Many farmers voted to leave the EU despite the fact that leaving putting the Basic Payment Scheme (BPS) at risk. As we all know, the top up from the BPS is the difference between profit and loss on many farms.
The Agriculture Bill proposes scrapping direct payments in favour of more Countryside Stewardship-type payments.
It is my view that this approach will in due course increase food prices through reduced supply.
Stewardship and environment payments are all well and good, but some schemes have been in place for many years and much of the work has already been done.
Once a farmyard has been concreted, for example under a Catchment Sensitive Agreement, it cannot be concreted again.
The capital income from most stewardship agreements basically covers the cost of any work which has to be done, especially if outside contractors have to be brought in, which could well be the case with a shortage of labour on most farms.
Other options such as taking land out of production, low input/no input grassland, overwintering stubble and planting lower yielding spring crops or tree planting will do nothing to increase the bottom line on many balance sheets.
In a nutshell, the outcome of the Agriculture Bill will mean for the most part, the value of any payment will be swallowed up by the cost or loss of income from claiming said payment, whereas the Basic Payment money all goes towards paying existing farm expenses.
Farm incomes are going to drop – what to do?
I was talking to a beef farmer who was complaining about the beef price but selling deadweight because he liked to have the grades back and see how the cattle killed out. But kill out sheets don’t pay bills.
It seems to me that by selling deadweight, farmers make it too easy for the buyers. They just sit back, wait for you to deliver the cattle at your expense and then tell you how much they are worth.
Supermarket buyers hate livestock auctions because they have less control and they have to attend market and compete on price.
Selling deadweight means some don’t even have the need to turn up at the market, so there is less competition.
And they are not stupid, by offering a bonus for the best grades it means less of the top quality stock is presented at auction, lowering the market average on which they base their prices.
If all slaughter stock was sold at auction, all buyers would be forced to attend and competition and prices would almost certainly increase.
It’s the same with grain. A farmer rings up a merchant to offer grain for sale, the merchant offers whatever Openfield, Glencore and Frontier et al decide they are paying that day and it’s more or less take it or leave it.
I know there are grain co-ops, but for the most part you end up with an average price.
There needs to be a system of grain auctions, or at least grain should be offered for sale by tender to try and increase competition and, therefore, prices.
Advisers and grain buyers are always telling growers it would be wise to sell part of their crop forward, usually before it is harvested.
This only provides the trader something to trade with on the markets until it is finally delivered.
None of any trader’s profit is returned to the grower, and if the trade moves the wrong way for the grower he is still obliged to deliver the crop at the agreed lower price.
It seems to me that the grower takes the lion’s share of the risk.
Milk, pigs and poultry are all sold direct to big companies.
If somehow an auction or tender system were to be developed for these sectors, I’m sure producer prices would improve.
I know some will say ‘but what about the cost of commission’?
My answer to that is it should be considered a marketing expense. If prices are improved, the cost of any commission is covered, even though it doesn’t always feel like it.
Perhaps with a bit more clever marketing, co-operation and a will not to make deals too easy for any buyers – especially the corporate ones – farming can survive the loss of direct payments.