This article is part of our collection on Agriculture
Sarah Baker, strategic insight manager at the Agriculture and Horticulture Development Board (AHDB), examines the latest challenges facing the farming sector.
Last updated: 28 Jul 2020 5 min read
With coronavirus severely disrupting supply chains, milk being poured down drains, an unusually dry spring restricting grass and crop growth and access to labour being severely restricted due to lockdown, you could say UK agriculture has had a tough 2020 so far.
However, these issues have been swiftly and effectively managed, demonstrating the resilience that the sector displays so successfully and so often in the event of external shocks. This is what our industry does, year in year out. Farmers and growers can react accordingly to extreme weather, market swings, animal health scares, trade disruption and other external shocks. This ability has arguably been enhanced by the support that has been available to farmers under the Common Agricultural Policy (CAP).
But our future will see this support from CAP removed as the UK develops its own domestic (devolved) policies. Managing this level of change will require a more fundamental shift, more an adaptation to a new normal as opposed to resilience to a sudden shock.
Many businesses are extremely adept at riding the rollercoaster, but what we are facing over the coming months and year takes this to a whole new level.
In England, the Agriculture Bill represents a radical rethink of how farmers receive support. The Basic Payment Scheme (BPS) is being phased out, and in its place will be a policy based on “public money for public goods”. This approach recognises the enormous contribution agriculture makes to the wider environment and how these benefits generally go unrewarded in the market. However, detail on the new domestic policy and how funds will be accessed are still lacking. Farmers need to prepare for a future without these direct payments, but with scant information regarding how they can benefit from the new Environmental Land Management Schemes (ELMS) that the Department for Environment, Food & Rural Affairs (Defra) proposes.
In addition, there is considerable uncertainty surrounding the UK’s future trading relationships, both with the EU and other major trading partners. Stories abound in the press regarding hormone-treated beef and chlorine-washed chicken, and maintaining high standards of production is held up as a possible safeguard to these threats. But it’s not a cast-iron solution, and maintaining standards will not keep product out of UK markets in the long term. If the market opportunity is viable, expect to see international producers working to meet UK standards.
“Farmers need to be thinking about a future that includes greater global competition and lower levels of support than we have enjoyed for the past 40 years” Sarah Baker, strategic insight manager, AHDB
Brexit negotiations with the EU have been challenging. The UK government has made it clear it will not seek an extension of the transition period beyond the end of 2020. This means that we may yet leave the EU with no deal in place, and will be trading with our major trading partner under World Trade Organization rules.
The UK government has recently announced a set of tariffs that will apply to all our trading partners in the absence of a trade agreement from 1 January 2021. The UK Global Tariff (UKGT) replaces the tariff schedule in the event of no-deal that was announced in 2019. As it stands, the UKGT signals tariff barriers for countries wishing to export goods to the UK, as well as retaining more negotiating capital for the trade deals currently being discussed.
What is clear is that the government is not pursuing a protectionist stance in its trade negotiations. Therefore, any protection afforded to the agriculture industry from the UKGT is likely to be finite. In short, farmers need to be thinking about a future that includes greater global competition and lower levels of support than we have enjoyed for the past 40 years. This is a lot to take on board, even for such a resilient industry.
So how can farmers get their businesses ready? What should they be focusing on? AHDB analysis shows, unsurprisingly, that top-performing farms will remain profitable despite a more open trade policy and without direct payments. This means, that by focusing on their own businesses, gathering information, comparing themselves to their peers and ruthlessly managing their costs, there is much that farmers can do to prepare for the unprecedented challenges ahead.
Our analysis shows that 70% of the variation in business performance depends on decisions made by farmers, regardless of external factors. This creates opportunities at this time of change. Although change on this scale is undoubtedly challenging, it is not universally negative. The things that farmers should be pondering are where those opportunities lie, how to best position themselves to take advantage of them, and how to adapt their businesses accordingly. The farmers that can identify and exploit opportunities as they arise will be the ones that thrive.
For more information, visit the AHDB website .