Agricultural Sector (EUC Report)

Lord Trees Excerpts

Tuesday 22nd November 2016 Lords Chamber

[Lord Trees (CB)]

My Lords, it is a pleasure to contribute to this debate led by the noble Baroness, Lady Scott. I would like to acknowledge her leadership of the committee, on which I have been privileged to serve, and her leadership of this inquiry. As a new boy coming to this House, it was my first committee and she has certainly taught me how to chair a committee.

Farming is and always has been a challenging business, but the industry has been under particular pressure in recent times. This debate is not about Brexit—noble Lords may be grateful for that—and it is probably true to say that, while Brexit may focus and accelerate changes in farming, a major evolution of the industry is inevitable and would have to happen anyway.

In the EU Committee report, in which I participated, the challenges of agricultural economics divide into two issues: what I think of as macro issues, which are beyond the control of individual farmers, and micro issues, over which farmers have some control. With respect to the former, our report highlighted a number of major issues. These include, among others, politically motivated policies such as the recent sanctions against Russia, which impact international markets and adversely affect market opportunities; adverse weather events; and changes in international demand, for example the reduced demand in China for milk and milk powder. In these instances there are good reasons for Governments to intervene and introduce mitigation measures. Immediate aid may be occasionally justified—for instance, the recent EU package of €1 billion in two tranches in 2015-16, particularly for the dairy sector, which was very welcome. But, as our report recommends, they are justified only in certain situations.

There are, however, more structural measures that can be introduced to aid farmers to cope with price volatility. Tax averaging, which was announced in the 2015 Budget, is a welcome means of smoothing the adverse year-on-year fluctuations in the profitability of farming enterprises. Another measure, not yet available but which was alluded to by my noble friend Lord Kinnoull and which was highlighted in the committee’s report, is the creation of public investment deposit schemes. This is a financial measure to allow farmers to bank profits in good years, earn interest and then withdraw funds in bad years to top up income. This seems a very fair and reasonable mechanism and has, for example, been introduced in New Zealand as the income equalisation scheme and in Australia as farm management deposits. Have Her Majesty’s Government seriously considered the possibility of introducing this type of scheme here?

Certainly the biggest cushion against price volatility are the direct farm payments paid under CAP. In England, the Farm Business Survey indicated that in 2014-15, 56% of farm income was derived from direct payments under CAP. Let me make it clear that I have huge respect and admiration for the hard work and commitment of our farmers, but, as has already been said, this degree of subsidy and the reasons for which it is given are increasingly difficult to justify. It is likely that the scale and nature of this support will change post-2020 and that other solutions for coping with price volatility will be essential.

Turning to the micro issues over which farmers have some control, it was clear from our inquiries that the economic efficiency of farms in the UK is highly variable. We also heard evidence that price volatility is no bigger a problem now than it was historically; rather, the major problem recently has been sustained low prices, as the noble Baroness said. The costs of production vary substantially between enterprises, which means that the more competitive can withstand lower prices while others struggle. It was even suggested to us that the levels of subsidy have not been helpful in incentivising innovation and increases in efficiency. One notes, for example, that total factor productivity in agriculture in the United Kingdom has risen markedly more slowly over the past 20 years than in other comparable countries, including some within and others outwith the EU.

Key measures to enable greater efficiency have already been mentioned by other noble Lords. They include increased advice and information with respect to both the technical and business aspects of farming, greater communication of exemplars of best practice and the benchmarking of key parameters such as costs of production. Some of these can be achieved by farmers operating co-operatively, although we heard that on occasion there was some reluctance to share commercial data—which may be understandable but is self-defeating. Some of this knowledge transfer is achieved through national systems and consultancy services, but, where farmers have to pay for services, their uptake may be less than optimum. The example of Menter a Busnes in Wales is impressive and I note that generally the organisation does not charge farmers for its advice; it is funded by winning competitive tenders from the Welsh Government or the EU.

Notwithstanding measures to increase competitiveness, it is a sad reality that some enterprises will cease to be viable, as indeed has already happened. The chill wind of economic pressure will surely blow even harder in the coming years, but it is incumbent on us to mitigate the social consequences of that while moving to a more sustainable industry. In that respect, what are the Government doing to enable those farmers who wish to leave farming to do so with dignity and with appropriate support which recognises their profound historical contribution to our country?

Farming support from the taxpayer will increasingly move to support the important provision of other public goods, as has been referred to by several noble Lords. This will justifiably recognise and reward the crucial role of farming in the stewardship of our countryside as well as buttressing the rural economy. But we also should not lose sight of the critical role of farming in producing food of quality to high environmental and animal welfare standards. Research and the application of research into such things as GMO, improved animal health and precision farming, among other things, offer great opportunities to maintain or increase food production while freeing up land for other public good purposes.

Our food is incredibly cheap and we need to recognise that and value it more. We waste obscene amounts of food in the home—as an earlier speaker mentioned—with a report by WRAP estimating that by weight some 70% of UK post-farm gate food waste is produced by households. In the pursuit of even cheaper food it is tempting to rely increasingly on imports, but in doing that there is a risk of simply exporting poor environmental care, bad animal welfare and exploitative wages, as well as increasing political vulnerability. While we will never be self-sufficient in food, I maintain that it is strategically and economically important that we produce as much of the food we need as possible in a sustainable way, balancing the competing needs for land. That is not only good for food security but enables us to control all aspects of how our food is produced. To this end we need a dynamic, innovative and above all competitive farming industry. I am sure that we have the farmers who can deliver that and meet the challenges ahead.