Pressures for Change in UK Farming.

University Degree Business and Administrative studies

Introduction to Agri-Food Systems

Pressures for Change in UK Farming

Contents

1. Introduction

2. Background

3. Pressures for Change

3.1 Economic

3.2 Consumer Awareness

3.3 Organic Demand

3.4 Supermarkets

3.5 Climate

4. Government Intervention

5. Conclusion

6. Bibliography

Pressures for Change in UK Farming

1. Introduction

Our task was to “consider underlying reasons for change and diversification in farming and the rural economy sector. Give particular attention to the identification of factors (pressures) brought about on the industry which have, are, and which are likely to be brought to bear upon agricultural business and the impact and consequences of such on the future for UK farming.”

Within this report I will be looking specifically at factors which have, will, and are currently having an impact on the agricultural industry and their resulting effects on agricultural business. The spider chart below (figure 1) illustrates the key pressures for change that any business in the rural economy sector must be aware of.

Drivers for Change in Agriculture and the Food Industry

2. Background

The Second World War brought the century long policy of non-intervention in farming in the UK to an end. The 1947 Agricultural Act introduced guaranteed prices for farm products, with deficiency payments funded by the taxpayer. With joining the European Community (EC), support for agriculture continued under the Common Agricultural Policy (CAP). The CAP was extremely successful in boosting European agricultural output. As a result, by the 1980’s, large surpluses of the more common crops were produced throughout the European Community, which resulted in quotas and setaside regimes being introduced to control production.

Since the war UK agriculture has embraced new technology and practices at an unpredicted rate, mainly in the form of increased mechanisation, increased use of inorganic fertilisers and agrochemicals, and continuous improvement of plant varieties and livestock breeds.

Agriculture now in the UK landscape occupies 75% of the land area and contributes 1.4% to Gross Domestic Product (GDP). The Agricultural Industry had adapted in the past and its future success will be as a result of its ability to continue changing in accordance to local, national and global changes in policy, climate, technology and the economy.

3. Pressures for Change

Recently the pressures for change in UK farming have become much more apparent with many factors in today’s economy contributing.

3.1. Economic; The farming and industrial industries have had their worst years during times of wealth as a whole. Though this seems unrealistic is comes around as a result of the strength of the pound. The strength of the pound in recent years has reduced the European subsidy payments that English industries receive and which many farmers rely on. The allocation of the Arable Area Payment subsidies has also been altered, where previously in 2000 Linseed would receive in subsidies £500/ hectare, currently it is only receiving £250/hectare. (figure 2)

Arable Area Payment Subsidies

(figure 2) Intro to Agri-Food Systems (16/01/04)

The general trend of the price/hectare has fallen (figure 2), except in the case of legumes. The subsidies provided will have a big impact on the agricultural industry as farmers will want to produce crops which will guarantee a high income, therefore it is reasonable to assume there will be a decrease in Linseed drilled and an increase in Legumes. Though this is obviously the purpose of subsidies, as they act as both financial support and as an incentive to produce particular crops, which previously has resulted in surpluses of crops being produced.

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(figure 2) Intro to Agri-Food Systems (16/01/04)

The European Union plans in May 2004 for ten new countries to join which will result in ten new agricultural systems joining the already existing fifteen. The subsidies being paid to farmers throughout the EU will have to be re-arranged and may/ probably will result in subsidies being paid to UK farmers being reduced. In 2002, the Mid Term Review of Agenda 2000 commenced, it was completed in June 2003 with a fundamental reform which provided for the decoupling of direct payments. This will have a huge effect on the subsidies UK farmers receive and will be looked at later. (section 4)

In addition to farmers receiving less subsidies for their crops, and the imminent change of how subsidies will be paid, world food prices have fallen, while the cost of fuel and crucial resources needed for farming have increased. The government has been called upon to aid farmers and set up the Arable Area Compensation Scheme, which compensates farmers as a result of the falling price of wheat and grain crops.

3.2 Consumer Awareness; Crises such as BSE, Classical Swine Fever and Foot and Mouth Disease have severely affected the meat livestock sectors, with knock on effects for the rest of the industry. Foot and Mouth Disease made the nation realise that there is a big change needed in agriculture. The outbreak of the disease became apparent early in 2001 and continued to dominate the UK agricultural sector for the rest of the year. With vast amounts of cattle being slaughtered to prevent further spread of the disease, the UK was forced to import meat from Europe and other countries to cope with consumer demand.

UK farmers were unable to export meat goods and experienced an overwhelming decrease in their incomes and had to pay large extra costs as a result of the movement restrictions. Many farmers struggled to find other methods to provide an income. Many farmers diversified, providing bed and breakfast facilities and camp sites, while some sold off farm building, or applied for planning permission to renovate newly vacant farm buildings into homes and holiday houses.

Previous to the Foot and Mouth crisis was BSE, which was brought into the public eye in 1996. The health issues surrounding livestock have brought about changes in the regulation on the slaughter of animals in addition to the amount of paperwork required. Cattle passports have now been bought into affect. A complete in depth background history is now required of animals and all food produce. Passports in cattle can be matched with tags on the cattle’s ears. In 1998 a centralised computer system was introduced to record the births, movements and deaths of all UK cattle.

In order for the agricultural farming industry to regain consumer confidence in British produce there had to be a few major changes. The influence of the media had portrayed that there had been too much farmer intervention and interference with the livestock. The general public became aware of how many chemicals were being used in modern day agriculture. As a result of this there was a huge movement in the demand for organically produced produce.

3.3. Organic demand; The main drive for the increase in organic produce was due to the consumer needing to feel in control of what they were eating as a result of the media leading the consumer to believe organic is better and healthier. Farmers of course responded to the immense demand for organic produce and some farmers decided to convert their farms into organic farms. There was an expediential increase seen in the area of land farmed organically from 1996 (figure 3), which can be directly linked to the outbreak of the BSE crisis that year. The main drawback to farmers is that there is a time delay as it takes three years for a farm to become fully organic. To aid farmers, in 1996 MAFF introduced the Organic Conservation Information Service.

Another factor which is going to have a big impact on organic farming is the new regulation on organic livestock coming into action in 2005. At present organic cattle must be fed 75% organic matter to be considered organic, in 2005 all food matter for organic cattle much its self be organic. It is therefore likely to presume that the demand for organic animal feed stuff is going to increase.

Consumer demand was not the only reason for a sudden increase in organic farming. Other factors also had a large part to play; poor prices for conventional food produce, wheat/ barley, livestock, where the same organic produce fetched much better premiums was a big incentive for farmers to move to organic farming.

(figure 3) The Soil Association (2003)

Low prices for conventional food produce comes around as a direct result of Supermarkets and other retail shops trying to keep food prices low. Supermarkets were quick to take advantage of the increase in demand for organic produce and started producing their own organic products.

3.4 Supermarkets; The supermarkets are selling products at lower prices for the convenience of consumers. To remain competitive the supermarkets and retail outlets are constantly lowering prices on commodity goods which as a result has a crippling effect on farmer’s wages, which are decreasing rapidly. However, with the introduction of organic products supermarkets have found that they can charge the general public more for ‘Organic’ labelled produce. The role of supermarkets in agriculture is crucial. A product which the supermarket had a huge impact on in 2003 was milk. The price of milk became cheaper to buy than it did to produce resulting in dairy farmers working at a loss. Dairy farmers demanded that prices of milk should be raised to cover production cost. Most supermarkets did comply with the demands of dairy workers.

Supermarkets have a destructive force on the agricultural economy, niche markets such as small retail stores and farm shops are loosing customers to them. Consumers do not have the time to shop around for groceries, supermarkets are more convenient to consumers demands in today’s society. With the increase in demand for food to be bought from the Supermarket there is likely to be an increase in Agri-business (corporate businesses) directly supplying the stores. Though this in itself is not a problem for the larger farms, it is the smaller farms that will loose out. A supplier, middleman, will want to save their costs by buying from a farmer which can provide a full quota, rather than going to many small farms. Smaller farms will have to look for other ways to secure sales to the supermarkets.

At present only 44% of organic produce is from the UK with not much more everyday food being sourced from the UK. This has a lot to do with supermarkets providing the consumer with the ‘all year summer’. The season for growing strawberries in the UK is short, so supermarkets import strawberries from abroad all year round at a cheaper price, meaning that UK farmers loose out. This applies in the case of most fruit and vegetables. In some cases the UK supplier for a food produce is completely dropped having a huge impact on the UK agricultural industry.

3.5 Climate; It can be seen that climate, or the climate the UK does not have, has a huge impact on the agricultural industry. The UK’s inability to produce food all year round means that food is often sourced from else where. However the change in climate, which is being experienced world over is going to have an effect on crops and livestock and will alter agricultural production worldwide. Production changes will affect the prices commanded by different farm products, and their profitability and relative competitiveness. The crops and animals that the UK produces in the future will therefore depend on both world prices for agricultural products and local production potential.

Changes in climate will have different effects on agricultural yields in various parts of the world. At the higher latitudes (beyond 50°N and 50°S), warmer temperatures are predicted to lengthen and increase the intensity of the growing season. Yields are likely to increase in these areas. In contrast, in tropical and equatorial regions warmer temperatures may worsen already quite frequent water and heat stress on plants due to higher rates of evaporation. Crop and livestock yields may decrease in these areas. The unequal distribution of losses and gains in yields will have a major influence on where food is produced, how much is traded and relative prices.

The prospective impacts of climate change will require farmers in the UK and worldwide to respond and result in change of the agricultural system.

4. Government Intervention

A part of Agricultural Policy to aid British farmers which has been a cause for change is the European Union (EU). Since Britain joined the EU we have had to comply with the rules set by the European government, the specialist policy in agriculture is the Common Agricultural Policy (CAP).

The CAP is made up of a set of rules and mechanisms, which regulate the production, trade and processing of agricultural products in the EU with attention being focused increasingly on rural development. The CAP has been based on the three principles of;

A unified market, this denotes the free movement of agricultural products within the area of member states for the organisation of the unified market.
Community preference, means that the EU agricultural products are given preference and a price advantage over imported goods.
Financial solidarity, all expenses and spending which result from the application of CAP are borne by the community budget.

When established the CAP relied on prices above the world market prices to secure stable supplies of food at a time of insufficiency. This approach over the years, linked with technological breakthroughs, resulted in surpluses in many products. The cost of the surpluses, the external trading environment, concerns about food safety and animal welfare and a growing awareness of environmental issues led to successive reforms of the CAP, leading to changes having to occur within the agricultural industry.

In 2002, the Mid Term Review of Agenda 2000 commenced, it was completed in June 2003 with a fundamental reform which provided for the decoupling of direct payments from production in the case of livestock production, milk production and arable crops, with partial decoupling options for Member States which do not wish to decouple fully. As well as changing the way in which subsidies will be allocated, the European Council set limits to be applied to agricultural expenditure for the next budget in the period of 2007 to 2013, taking into account the already existing fifteen Member States and the ten joining countries.

The Mid Term Review also looked closely at matters relating to food safety, environmental and animal welfare issues. A European Food Safety Authority has been established and a comprehensive programme of legislative reform is being undertaken, looking at all elements of food safety including veterinary and plant health rules, food and hygiene and animal welfare.

The CAP will always play a vital role in the agricultural sector of the EU and at current it is concentrating on the implementation of the Mid-Term Review, and the introduction of 10 new Member States to the EU agricultural system on 1st May 2004.

5. Conclusion

UK farming has come through the crisis of Food and Mouth disease and many farmers have managed to survive and diversify due to changes in regulation. For farmers at the moment, and the whole agricultural industry in the UK, the main concern must be to regain the public trust in British produce. Many farmers saw the production of organic produce as a foot hold for future success in the UK farming. It is therefore clear to see that the success for the future will rely heavily on farming and food production in the UK being able to reconnect with the rest of the food chain and with consumers.

Rules and Regulations set out in the CAP aim to help secure the success of future farming. Though it may seem sometimes to act as a constraint in some sectors of agriculture, is it devised in the long-term to improve farming conditions in all aspects of agriculture.

It is vital for the success of any industry that it is aware of the latest developments relating to their sector and to be able to apply them. This is a weakness in UK farming. For the success of UK agriculture in the future, it must look at its past to see the changes that had to happen. It is vital that farmers realise that the pressures for change will constantly be there and for success they must continue to change.