The crisis in British farming - causes, solutions and impacts
Recently, a combination of circumstances has sent farm incomes
plunging in the United Kingdom. As a result, farmers and growers are
looking very hard at the way they do business.
- Farms are getting bigger, to spread costs and use capital (machinery, land), and labour, more efficiently.
- Farmers are co-operating to cut costs e.g. sharing machinery and labour.
- Farmers are co-operating to buy and sell more efficiently in the market.
- Farmers are developing different sources of income e.g. Bed and Breakfast, holiday cottages, paint-balling and adventure parks, and open farms.
- Some farmers are leaving the industry to farm abroad or to retire.
International restrictions, negotiated in the World Trade Organisation, are being placed on the ability of nations to use trade distorting devices such as export subsidies and commodity – specific supports. For example, a payment is made, per hectare, for growing certain crops. That payment is part of the income from that crop, and so influences which crops are grown. If low priced goods from overseas can enter the market with little interference then home produced goods must be price and quality competitive to be able to have a share of that market. In the same way, if products are to gain a share of an overseas market, and the exporting country cannot subsidise the goods, then they will have to be produced at
a competitive price.
At the same time as world trade is being opened up, farmers and growers are dealing with ever larger and more powerful buyers, who increasingly have access to the world market. Major retailers, processors and caterers, e.g. hotel and pub chains (Forte, Whitbread) contract caterers such as Booker, and of course familiar names such as Tescos or Sainsburys, search the world for the supplies which can meet their demands for quality of produce and of service.
Large-scale producers, with low costs of land and labour, e.g. Australia, Kenya and Argentina, are a very strong threat in the market place. So farmers and growers are in an increasingly well supplied market, with buyers having an increasingly wide choice of supplier.
For some forty-five years after the Second World War, European farmers were encouraged, by their Governments and by the growing Common Market as it was then known, to "produce more". The market place was protected from cheap imports by levies, quotas and tariffs.
Governments gave financial help and encouragement with, e.g. subsidised fencing, crop storage, field drainage and hedge removal, to improve production. Some products, such as cereals, milk, beef and sheep had government financed market support systems in place.
This policy of helping and encouraging European farmers to expand production, so as to place less reliance on imported produce, has been so successful that Europe is now a major exporter of milk products, cereals and meat. It also led to the infamous butter mountains and wine lakes.
The combination of less protection from world supplies, an over supplied market in many commodities, a reduction in market support mechanisms within Europe, and powerful, demanding customers, has meant that European farmers have seen a fundamental shift in the market, and their returns from it.
However, as protection and support for commodities have been eroded, other support mechanisms have been put in place, to at least partially compensate for these reductions. These are transferring payments away from production, and onto environmental actions, such as farming less intensively, planting trees and hedges, and conversion to organic farming.
The value of these mechanisms, first introduced by the MacSharry reforms in 1992 and expanded in the reforms of Agenda 2000, is denominated in the European currency, the Euro, and translated into national currencies by an agreed formula.
Since its launch the Euro has weakened against the pound, which has meant that those mechanisms available to United Kingdom farmers have become worth much less in terms of pounds sterling. Thus, the fundamental shifts in the market place are being compounded for United Kingdom farmers because the compensation mechanism put in place by Europe is devalued as a result of currency movement.
Although farmers and growers have managed to trim costs, often at the expense of investment, these falls in market price are having a dramatic effect on the economy of the countryside:
- The number of people employed in agriculture and horticulture dropped by 20,000 in the past year.
- Investment in new equipment and technology is being cut back.
- Repairs to buildings and machinery is being cut back as far as possible.
- Old equipment is being sold on to an over supplied market, and so is not as valuable as expected.
- Suppliers to agriculture are finding that they are suffering dramatic falls in trade as farmers "lock away the cheque book." This is having a dramatic effect on employment as salesmen and support staff, e.g. fitters, are laid off. This extends to the local electrician and builder, car dealers, electrical and clothes retailers, and even the local travel agent. This is known as the de-multiplier effect.
- Village shops and pubs, for example, are seeing a downturn in trade, making their future more doubtful.
- The seriousness of the downturn in incomes, and the knock-on effect that it has, varies. Farming in the hill areas of, for example, Wales or the Lake District, relies almost exclusively on livestock. With the overall fall in prices being made worse because of the knock-on effects of BSE, and cheap imports being readily available from overseas, hill farmers incomes have fallen by some 60% over the last three years to around £2,500 per farm. Because of the climate (high rainfall, long, cold winters) and the type of ground (rocky, steeply sloping) there is little possibility of taking up any different type of farming in these areas.
- However, lowland farmers do often have the opportunity to grow different types of crops. A number of new non-food crops are being developed (borage, for pharmaceuticals, willow and myscanthus for biomass energy production), which, along with the ability to cut costs by co-operation and using large machinery, does give the lowland farmer more chances of looking for alternative, profitable production.
- The knock-on effect of the downturn in farm incomes varies across the country. In many areas, e.g. Derbyshire Dales, Lake District, many parts of Wales, there is more money earned from tourists than from farming. But if farming ceases in these areas, there will not be the farmers to care for the countryside which the tourists want to see and enjoy, with a devastating effect on the environment and the economy of the whole area.
- The reduction in people living and working on farms in these areas also has a dramatic effect on the social structure. As young families move out to find work, houses are often bought as retirement or holiday homes. This reduces demand for schools and public transport as well as local shops, banks and post offices. It also pushes house prices up beyond the scope of local people.
- On the other hand, in an arable area such as East Anglia, for example around Cambridge, a downturn in the number of farmers would have less noticeable impact. The land would probably still be farmed, although by fewer people. The economic activity of the area, because of all the other industries, would not be greatly affected, and so the impact on schools, shops and banks, for example, would be less dramatic than in more remote, less economically diverse areas. The money normally pumped into the rural economy by the farming and growing industry.
Options to solve the farming crisis
As in any business or industry there are options:-
- Cut costs.
- Increase returns.
- Develop new income sources.
- Exit the industry.
Many farmers are reducing cost by using contractors or sharing large machinery. This not only reduces the individuals’repair bills and running costs, but cuts back dramatically on the capital which any farmer has tied up in his business. Likewise, pooling labour, between several farms, helps to ensure that skills are used effectively.
As well as cutting down on overheads in the business e.g. machinery depreciation, farmers can often save on the costs of inputs such as fuel, seeds or feeds by joining up with neighbours and bulking up orders to save on haulage, storage and buying costs.
This can be done in many ways. The first and most obvious is to cut out wastage, whether of inputs e.g. seeds, fertilisers, or produce. For instance, better management and timing of inputs, e.g. fertilisers, can often lead to savings.
Income can be considerably increased by adding value to the product. This can be achieved in several ways:
- By grading and packaging vegetables.
- Producing specialist, high value products for particular markets, e.g. Organics.
- Joining with fellow producers to be able to better meet the demands of demanding markets e.g. grain growers co-operating to supply large buyers on the home market and fulfil large export orders.
- Selling direct to the consumer e.g. in Farmers Markets, or on the Internet.
This always means considerable research to ensure that cost is not being added with no increase in value. Frequently, capital is needed for processing equipment, and new management skills and business structures have to be developed.
Develop new income sources
Government support for the industry is changing. Over the years, support is gradually being removed from the crops and livestock which a farm produces, and targeted to encourage environmental actions to improve the bio-diversity and visual aspects of the countryside.
There are now schemes, for example the Countryside Stewardship Scheme, which have a "menu" of options, to provide grants for hedge planting, pond digging and improvement, creation of wildlife areas such as rough, lightly grazed grassland, and small woods. In some areas there is help with the repair and maintenance of traditional buildings,
especially if this will lead to more employment opportunities.
Many farms have old, but redundant buildings, which, particularly if they are near towns, can be turned into offices or small workshops, which provide opportunities for small businesses to develop, and generate
income for the farmer.
Farmers are developing recreation facilities and conservation features.
Exit the industry
Unfortunately, some farmers and growers can see no future for themselves in the industry, and so are getting out.
They may have no one following in the business, and so sell up as they can see no point in struggling on. This can be seen as early retirement and is a realistic option for farm owners. Some owners in the rural-urban fringe sell their land for development.
As we have seen in Britain there is a farm problem, but this is not necessarily a rural problem. The effect varies tremendously across the country.