8 December 2000

High costs and a subsidy

culture hurt UK farmers

ON my trip in June I met a farm consultant and we decided to make a rough estimate of the cost of wheat production in our respective countries.

In both cases we tried to give average figures for our own major wheat-growing areas. (See table 1).

These rough workings show a cost of production in the UK of $30/t more than in Argentina. It may be just coincidence that the IACS subsidy works out at $36/t. More interestingly if one looks at the fixed costs in isolation versus the yield then the Argentines are spending $42/t versus a UK spend of $61/t.

The word subsidy creates an air of hostility when talking with the Argentines. No matter how hard you try, it cannot be fully justified by the role of custodian of the countryside and the environmental obligations placed upon us.

If you look at the profit before rent and finance generated by the two wheat crops, the UK produces a margin of over 3.5 times that of Argentina (see table 2).

However, this needs to be put into context with the level of capital investment associated with the hectare of land, and the following table shows how the UK utilises nearly 5 times the capital for the benefit of the 3.5 times the profit (see table 3).

The concern is this: where would the UK be without the subsidy? And why does it cost us more than three times as much as the Argentines to produce 2.2 times the crop? Heres my conclusion:

&#8226 UK manageable fixed costs are relatively high, as is the level of capital investment which results in a high rent and finance cost.

&#8226 We, and some of our fathers, have grown up in a subsidy culture which is no longer appropriate in the modern world, despite the views of some of our European partners.

&#8226 The UK suffers from disadvantages such as high labour costs, a limited harvest window, complex farm and field structures and the obligations put upon us from the consumer and Brussels.

&#8226 Argentine farmers on the other hand can view land solely as an agricultural resource without the red tape or consumer pressure. They also have the advantage of convenient farm structures ie large regular-shaped fields often in a ring fence without external pressures of busy roads and local residents.

If we are to compete in a world marketplace and cope with reduced subsides then we must learn some lessons from those who farm without subsides.

Above: Milking parlour for 1800-cow dairy herd.

Right: Traditional building on large cattle ranch.

Below: Farm manager discusses policy with mounted goucho.