Long term economic outlook for UK agriculture

Monday, 6 July 2020

By Sarah Baker

This article looks at the challenges UK agriculture is facing, and how the industry may respond in the coming months and years. We focus on what farmers can control, and how they can best prepare for these changes.
Looking beyond the policy uncertainty                

An awful lot has been written about farming and trade policy in 2020. In some instances, we lack the details to be able to plan ahead. In others, we know the direction of travel even thought we'd rather we didn't.  Sarah Baker examines what we do know in relation to the big policy areas and adds her perspective on how the policy changes will play out. 

Let’s be clear from the outset, policy changes mean that our farming industry faces some challenges in the decade ahead. Outside of Europe and the Common Agricultural Policy, the future policies that our farming businesses operate under will be driven by a fundamentally different philosophy. It’s not about income support; rather, it’s about delivering specific public benefits. Whilst transition will give relative stability in the first half of the 2020s, it is the second half of the decade that will require a different approach and mindset.

Devolution adds a new dynamic to farming policy. In England, few in the farming industry will not have heard the mantra of ‘public money for public goods’ and Defra continues to develop the future policy framework. In Wales, the ‘Brexit and Our Land’ consultation has resulted in a scheme based on boosting productivity and rewarding provision of certain public goods by the industry. The Scottish Government set out the overall aims and principals for the future for rural funding in the consultation document Stability and simplicity: proposals for rural funding. Its overall proposal is that support schemes will fundamentally stay the same. In Northern Ireland, direct payments will continue until ministers are in a position to make decisions regarding rural policy. The bottom line is that the changes to the farming policy frameworks will impact tens of thousands of farming businesses.

Looking towards trade policy, we know that all our trading relationships will be redefined. The future trading relationship with the EU is critical from a farming perspective, given the current significance of agri food trade between the UK and our near neighbours. Both sides would like a free trade agreement with zero tariffs and quotas, but major obstacles remain, in particular around dynamic alignment to EU regulations. The clock, of course, is ticking – the UK government has publicly stating that it will not seek an extension beyond 31st December 2020. This means a deal needs to be struck by 31st October in order to allow time for all member states to ratify the deal before we leave.

More widely, the UK is already taking advantage of the opportunity to negotiate its own free trade agreements. Negotiations are underway with the US, New Zealand, Australia and Japan. With the first three of these four countries being major agricultural exporters, UK farmers are right to be concerned about their defensive trade interests. I believe that we will see increased competition in our marketplace. That might not be overnight – we know that trade agreements take time – but market access concessions in agriculture and food will be a feature of upcoming trade deals.

I am conscious that it’s human nature to focus on the negative aspects of change. Agricultural and trade policy are no different. And whilst ignoring it or avoiding change don’t seem realistic options, the following sections give consideration to the potential positives that we’ll see emerge from change.

Trade deals will create opportunity

At the time of writing, we’re all focusing on trade talks and we’re probably erring on the defensive. I too would have a long list of areas that I’d want to protect in an ideal world, but we need to be mindful we’re not closing off opportunities at the same time. Who’d have thought that China would be the biggest export market for British pork a decade ago? The organic dairy sector’s focus on exporting organic ingredients rather than liquid milk is an example of pioneering high value exports into the USA (pre-retaliatory tariffs at least).

We need to work out how we access a potential global market counted in the billions rather than being completely preoccupied about the competition that we face in our domestic market. We need to understand in each market both what is important to the consumer and how we can use this to differentiate our products from our competitors. British food and farming products have unique qualities and messages which underpin our approach to securing customers in new markets and broadening our share in existing ones. These are issues that AHDB have already explored in some detail, with dedicated consumer reports and country studies. We need to think about where we can compete and capitalise on the undoubted advantages we have. That means thinking in terms of containers of added value products rather than boat loads of commodities. It means continually evolving; after all, the high expectations that consumers have today very quickly become tomorrow’s baseline standards.

Farmers will respond

Reduction and loss of direct payments won’t necessarily prompt the exodus some predict. Many point to the fact that a proportion of farm businesses will not be viable without change, but I would not underestimate the ability of UK farming to shift to more viable methods of production. Whether it’s lower input systems on more marginal land or highly specialised systems that operate at the level of the current top performers, farming’s resilience and responsiveness should not be underestimated. We do, however, need to be pragmatic and we cannot pretend that we don’t face challenges. Direct payments disappearing and increased competition will challenge farm businesses over the next decade. It is about how we prepare for and respond to the challenges that will determine our fortunes, and to do that, we need to think differently and think global. 

A focus on what we can control

At a time when so much appears out of our control and in the hands of government, politicians and trade negotiators, our focus has to be on our own businesses. Focus on what you can change rather than worry about what you can’t. Whilst every farm is unique, AHDB analysis shows that a staggering 70% of variations in business performance are down to the decisions we make. Just 5% of the variation in business performance is down to geographic factors like soil and climate. For more information about the characteristics of top performers, please visit our website https://ahdb.org.uk/knowledge-library/horizon-preparing-for-change-the-characteristics-of-top-performing-farms


Farming the environment

With the public money for public goods mantra offering a genuine revenue source and not being restricted by income foregone, expect to see some tough business decisions on marginal land. Why would farmers produce for below average yields, with market volatility, crop conditions increasingly exaggerated by the weather, lack of actives and restricted access to seasonal labour if ELMS is pitched at the right level? I believe farmers will treat environmental outcomes in the same way they view current yields, constantly harnessing all the available knowledge and expertise to upskill themselves as environmental champions. The caveat, of course, is that the incentives are pitched at the right level for grass roots farmers to participate effectively.

The future policy framework is a critical issue for our farming industry. That’s not just what it looks like, but also about how farmers react. We’ll be revisiting the major policy issues in the months ahead, sharing our analysis, and highlighting how changes could pan out at the farm level. In the meantime, our Horizon analysis includes a range of relevant information, from WTO restrictions, current trade flows and international costs of production. Find more here. https://ahdb.org.uk/brexit

Sarah Baker

Strategic Insight Manager