17 November 2000

Subsidies inhibit survival

By James Garner

BEEF and sheep farmers must be weaned off subsidies – only then will they develop the mind-set necessary for them to survive.

That stark warning comes from a new report on the red meat industry, produced by Sean Rickard, director of the executive MBA at Cranfield School of Management.

Mr Rickard, well-known for his forthright views on subsidies, said if beef and sheep farmers did not change now, in 50 years time they would have a much smaller industry.

"The sooner they face up to an unsupported world the better," he said last week at the launch of the latest of Lloyds TSBs Challenges and Prospect series, The Beef and Sheep Sector: The Struggle to Compete.

In the report, he slammed CAP and the strength of sterling for causing much of the economic malaise experienced by both sectors. He also questioned the validity of public payments to support beef and sheep farmers.

Giving farmers handouts "interferes with the market place" and stopped them from seeking other solutions to business decline, he said.

"It is competition that will drive costs down and ensure that producers supply customers with what they want."

Consumption of beef and lamb had shown a declining trend for 20 years, he said. To arrest this farmers had to co-operate with other parts of the food chain and seek both horizontal and vertical integration.

Many farms were too small, said Mr Rickard, and needed to benefit from scale and cost efficiencies. "Farmers must swallow their independence and be prepared to enter into partnerships and share information with fellow farmers."

By doing this they would improve quality, develop supply and overcome problems of seasonality.

That was a matter of trust, rather like a marriage. "When there is trust it works well and the same applies with business relationships," he said

Tim Porter, head of agriculture Lloyds TSB, highlighted the wide difference in financial performance between top flight farmers and those performing less well. "The best typically produce high quality animals at low unit costs per kg."

But he said there was an appetite to address structural change more swiftly, particularly overheads, rent and finance.

Borrowing in the sheep sector had increased by 20% this year, the largest rise of any, although it started from the lowest level of debt. He added that bankruptcies in both sectors remained remarkably low.

Further rationalisation, though, was required in the red meat food chain and that meant a more significant shift towards deadweight marketing, said Mr Rickard.

In opposition, NSAs John Thorley said that the sheep industry had developed co-operation, but other parts of the food chain did not deserve to be trusted. He also added that auctions served a valuable function in rural areas.

&#8226 For copies of the report, telephone 0117-943 3114 or e-mail nellie.clothier@lloydstsb.co.uk &#42

Behind bars… Sheep and beef farmers need to abandon subsidies to survive, says Sean Rickard.