Jeremy's Blog 21st October 2022: Get the Farm Business Right
This article by Jeremy Moody first appeared in the CAAV e-Briefing of 20th October 2022
Although many now say that the new policies being developed across the United Kingdom will not be substitutes for Basic Payment income, the conversations then slip all too easily to looking to them to make income good, seeking the answer again from government. If not the new schemes, then the talk is of possible income from the as yet largely unformed and fledgling markets in carbon, biodiversity, nutrient neutrality and so on. However, these often look like avoidance strategies, misunderstanding or missing the real situation and diverting attention and energy from the real task of considering, improving or changing the farm business.
For 30 years, successive forms of area payments have dampened the pressures that have driven greater and sustained productivity improvement in competitor countries; we are the poorer for that. While apparently high margin, payments have fed into costs – so often the pattern with subsidies. They have shielded businesses from the changes they would otherwise have had to make – the reduced activity in the let sector points to that. The vast gap in performance between the good and the poor illustrates the gap between those that create value and those that destroy it, while protected by area payments. Studies show that the real difference lies in the farmer, vastly outweighing other factors.
England is in the seven year transition period, easing the adjustment as all markets adapt to farming becoming an unsubsidised business. This should see business and structural change, offering opportunities for those who will be the proficient farmers of the future, working with soils and new technologies, innovating in the face of continuing change while benefitting the owners of the land they use. We need the greatest flexibility in land occupation and other markets to achieve this as the opportunities lie in the unknown future, not freezing the past.
Overall, the business of producing food dwarfs the activity of farming subsidies. Across the UK, agriculture has typically achieved some £22bn of income from farming and £3bn in subsidy. Subsidy has been of limited or no importance to significant high value output sectors. More generally, even limited movements in yields or price outweigh the subsidy – especially now that 20 per cent and more has already gone in England. Even now, production economics matter more than subsidies.
The revived concern over food security itself must require a major shift to more proficient farmers, responding to markets, better feeding the nation and achieving exports. It cannot justify retaining legacy approaches.
Subsidy money is being redeployed from supporting occupation of areas of land to buying changed practices from those who choose to sell those changes with their possible costs. While DEFRA would like farmers to do this, they are business options, not a general salvation. Some will be able to take them easily for profit but DEFRA imagines that 30 per cent of farmers may find even SFI unattractive. The question should not be whether such agreements provide cash flow but what genuinely helps the larger profitability of the business.
Some of the new private finance markets will also offer options, albeit perhaps at small scale. For many, it will be far more important to reduce their emissions and store their own carbon rather than bind themselves into long term agreements to help others for small payments – and then still have to meet carbon targets.
We are well short of the possible point where better farming businesses are in conflict with environmental goals. Better managed and more efficient businesses have the capacity to achieve both. Success will come from sorting the business for changing times, not looking for false hope in outside interventions, whether from government or elsewhere. The real questions and answers are at home – and need to be faced directly, making the best use of the transition period.