11 February 2000

Should the public

support farmers?

Farmings call for public support is in the headlines again.

Ben Gill and economist Sean Rickard explain their

arguments for and against farm support and publicist Max

Clifford reveals how farmers should get their point across

to a sceptical public.

THE farming crisis has inevitably raised the issue of production-related support. Understandably, the debate tends to be emotional. But what is needed is objectivity and realism.

Farmers difficulties are the result of a grossly overvalued £ and an oversupply of meat, particularly sheep and pigmeat. But the future of farming cannot be secured by reliance on direct payments, even in times of crisis, though the pig sector has a case for a reduction in BSE related costs.

No level of support can prevent a continuing decline in the number of farmers. Although it is a harsh message, attempts to arrest this decline only raise false hopes and prolong the difficulties for farms that might otherwise have a longer-term future.

Farming is subject to the twin forces of knowledge and technology. These forces, over time, raise productivity by replacing people with machines and in the process increase the economically viable size of farms. Thus, well managed, larger scale farms have much lower unit production costs and consequently significantly higher incomes per unit of output than their smaller scale brethren.

The logic is inescapable because the area of farmland is not increasing. Farmers and farmworkers must continue to exit the industry so that others can survive. This process is not unique to farming: economic progress involves replacing less efficient and hide-bound businesses with more efficient and innovative enterprises. It is this process upon which our rising living standards are founded and we should think long and hard before engaging in the futile attempt to stop it.

Against this background consider the consequences of finding sufficient public funds to bail out hard pressed livestock farmers. Production would not fall – it would probably increase – and thus the outcome would be to move the crisis on a year. Perhaps next year the pounds value will have fallen, exerting upward pressure on market prices. But a falling pound also raises feeds costs and there would still be an oversupply of meat, depressing prices. Ultimately, supply must be reduced which means less farmers, and the sooner the necessary adjustment is made the more security there will be for those better managed, lower cost enterprises.

Support has three adverse affects. It enables smaller, less efficient farms to remain in business, forcing restrictive and costly policies, such as milk quotas and set-aside, on larger scale farms who could otherwise expand. Support becomes absorbed in higher prices of purchased inputs and particularly land thereby raising production costs. It also turns farmers attention towards the government at the expense of striving to meet customers needs for lower costs and innovation.

Farmers must learn from manufacturers who went through a similar crises at the start of the 1980s. They learned that permanent subsidies – a la British Leyland – were no substitute for closer, longer-term relationships with suppliers and customers. Supply chain partnerships are now seen as the route to lower costs and the improved competitiveness needed in a world without tariff protection.

Finally, farmers are instrumental in the delivery of a diverse and attractive countryside, but I am unaware of any reputable study that claims a positive link between the numbers of farmers and a "better" countryside.

Larger scale, well managed farms are very capable of providing societys needs regarding the countryside. By phasing out production related support – say over 10 years – adequate funds would become available for countryside programmes that would fully compensate and encourage farmers to enhance the environmental products produced on their farms.

IT IS easy to attack the common agricultural policy. So easy, that it is tempting to ignore the need for society to support farmers. It is dangerous to ignore the fact that todays agriculture is, in part, a response to societys previous interventions.

The UK has supported farmers since 1947 to establish a substantial home-based source of food and ensure food security.

Until the UK joined the European Community, support was implemented through annually reviewed deficiency payments. Since then, it has operated through the CAP.

Outdated policy

The CAP is outdated. But it is slowly being reviewed to ensure it becomes compatible with more liberal trade in agriculture and food products, the enlargement of the European Union and the more complex demands of todays society on farmers and growers.

Society must decide about the countryside, wildlife, biodiversity and general environmental enhancements it wants from farmers. Where these requirements conflict with an efficient and competitive agriculture, the conflict must be resolved.

Autumn-planted cereals are generally more profitable than spring-planted cereals but the latter preserve more wildlife. If society wants wildlife then it should pay farmers to alter their management practices. Support is a payment for services.

The same approach must be adopted if society wants higher – and more costly – animal welfare standards from farmers than is the case in competitive countries. If society does not compensate farmers, and so far the UK and EU have not, there is a severe danger that our competitive position will be undermined. We have already lost much of our veal industry because the government unilaterally imposed higher standards and costs. Without support, society would fail to meet its goals of higher animal welfare and actually reduce welfare standards across the world.

Similarly, payments for farm structure support may be needed if society wants a higher density of human population in some rural areas than would be created by market forces alone.

This would affect remote, often hill and mountain areas. Social payments might well in practice be linked with environmental payments.

UK and European society should recognise that if farmers and growers face fierce competition from countries which pay direct and indirect subsidies to their farmers and growers. Decision makers cannot logically accept the benefits of cheaper subsidised food imports for the consumer while allowing UK farmers to bear the differential cost.

Never acceptable

Such a move is unlikely ever to be acceptable – the results of an ensuing agricultural recession would be too obvious, too widespread and too dangerous for food security in the long run.

The NFU looks forward to helping in the development of a new relationship between farmers and society as a whole. That relationship must be based on payment for services and not just on income support.

But we must keep an eye on the rate of change. Tens of thousands of farm businesses, already under tremendous economic pressure, simply cannot face an immediate and massive change in their business environment, especially if change is required of British farmers and not those in the rest of the European Union. Or of European farmers and not those in the rest of the world.

We must also keep a close eye on where we all want to go. We must provide clear rules governing societys involvement in farming. We must develop well-constructed programmes which turn strategy into reality in every farm business and help farmers play a stronger role in the rural economy without increasing the burden of red tape.

Farmers are businessmen who must make a living for their families. They are also providers of food to the nation, guardians of the countryside and the backbone of our rural communities.

Financial aid for farming is bad for all, says Sean Rickard of Cranfield School of Business Management.

NFU president Ben Gill says that support is vital for the long term aims of society.