farming aren’t at the top of the Government’s political agenda and DEFRA has become almost a byword for inefficiency and muddle. The Department’s failure to distribute Direct payments in a timely way led to rebukes from the audit office and doubtless convinced many farmers to vote for Brexit. But low expectations don’t necessarily mean that the future will not be worse than the present for farmers.
The Government has many challenges ahead and being nice to farmers is probably not high on its agenda. The new DEFRA secretary, George Eustice, will need to fight hard to get a good deal for farming. He will be the 10th DEFRA Secretary in 14 years, which tells its own story. However, the new Minister is a farmer himself and his considerable experience (he has been a junior minister in DEFRA for more than six years of [almost] continuous service) will be a great asset in presiding over the coming period of what will almost certainly be farming turmoil.