The unexpected Conservative majority in the General Election had immediate effects in financial markets. Sterling rose in value, so did government bonds and share indexes recorded some of their biggest ever short-term gains.
Such was the reaction to an anticipated period of political stability. But the value of UK grains fell because higher values for the pound made our commodities less competitive on world markets.
And so, as I write, farming is left with some ex-farm milk prices as low as 16p/litre. Where long-term contracts apply, more fortunate farmers still receive 30p for now but that won’t last when contracts have to be renewed. Feed wheat prices too are totally uneconomic at barely above £100/t spot ex-farm. It would be no exaggeration to suggest such prices, that apply in terms across the board for combinable crops, are as disastrous for the arable sector as the milk price is for dairying.
I won’t analyse every commodity produced on UK farms, but if you are involved you will know about the equivalent concerns on lack of profitability with potatoes, pigs, cattle, lamb and so on. There are currently few bright spots in British farming.
Take wheat as an example. As Richard Sanders pointed out in a recent Farmers Weekly, the break-even cost of producing wheat, assuming a rent of £100/acre, is around £127/t if you can achieve 4t/acre. But it shoots up to £173/t if the yield is nearer the national average of 3t/acre. Even after Basic Payment Scheme subsidy of say £77/acre is paid (which, remember, was originally not supposed to be counted against costs) break-even is £108/t for a 4t/acre crop and £147/t for 3t/acre.
“Combinable crop prices are as disastrous for the arable sector as the milk price is for dairying” David Richardson
On that basis, large chunks of our industry are unsustainable and there will be casualties unless fundamentals change. But there’s little evidence world markets for either milk or grains or anything else will look very different over the next few years. Such evidence as exists suggests even more international competition in future.
So, as Liz Truss and George Eustice return to their desks at Defra after the euphoria of winning the election, they’ll need to take an urgent reality check. For the challenge facing them is little short of ensuring the survival of large numbers of farmers. They didn’t talk about that during the election campaign, of course. Their speeches were about increasing production and the exciting opportunities that lay ahead.
But as the NFU and others have pointed out, those objectives will not be achieved unless there is a comprehensive plan of action to make it happen. And the ever-increasing quantities of food imports need somehow to be curbed. Reversing those trends will be like turning an oil tanker around – slow and difficult. But they are vital to restore farm profitability and subsequent investment in agriculture.
The NFU has listed many demands of the new government, which have been well publicised in this magazine and elsewhere. But the most urgent is to sort out the appalling muddle at the Rural Payments Agency. Liz Truss assured farmers she was on top of the problem before the election campaign. Clearly she was not, and although we can understand her lack of attention to it while electioneering, it is now the most vital issue in her in-tray.
Given the economic analyses described above, RPA failure to make payments on time will see farm overdrafts rocketing and some banks may not be disposed to allow that to happen.
David farms about 400ha (1,000 acres) of arable land near Norwich, Norfolk, in partnership with his wife Lorna and his son Rob