Cabinet Ministers are apparently at war with each other over free trade versus agricultural protectionism. Minette Batters, the president of the NFU, uses highly emotional language in her letter to the Mail On Sunday to oppose a trade deal that would benefit the UK’s 67 million consumers and consequently the whole UK economy. Surely it is time to look at the reality of UK farming, with some cool heads and hard numbers about the industry, unimpassioned with rhetoric about poor hill farmers or the 1.5 per cent of the population who signed a petition about animal welfare.
Luckily, the Agriculture and Horticulture Development Board (AHDB) has already paid for this research even though neither they nor the National Farmers Union (NFU) have made a big deal about its findings, other than to use its most negative results to convince the Government to continue UK farm subsidies and the gangmaster visa scheme for importing cheap seasonal workers. Defra’s annual survey, Agriculture in the UK 2019, also publishes statistics that few Members of Parliament ever seem to read. Instead, the debate has been highjacked by the emotional and the ill-informed.
But if we look at the base case returns by commodity sector in the Agribusiness Consulting Informa report, Quantitative Modelling for Post Brexit Scenarios, commissioned by the AHDB, we see the problem almost immediately. Some agricultural sectors in the UK are much more profitable than others. And dramatically so. Even though Farm Business Income (FBI) includes EU CAP payments and the benefits of cheap imported labour, the low productivity farms in every farm sector, still lose money. This is not due to trade with Australia. This work was done in 2017. In any other industry, such failing businesses would have been forced out of the market and their land and equipment bought by more efficient farmers or consolidated into neighbouring farms.
According to DEFRA’s Farm Business Income by type of farm, England, 2019/20, the average FBI for UK Dairy farms was over 9 times that of a Lowland sheep and beef farm; the average FBI on General Cropping farms was also 9 times as high; specialist Chicken farm average FBI was 9.4 times as high; Cereal farming FBI was almost 7 times as high; Specialist pig farms FBI was 4 times as high; and Horticultural FBI was over 4 times. Incredibly even the Sheep and Beef farms on so called ‘Less Favoured Areas’ (LFA) have an average FBI twice that of the average Lowland sheep and beef farmer in the UK.
But we hear little to nothing about these more profitable farm sectors. Why is the National Farmers Union solely concerned with the least profitable sheep and beef farms? Some claim that as many such farms are in Scotland and Wales, free trade would fuel their independence movements. However, Scotland would be one of the largest beneficiaries from agricultural exports in trade agreements with Australia or the US, as it has been with Japan. While Wales’ main export commodity, lamb, is seasonal and so not in direct competition with Australian lamb and the US is a net importer of lamb.
So, politicians should not let the entire argument for free trade be swayed by an emotional plea from the president of the NFU about just one section of UK farming, let alone one sector of the economy. Most UK farmers will be fine with a free trade agreement with Australia. In fact, many of them may discover that free trade with Australia opens new markets for their products or increases their Australian market share. Australians do generally have British tastes in food and drink. And while Australia produces brie that is better than the French competition, Australian blue cheeses are unremarkable compared to Stilton.
Australia also does not produce much pork and was a net importer of over 100,000 tonnes last year. UK pig farmers should be capitalizing on this. But despite the relatively high return of UK pig farms, the UK still imports about 40 per cent (by volume) of the pork it consumes.
Yet, pigs are the easiest farmed animal to increase in herd size. While cattle mainly have single births, pigs have litters of 8 to 12 piglets at least twice a year. But still UK farmers have been content to watch pork being imported from the EU by the truck load. And UK consumers have been happy to buy it, despite anything the President of the NFU may be claiming about UK consumers’ preference for high welfare meat. The largest pig farms in the EU produce hundreds of thousands of pigs each year. The French company, Cooperl Arc Atlantique has 250,000 breeding sows while the Spanish company, Vall Companys Grupo, has 195,000. These are not artisan suppliers. The EU has over 200,000 zero-hectare farms (indoor intensive feedlots) mainly used to produce chicken and pigs.
This brings us to the crux of the problem. Why aren’t UK farmers willing to change their production to meet UK market demands? More importantly, why is their Farmers’ Union trying to perpetuate protection from Australian and the US imports, but untroubled by imports from the EU? Have UK farmers simply become rent seekers? Well, no, at least not all of them.
One conclusion from the Agribusiness Consulting Informa report would be unsurprising to most businessmen. In all sectors and all scenarios, no matter how unlikely the scenario: High performing farms, measured in terms of their output/input ratio, remained profitable. But the result that would surprise most non-farm businessmen was that in all scenarios, and all sectors, low performing farms lost money – including in the base case! That is the do-nothing case. In other words, they are losing money now.
Defra calculates that 20 per cent of all UK farms have a negative FBI. In other words, a fifth of all UK farms are making a loss on their farming activity even with basic payments and environmental subsides. So how do these farms survive? Obviously, these are not farms but lifestyle choices (or clever tax planning) and the farmers have another source of income: this could be providing holiday accommodation; running a farm shop; or covering their land with wind turbines and solar panels. Occasionally the farm owner is a retired rock star or film actress, but those are the exceptions.
I do not object to farmers increasing their income in non-farm activities, but I do object to politicians and the NFU using these hobby farms as a reason to block trade deals with efficient farmers in other parts of the world.
I also object to giving extra subsidies to farmers on poor land which the EU’s CAP payment system encourages members states to do. In a free market system, poor land is cheaper so farmers can run larger farms and compete with those on better quality land. It is only under the EU’s inverted regime that farmers are better off farming poor-quality LFA land than running farms on good agricultural land. In 2019, Defra’s FBI analysis, Table 2.1, shows that both types of grazing farms lost an average of over £16,000 on their farming activities, but the LFA farmers picked up over £10,000 more in their Basic Payments (subsidies) plus £7000 more in Agri-environmental subsidies.
It is a bit rich for the NFU to want to block unsubsidized beef and lamb from Australia, when even the average grazing farm in England is only breaking even with the help of UK taxpayers. One third of lowland grazing farms in England made a FBI loss in 2019/20 including subsidies. As did one out of every five LFA grazing farms, while less than 10% of either group had a Farm Business Income above £75,000 unlike 44% of England’s Dairy farms. Shouldn’t UK taxpayers be questioning the Government as to why they are still subsiding these loss-making grazing farms?
Luckily, unlike the UK, Australia doesn’t subsidize its farmers otherwise everyone would want to run a massive desert farm like Anna Creek Station. It is one of the biggest cattle stations in South Australia, at over 23 thousand square kilometres it is slightly larger than Israel, but its land is dry, and it only runs about 17,000 head of cattle in a good year, and about a tenth of that in a bad one. So Anna Creek is unlikely to be running the UK’s efficient farmers out of business – or ‘flooding’ the UK market with beef as Batters would like to suggest.
Furthermore, we should question whether a country that is already importing a large amount of its food – even food that it has the weather and soil to produce for itself – should be allowing good farming land to be used for solar farms. The NFU is claiming that farmers should be protected because they are the stewards of the countryside, yet politicians are subsidizing the same farmers to cover the UK’s green and pleasant land with wind turbines and solar panels. Not to mention allowing biomass power plants that burn wood – a natural commodity that the UK had already decimated before the Napoleonic wars and is now proposing to do the same again but this time in the name of environmental protection.
There is another solution to the protectionist verses trade debate. The UK has been importing on average 330,000 tonnes of beef each year over the past six years. I would suggest that the government set a maximum global import quota at 330,000 tonnes but sold as licences to UK importers – so not part of any free trade agreement with any country. Then give the Australians tariff free access for their agricultural products as the UK has done with the EU. UK farmers will not be competing with any more imports than they do now, but the Australians and the Irish can fight it out between themselves for UK customers. Hopefully, this will produce lower priced imports for UK consumers. All imports will still have to meet the same food standards as UK producers.
That way the Government gets to help the 67 million UK consumers without putting any extra burden on the half a million UK farmers, many of whom are not involved in beef farming, and many of whom would benefit if they could sell pork, or cheese, or barley distilled as whisky to Australia.
Catherine McBride is an economist writing frequently on agriculture policy and a Fellow of the Centre for Brexit Policy