Agriculture in the UK and the Future of the Supply Trade

thoughts while leaning on the gate looking at agriculture in the uK and the Future of the Supply trade

By Richard Cooksley

The supply trade has historically adapted according to the needs of those who farm and produce food, but over the next 3 to 10 years it will need to be more proactive than ever if what is expected to take place comes to fruition.

The difference these days is that farming has less influence on government than the past. Those who legislate are further away from farming or food production than ever and they are subject to lobbying by other organisations whose aims may not align with those of our industry. In addition to this the support system for farming that previously provided cash and went straight to the bottom line of the accounts is changing and in the future funds that will be available will be linked to environmental activities such as planting trees or taking areas out of food production.

So as to consider how our market will change, we need to understand the changes that are expected to take place in support funding for agriculture and the associated farming structure.

Today UK agriculture with the current subsidies produces less than 60% of the food required to feed the domestic population; if the support payment was removed totally a large proportion of farms would have to change the way they farm to stay profitable.

Approximately 69% of the UK land area is farmed and some 429,000 are employed on farms generating £9.9 billion to the economy.

As a generalization, most dairy farms are in the West of the country as this predominantly has more rain so grows grass for silage and grazing, whilst the majority of cereal farms are in the East of the country where it tends to be drier.

The diversification of activities on farms has been growing in the last 20 years and it is estimated that 69% of farm businesses have some other activity such as farm shops, offices, storage, B&B etc.

Sector

GVA £billions (2014) GVA% Workforce (‘000s of jobs) Workforce %

Agriculture 9.9 9.2% 429 11.04% Food Manufacturing 26.9 24.9% 381 10.1% Food Retailing 30.2 28.0% 228 6.1% Food Wholesale 11.9 11.0% 1174 31.2% Catering 29.1 26.9% 1552 41.2% Total 109.0 100% 3,764 100%

The above is a fair estimate based on DEFRA reports covering 2020 and for information purposes only. The following basic background covering farms and cropping which has been sourced from DEFRA reports covering up until June 2020.

land area:

• 17.3 million hectares of total utilised agricultural land o

Croppable land is approximately a third of the UK utilised o

o agricultural area and made up of. 50% Cereals 20% Temporary grass 12% Other arable crops 7% Oilseeds 6% Uncropped arable land 3% Horticulture 2% Potatoes Permanent grassland is approximately 10 million hectares. 60% Grass over 5 years 40% Rough grazing (mountains/Hills/moorland Other land on farms approximately 1.3 million hectares 77% Woodland 22% Non-agricultural land  1% Land used for pigs

livestock:

• 9.6 million cattle/calves

o

Of which is 1.87 dairy cows 5 million pigs 32.5 million sheep/lambs 182 million poultry 4 million other

o

o 56% Horses 27% Goats

o

o

o 9% Farmed deer 3% Alpacas/Llamas 5% Others not classified!

number of Farm holdings

• 212,000 which vary dramatically in size and efficiency

Farming businesses

I deliberately use the words ‘Farming Business’ as this is a term we in the supply trade and those who farm must understand that farming and agriculture is a business. Whilst farming is described by many as a way of life it can only be so in the long run if it is viable and produces a quality product, be this livestock, grain, vegetables or public good etc, that is wanted and at a price the market is prepared to pay.

Farms vary in size and type and the challenge over the years has been to get many of them to understand they run a business; it is not just a lifestyle!

The agricultural supply trade is a key part of agriculture as the supplier of goods and increasingly services to those who manage the land and make a living out of it.

Farming businesses take many forms, different styles, structures and in many ways are driven by the market’s needs and the whims of the ultimate customer. The following give a flavor of these different styles and structures (some of the following overlap).

Conventional: This is a term that traditionally was used to describe virtually all UK farms that followed a well proven pattern of farming linked to seasons and traditional methods. As demand for cheap food and also the rise of consumer interest so have the types and descriptions of farming systems multiplied.

Intensive Farm: A farm that uses a lot of machinery, labour, chemicals, etc. in order to grow as many crops or keep as many animals as possible on the amount of land available. The public and lobbying groups have associated the word ‘intensive’ over the years with farming methods that maximise output without looking after the environment. This in most cases is not the case as to be intensive you need to look after the asset so that it continues to prosper and reward.

Cheap food policies, high input costs and shortage of skilled labour are probably the main drivers that have driven intensive agriculture over the recent years

Extensive Farm: This is the opposite of intensive as it is an agricultural production system that uses minimum inputs of labour, fertilizers, and capital relative to the land area being farmed and can be associated with both good and poor farm management.

Organic: This is a method of farming that does not use chemicals/ treatment and combines a high level of biodiversity with environmental practices that preserve natural resources and has rigorous standards for animal welfare.

This also requires accreditation to a scheme that is recognised as meeting independently assessed standards and meets EU Organic Regulations.

Family Farm: Historically this was the backbone of British and Irish farming with virtually all the family involved within the enterprise. The farm was passed down over the generations with the children expected to eventually take over the farm (this in many cases takes many years as farmers never really retire).

The vast majority of family farms are very efficiently run, can be extensive or intensive operations, but there are some that fall into an area that is linked to ‘a right to farm’ description and the long term future is in question.

There is still a place for the family farm but they are going to be bigger enterprises, far more specialized, run by people with a greater breadth of knowledge with more automation and less manpower.

Mixed Farm:Traditionally many farms would have been built around a dairy herd with cereals/fodder being grown to provide feed and the manure produced by the cows being used as a fertilizer for the crops. In many ways this is probably the most environmentally and socially friendly way of farming but is potentially very inefficient.

Regenerative Farming: This is a method of farming that has soil health at its heart. The aim is to improve or restore soils that have been degraded by rebuilding soil organic matter and increasing soil biology.

This involves farming by: 1. Limiting soil disturbance. 2. Keeping soil covered by continually growing crops. 3. Maximizing plant diversity 4. Integrating livestock Going forward this is potentially the best way to retain water and store carbon by encouraging microorganisms which will come from soils rich in organic matter.

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Arable Farm: This is a farm where 100% of the activities are focussed on the growing of crops that include cereals and root crops for both traditional agricultural markets as well as industrial ones. Traditionally this also meant that the land was ploughed but increasingly other forms of cultivation are used such as: Traditional: A system where land is ploughed and cultivated in the traditional way utilising modern equipment and tends to be very high powered tractors and machinery. Min Till: Minimum tillage is a soil and energy conservation system and a tillage method that does not turn the soil over; it can be called strip till. No Till: No-till farming (also called zero tillage or direct drilling) is a way of growing crops without disturbing the soil through tillage.

No use is made of traditional cultivation methods such as ploughing and ‘No Till’ is the term for minimizing soil disturbance as the seed is sown directly into the ground when planting a crop. This minimises soil disturbance, making it the method used for regenerative agriculture.

Dairy Farm: Dairy farms tend to be specialised production units but can be part of mixed farms. Cows like all livestock only thrive if looked after well. They spend around 60% of their time lying down, (they can’t eat lying down) consume around 50kg of food a day and 60 litres of water. So it’s not surprising that milk is around 90% water and is one of the main ways we can rehydrate.

A dairy cow can live for between 15 and 20 years with a productive life of around 6 years and like all animals they require a balanced diet linked to the intended use of the milk.The diet of the cow will depend on her age and stage of lactation with the majority of dairy cows eating grass during the summer and silage in the winter. As a totally grass based diet it will be missing or low in important nutritional components and it is normal to also supplement with dry feeds such as cereals and protein feeds with added vitamins and minerals.

While the majority of milk is from cows, milk is also produced by goats and sheep with this milk being used in specialist cheese or dairy products.

Livestock Farm: By definition this is a farm which is involved in the production of animals for the meat trade or milk which includes cattle, sheep and pigs.

Integrated Farms: This is a term used to describe a farm which grows a product that is supplied direct to another part of the business with no external sales. Whilst many examples exist of integration it tends to refer to a farm that grows cereals that are supplied to its own mill mix plant providing feed to be used for feeding its own livestock such as pigs or poultry.

Estate Farm: This is a farming business which is part of an estate, normally run by a farm manager which will have a number of business ventures covering a wide range of areas that could include hospitality such as shoots, weddings, corporate events, forestry, environmental schemes, filming and has to fight its corner for profitability amongst the other ventures!

Corporate or Contract Management Farm: This applies when the farm/estate is managed and run by a third party and these can be companies that run several farms or a neighbouring farm.

Small Holding: This is a small farm usually less than 20 ha that would normally be run on a part time basis. Usually, the owner will have another form of job and in many cases is the way into farming and not Lifestyle/Hobby: This is an interesting one and, in many ways, a growing area as can include anything from a very small farm right up to a large enterprise which has been bought by a person whose main income comes from working outside of farming. They are not necessarily run to make a profit.

land/Farm ownership

The ownership of farms and the associated land can be a range of structures but tends to split in to three areas: • Rented

The farm and land will be owned by an estate, investment portfolio or a family who previously farmed the land and rented out on a tenancy. The fixed equipment and buildings investment will be subject to the tenancy agreement and the farmer will own all the mobile equipment. • Owned

The farm is owned by the business (or the bank/financier) and all equipment will be part of the business • A Mix of Rented and Owned

This is when a farming business buys or rents adjacent land to builds its business and can be a mix of owned and rented land.

environment

The term ‘environment’ means many different things to people and is one of those misused terms.

Historically good farming practice is to improve the land and buildings so as to improve the profitability of the farm and infrastructure such as buildings etc. In a small number of cases, but by no means the majority, the natural environment has not benefited from this.

The environment is intrinsically linked to agriculture as farming comes under greater public examination with soil structure and pollution being the hot topics, but is no different from any other activity or business.

All individuals and businesses have the same responsibility to manage the environment that they have influence on. Within the supply trade it’s important we understand this. We have an increasing duty of care when supplying items to make sure that not only do they meet legislation but that their potential use does not damage the environment and ultimately our businesses.

agricultural Support

Agriculture in the UK has for many years received financial support from the government originally starting as encouragement to produce more food following the war so as to reduce the reliance on imported food. When we joined the EU the support payment continued but then was linked to the Common Agricultural Policy (CAP). The CAP payments were originally linked to production of commodities such as milk and grain and resulted is over production. This changed from being linked to produce to being linked to the land area that a farmer owned in 2003. The farmer needed to demonstrate they were farming the land. It is a cash payment based on land area being farmed and now we have left the EU will change to one based on ‘Money for Public Good’.

As part of leaving the EU the support payment system is being overhauled and payments in the future are expected to be linked to environmental management activities. The term ‘Grant money for Public Good’ is a good description of how government agricultural support

Environmental Land Management Schemes (ELMS) The corner stone of the new Agriculture Act which received its royal assent November 2020 is the new Environmental Land Management Schemes (ELMS). This is expected to lead to the setting up of a new framework for DEFRA’s future Environmental Land Management scheme. This will be the replacement for the current Basic Payment Scheme and it is expected it will focus on the environmental benefit rather than area of land farmed.

The current BPS scheme will be phased out over the next few years. The major difference going forward is that in place of a cash payment to landowners, if they stick to the rules future subsidy will be linked to involvement and participation in environmental management schemes.

This will mean that currently production of food is subsidised by the payment but in future any income will go to pay for environmental developments.

The three components of ELMS in the act are: • Sustainable Farming Incentive o Simple actions that achieve environmental outcomes • Local Nature Recovery o Locally targeted environmental goals. Encourages collaboration • Landscape Recovery o Landscape and ecosystem recovery through long term land use change projects

The core schemes that will link with ELMS and future support payments will be

New and Countryside Stewardship Agreements

Animal Health and Welfare Pathway

Farming in Protected Landscapes

Tree Health Pilot

Existing Environmental Agreements

The key change for the farmer is that historically agricultural support came in the form of a payment where effectively 100% of the payment went direct to the bottom line of the accounts. In future payments will be linked to tangible items such as environmental schemes with the payment being used to pay for these.

A transition period of 7 years from 2021 to 2027 has been put in place when the direct payments (cash) based on the EU based scheme will be phased out.

% split of support payment spending changes (set for 5 years which is the term of the current parliament)

Type

2021/22 2022/23 2023/24 2024/25 Direct Payments 68% 55% 48% 34% Environmental 23% 36% 42% 57% Improving Farm prosperity 9% 9% 10% 9% Total 100% 100% 100% 100%

How will this affect a farm’s income The payment to farming businesses will be reduced in what is termed a ‘Progressive Way’ which means the first £30,000 of payments is subject to a smaller reduction and the higher figures are subject to a greater reduction.

The reductions from Direct Payments will be Payment Band 2021/22 2022/23 2023/24 2024/25 <=£30,000 5% 20% 35% 50% £30,000 to £50,000 10% 25% 40% 55% £50,000 to £150,000 20% 35% 50% 65% >£150,000 25% 40% 55% 70% Cumulative total amount to be redirected into delivering other schemes for farmers £169 – 179m c£427 - 447m c£703 - 733m c£970 -1,010m

This means for the 2021 scheme year a claim worth £40,000 a 5% reduction would be applied to the first £30,000 (a reduction of £1,500) and a 10% reduction would be applied to the next £10,000 (a reduction of £1,000). So, the revised payment would be reduced by £2,500 to £37,500.

Example of how this will reduce payments made to farms

Payment value before progressive reductions

2021 payment

2022 payment

2023 payment

2024 payment

£5,000 £4,750 £4,000 £3,250 £2,500

£10,000 £20,000 £40,000

£9,500 £8,000 £6,500 £5,000 £19,000 £16,000 £13,000 £10,000 £37,500 £31,500 £25,500 £19,500 £80,000 £70,500 £58,500 £46,500 £34,500 £160,000 £134,000 £110,000 £86,000 £62,000

In addition to the changes in payment the government has indicated that the administration and documentation will be simplified. An exit scheme will be introduced in 2022 allowing farmers to retire/pass on the business. This in theory should allow those involved in farming business to exit but may well fuel the increase of small farms disappearing into lifestyle homes.

So, what will this mean to how the country is farmed?

In simple terms, farmers will farm the asset the best way they can to be profitable but not necessarily in the way they have in the past.

Whilst those who farm will lose financial payments that went directly to the bottom line in many ways the new support system will benefit land owners as they will be able to adapt farm use to meet the best earning potential. Almost certainly it will affect all farms and the traditional supply trade business. Those who manage business will look at the assets they have and farm according to the income they can generate from the land, be it from food production, environmental schemes or other ways of generating income.

Farming is unique as not only can the way land is farmed affect the environment, but also it is the only industry that can act as a carbon capture as part of its day to day activities.

I expect farms will split into three main groups: 1. Do nothing and carry on farming in the same way until finally they can’t afford to any longer (this is the worrying group as it gives our industry a bad name) 2. Change farming practices to meet environmental schemes and effectively become low input and low output and use buildings for alternative purposes 3. Look at the farm’s earning potential and put areas into environmental schemes that will earn more than cropping while intensively farming the other areas.

In many ways the key to how farming will prosper is going to be intrinsically linked to processing capacity more than ever, as there is no point in a farmer producing a product if the market is not available.

As with all changes you have winners and losers and whilst farming will continue to need the services the supply trade provides, the supply trade will have to adapt to potentially different needs as farmers change and develop to meet support payment requirements and livestock/ cropping systems.

The next 10 years are going to be an exciting time for the supply trade as it adapts to a more varied set of supply needs by agriculture.

Great professionalism is going to be key along with an in depth knowledge of what is needed by the farmer and the growth of partnerships between farmers, suppliers and buyers. Partnerships with customers and suppliers will develop to increase efficiency with real time management tools being used and a move away from a means of producing just a commodity to one of adding value.

Gone are the days of just supplying feed to a farmer and expecting them to keep ordering; we are going to need to be far closer to the farmer and learn from the areas of farming that are not covered by subsidy, such as poultry.

AHDB levy rates for 2020/21

Sector

Beef and Lamb (England) Cattle (excluding calves)

Producer Slaughter/Exporter

Calves

Producer Slaughter/Exporter

Sheep

Producer Slaughter/Exporter

Pigs (England)

Producer Slaughter/Exporter

Milk (GB)

Buyers and direct sellers of milk

Cereals and oilseeds (UK)

Cereal Grower Cereal Buyer Cereal Processor (human and industrial) Cereal Processor (feed) Oilseeds

Horticulture (GB)

Horticulture products

Mushroom spawn

Agaricus Non-agaricus

Potatoes (GB)

Potato Growers hectare hectare Purchasers of potatoes Levy rates 2019/20

£ per head 4.05 1.35 £ per head 0.08 0.08 £ per head 0.60 0.20 £ per head 0.85 0.20 Pence per litre 0.060 Pence per tonne 46.00 3.80 9.50

4.60 75.00 % sales turnover 0.50 Pence per litre 8.0 2.0

£42.62 per £42.62 per hectare

£0.1858 per tonne levy body

Whilst farming has received governmental support, it has also paid a levy/tax, linked to a number of areas of product, which funds the AHDB (Agriculture and Horticulture Development Board).

The aim of the AHDB is to use the funds raised from farmers to help make agriculture and horticulture industries more competitive and sustainable through factual, evidence-based advice, information, and training.

While the AHDB has changed over the years, the pressure on them to demonstrate value will get greater as the income streams they currently receive could potentially reduce as farming systems change to meet the new support payment systems.

The levy is collected across a range of agricultural products the following is an example of payments:

The funds raised from each sector are ring-fenced to ensure they are used only to the benefit of the sector from which they were raised.

Levy rates 2019/20 Higher rate for late payment

£ per head 4.05 1.35 £ per head 0.08 0.08 £ per head 0.60 0.20 £ per head 0.85 0.20 Pence per litre 0.060 Pence per tonne 46.00 3.80 9.50

4.60 75.00 % sales turnover 0.45 Pence per litre 7.2 1.8

£ per head 4.05 1.35 £ per head 0.08 0.08 £ per head 0.60 0.20 £ per head 0.935 0.20 Pence per litre 0.066 Pence per tonne 50.60 4.18 10.45

5.06 82.50 % sales turnover 0.485 Pence per litre 7.92 1.98

£46.882 per

£0.1858 per tonne £0.2044 per tonne