Time for cool heads in the trade debate

While Cabinet Ministers are apparently at war over free trade verses agricultural protectionism, surely it is time to look at the reality of UK farming, unmoved by rhetoric about impoverished hill farmers or the 1.5 per cent of the population who signed a petition on animal welfare, writes Catherine McBride.

The Agriculture and Horticulture Development Board (AHDB) has already paid for research into the realities of modern farming, although they have mainly used its most negative findings to convince the Government to continue UK farm subsidies and the gangmaster visas system for importing seasonal labourers.

However, if we look at each commodity sector's Farm Business Income (FBI) base case used in the Agribusiness Consulting Informa's technical report for the AHDB, we see that some agricultural sectors in the UK are much more profitable than others – dramatically so. Even though FBI includes EU CAP payments and the benefits of cheap imported labour, there are some sectors and productivity levels that still lose money. This is not due to trade with Australia. In any other industry, such failing businesses would have been forced out of the market and their land and equipment bought by more efficient farmers or consolidated into neighbouring farms.

The average FBI for UK Dairy farms is over 4 times that of a lowland sheep and beef farm; the average FBI on General Cropping farms is almost 4 times as high; average Pig farm FBI is almost 3 times as high, Cereal farming FBI is over two and a half time as high, and Horticultural FBI is twice as high. Incredibly even the sheep and beef farms on so called 'Less Favoured Areas' (LFA) have an average FBI above that of the average Lowland sheep and beef farmer in the UK.

But we hear little to nothing about these more profitable farm sectors. Why is the National Farmers Union solely concerned with the least profitable sheep and beef farms? Some claim that as many such farms are in Scotland and Wales, free trade would fuel their independence movements. However, Scotland would be one of the largest beneficiaries from trade agreements with Australia or the US, as it has been from the trade agreement with Japan. While Wales' main export commodity, lamb, is seasonal and so not in direct competition with Australia and the US is a net lamb importer.

So, politicians should not let the entire argument for free trade be swayed by an emotional plea from the President of the NFU in a letter to the Mail On Sunday, about just one section of UK farming, let alone one sector of the economy. Most UK farmers will be fine. In fact, many of them may discover that free trade with Australia opens new markets for their products. Australians do generally have British tastes in food and drink. And while Australia produces Brie that is better than their French competition, Australian blue cheeses are unremarkable compared to Stilton.

Australia also does not produce much pork and was a net importer of over 100,000 tonnes last year. UK pig farmers should be capitalizing on this. But despite the relatively high return on pig farms, the UK still imports about 40 per cent (by volume) of the pork it consumes. UK farmers seem to be content to watch pork being imported from the EU by the truck load, without trying to compete with this trade.

This brings us to the crux of the problem. Why aren't UK farmers willing to change their production to meet market demands? More importantly, why is their Farmers' Union trying to perpetuate import protection from Australia and the US, but untroubled by imports from the EU?

One conclusion from the Agribusiness Consulting Informa report would be unsurprising to most businessmen. In all sectors and all scenarios, no matter how unlikely: High performing farms, measured in terms of their output/input ratio, remained profitable. But the result that would surprise most non-farm businessmen was that in all scenarios, and all sectors, low performing farms lost money, including in the base case!

Defra's annual survey, Agriculture in the UK 2019, also publishes statistics that few MPs ever seem to read. Defra calculates that 20 per cent of UK farms have a negative FBI. In other words, a fifth of UK farms are making a loss on their farming activity even with subsidies. So how do they survive? Obviously, these are not farms but lifestyle choices (or clever tax planning) and the farmers have another source of income: this could be providing holiday accommodation; running a farm shop; or covering their land with wind turbines and solar panels. Occasionally the farm owner is a retired rock star or actress, but those are the exceptions.

I do not object to farmers increasing their income in non-farming activities, but I do object to politicians and the NFU using these hobby farms as a reason to block trade deals with efficient farmers in other parts of the world.

I also oppose giving extra subsidies to farmers on poor land which the EU's CAP payment system encourages members states to do. In a free market system, poor land is cheaper so farmers can run larger farms and compete with those with better quality land. It is only under the EU's inverted regime that farmers are better off farming large amounts of poor-quality land than farming good land. Luckily, unlike the UK, Australia doesn't subsidise its farmers so in a trade agreement the uneven playing field will be sloping towards the UK.

Furthermore, should a country that is already importing a large amount of its food, including food that it has the weather and soil to produce for itself, allow good farming land to be used for solar farms? While the NFU is claiming that farmers should be protected because they are the stewards of the countryside, politicians are subsidising farmers to cover Britain's green and pleasant land with wind turbines and solar panels. Not to mention allowing biomass power plants that burn wood – a natural commodity that the UK had already decimated before the Napoleonic wars and is now proposing to do the same again but in the name of environmental protection.

There is another solution to the protectionist verses trade debate. The UK has been importing on average 330,000 tonnes of beef each year over the past six years. I would suggest that the government set a maximum global import quota at 330,000 tonnes but sold as licences to UK importers – so not part of any free trade agreement with any country. Then give the Australians tariff free access for their agricultural products as the UK has done with the EU. UK farmers will not be competing with any more imports than they do now, but the Australians and the Irish can compete amongst themselves for UK customers. Hopefully, this will produce lower priced imports for UK consumers. All imports would still have to meet the same food regulations as UK producers.

That way the Government gets to help the 67 million UK consumers without putting any extra burden on the half a million UK farmers, many of whom are not involved in beef farming, and may well benefit if they could sell pork, or cheese, or barley distilled as whisky to Australia.