Andrew Arbuckle: Subsidy levels distort the picture of profits in farming

Published on Monday 23 January 2012 00:15

IN ONE week’s time, the Scottish Government will produce its estimates of the profitability of farming in this country in the past year. I fully expect these figures to show the industry to be in good heart, and for politicians to use the figures to back up their claims of how their support has made a positive difference.

In contrast to other industries and the wider economy languishing in the doldrums, producing food will be shown to be quite profitable – and therein I believe lie dangers.

One major item propping up the agricultural balance sheet is the amount of public or taxpayers’ cash that goes into farming subsidies, and as profitability rises in the sector this support becomes more visible.

My contention is that it is not an issue for the public or for politicians if the money is seen to be keeping the industry going or if food prices are low. But when farmers are seen to be making money at a time when others are not, when money is tight and when food prices are high, then this pot of cash – amounting to around £500 million annually – is more exposed for comment.

It was a smart move by Richard Lochhead, the cabinet secretary for rural affairs and environment, in a debate last week in the Scottish Parliament to point out that the Common Agricultural Policy, the umbrella body for almost all the subsidies, provides wider benefits than to the farming industry alone.

Anyone who visits the countryside sees some aspect of the landscape which reflects and benefits from the support that comes from farm subsidies.

A similar message came from Berlin, where EU Agricultural Commissioner, Dacian Ciolos, was speaking at the big Green Week exhibition – all those living in the EU had to see benefits from supporting the CAP, he said.

Even although his vision of “greening” the policies are at odds with those of the Scottish and UK governments, this connection of looking after the countryside in a manner which the non-farming public wants will be important if support is to be retained at anything like its current level.

Currently the connection is weakened by flaws in the CAP which allow non-farmers or ex-farmers to receive subsidies without leaving their proverbial fireside. It is also damaged, in my opinion, by the trading of subsidy entitlements based on the financial returns from these bits of paper.

Good financial returns in the farming industry will also attract attention from other quarters. Supermarket giants such as Tesco, which recently saw a reverse in its financial fortunes, will not be waiting to see the figures.

Enter the premises of any major retailer these days and it is festooned with banners offering deals on this and discounts on that. With their own margins to protect or enhance there is only one way these offers can be made.

Yes, the pressure comes back to the processor, pre-packer or primary producer. The most likely of that trio to feel the financial pain will be the one at the beginning of the food chain: the farmer.

Others who will, vulture like, observe the profit margins that I expect to be revealed next week are those who supply the big three inputs to the farming industry: fuel, feed and fertilisers.

Alyn Smith and George Lyon, two hard-working MEPs who never miss a chance to highlight issues affecting agriculture, last week both spoke of the relative weakness of individual farmers in the face of the multinationals controlling the major inputs.

The fertiliser industry in particular was mentioned with a carefully worded comment about the “concentration of power” that now existed in that sector.

It reminded me that Jim Walker, then NFU Scotland president, called for an investigation into the competitiveness in this supply industry some ten or more years ago. If the fertiliser companies are as competitive as they claim then there is nothing to fear from such an examination. Bring it on, as some politicians are wont to say.

Closely following the announcement of the farming figures will be the results of the annual survey by Lloyds TSB. Carried out by Professor Donald Macrae, the study gives a valuable insight into the thought processes of those in agriculture.

Last year, with increased prices for commodities, optimism was at a high level and investment plans were more positive than they had been for a long time. No doubt the feel-good factor is also boosted by support from a banking industry which sees farming – or at least farm land – as a good investment in contrast to almost every other investment opportunity.

With a continuation of good commodity prices I fully expect and predict that this optimism will overflow into this year’s survey figures. I hope it is tempered by a wider vision that includes the potential threats.

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bumpkin

Wednesday, January 25, 2012 at 09:34 PM

well said family guy, out with the lairds.

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Family guy

Wednesday, January 25, 2012 at 08:49 AM

The trouble with Scotland's farming system is that we are actively destroying the family farm and increasingly moving to prairie style farming with bigger industrial units and less bodies on the ground. Of course, I could probably say this is a direct result of the vestiges of the Anglo Norman fuedalism that still exists in Scotland (in Europe and England, they managed to boot that out) and that we have too high a proportion of tenant farmers and the likes of Daye below supporting the Estate Land Owner and not the Tenant in most cases, even though she is a tenant herself (read the Scottish farmer). However, that is another argument for another day. The upshot being any subsidy being diverted to pay renatals and not being invested into making farms more efficient and profitable and fewer bodies trying to manage bigger land areas meaning less care being placed upon critical areas of environmental caretaking and management of wastes. Looking at the European model, we need less tenants, more owners (meaning no rentals to pay out of the subsidies) and more smaller family farm units. Cost of unit output will remain roughly the same since no rental will be applied. Additionally, if farmers were looking to diversify income, there is a huge market for added value on primary production and collaborative working will ensure supply chain and reduced costs, especially if co-operatives are used to reduce input costs. Don't think the supermarket is our friend. Quite the opposite. Tescos have recently been thrown out of india becuase the government said it would destroy thousands of family buisnesses. They are correct. To end, I'd personally like to see the large fuedal estates of Scotland broken up and the empty family dwellings that litter our countryside post Clearances, filled with vibrant family life. I'd also like to see the end of subsidies altogether.

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on top of the eildon hills

Tuesday, January 24, 2012 at 10:35 AM

Organic peasant Could not put it better myself

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Organic peasant

Tuesday, January 24, 2012 at 07:42 AM

This not the first time I have been compared to the devil for running a farm, ensuring clean water and reducing greenhouse gas emissions and it will not be the last. So in order for Mr Halpern to ensure his security from the many million denizens of hell such as myself I suggest he ceases to eat, breath in or drink anything that may have been in contact with any agricultural activity anywhere on the planet. That should resolve his issues in a matter of days.

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rolandhalpern

Monday, January 23, 2012 at 01:07 PM

One must not forget the other "invisible" subsidies that taxpayers must absorb: environmental remediation from animal waste that seeps into ground water, increased diseases in those who live close to the animal farms, the creation of "super bugs" that make antibiotics in humans less effective in treating disease, increased crime rates in the areas where farms operate, more public health monies spent to treat human illnesses caused directly by meat consumption including cancer and obesity. And although it is not a financial subsidy, the tremendous amount of suffering the animals endure is not without cost. When we overlook or ignore the plight of sentient beings we subsidize the Devil; or the factory farm operators - take your pick (they're one and the same).

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Daye Tucker

Monday, January 23, 2012 at 10:50 AM

I understand that SAC and QMS have published studies demonstrating that beef farms can not make a profit without subsidy. Given the importance of the Scotch Beef Sector to Scotland, this brings into question the stats that suggest that farming is doing well in Scotland. One way to reduce fertiliser inputs is to introduce a green manure rotation system as they do in other EU countries like Belgium. 100% reliance on artificial fertilizers is neither healthy for the bank balance nor the soil.

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