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Jeremy's Blog 3rd September 2020: Farming Productivity and Business Change

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 3rd September 2020.

Most of farming faces the same economic problems as it faced before the pandemic. The poor harvest emphasises the concerns about poor cash flow as farming goes into 2021, facing whatever may come as the EU transition period ends.

That draws attention to the long run issues of poor profitability and productivity growth that might now be tackled more effectively. Recent DEFRA data show that barely half of cereals and grazing farms achieve £100 of outputs from £100 of inputs, even including subsidy, agri-environment and other income. Without those, the bottom quartile of grazing livestock farms turns that £100 of inputs into £47 of outputs; with them it is £73. Annual productivity growth since 2000 is reported as fallen to 0.7 per cent.

Averages (even of quartiles) mask wide ranges of real performance. On a larger view across farming where subsidy seems associated with poorer profitability:

  • 35 per of UK output by value is from sectors with negligible or no subsidy
  • 33 per cent of output by value is from sectors for which Basic Payment is 6 or 7 per cent of produce sales.

The CAP’s historic role as a corn and horn policy leaves subsidy focused on that remaining third of value but most of the land area, perhaps implying future questions about the balance between farming and land management. Nonetheless, in all sectors and areas, good farmers have much better performances, turning on skills, management and timeliness.

Existing regimes have managed decline to the present point with area-based payments since 1993 holding back the economic change that might remedy this, including access for new entrants. The number of farmers has reduced as the logic of commodity production sees remaining income divided between fewer people and so fewer opportunities for challenge. The phasing out of BPS in England is at the centre of a generation’s change concentrated into the coming decade.

With the question being who will farm what land how, the challenge is to make that change positive, achieving good businesses winning and holding better margins in tomorrow’s markets, probably with more looking beyond commodities. Something will lie in the design of new schemes, more in other policies. Alongside improving skills, investment and innovation, we need wider markets in land occupation and use; the further positive evidence from Ireland’s Income Tax relief for letting farmland shows one way to change the game. Openness to business change is one pre-requisite for a positive answer to the real challenge.

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