Gwyn Jones Farm Diary: 90 per cent of farmers pessimistic about British economy

I expect that the 95% of those worried about the British economy join just about everyone else in the country, as newspapers and the media tell us every day how dire it all is. Has any budget had such negative advanced publicity as the one expected later this month? No wonder we are all worried. Food security on the other hand is in combat with the environmental brigade and so far it has been losing the battle. Land is being lost to thousands of acres of solar panels, re-wilding, in addition to the usual private (mainly pony) paddocks, building, development, roads and infrastructure.

The falling farm numbers over the next 10 years is a given whatever happens, as it’s been happening for decades and will continue to do so as farm size increases, the industry becomes more consolidated, professional and efficient, and succession becomes more of an issue on the smaller and unprofitable or poorly invested farms. Well educated sons and daughters have far better options than a life of hard work in poor weather for little return these days.

As for all the ones considering giving up, if we take out those who say these things to survey officials for a host of reasons, mainly in an attempt to wake up those in government who they think can change things, it still leaves a large percentage who are thinking of leaving farming. Arable farmers have had two bad years, and some have had three bad years and there is no single farm payment to cushion those blows in food production, as our government post Brexit switched to payments for nature and environment.

Furthermore, many will be looking to the future and evaluating the possibility of decent profits versus the value of their assets, mainly the land. There is a great deal to think about, especially if the next generation are not interested.

To the rescue comes Baroness Minette Batters with her report on farm profitability. This report contains 57 recommendations and calls for a fundamental reset of farming policy within the next 12 months. Her 50,000-word report which has not yet been published will be out very soon, and speaking at the Northern Farming Conference, Minette reported that the report paints a sobering picture of farm finances, with fixed costs up 30% and input costs by a similar amount, whilst Defra works with budgets equivalent to that of 2007.

There is no prospect of new public investment, therefore Minette calls for a change at government level. She comments that Defra must become an economic department, as it is not possible for it to rise to the task it should be doing if it remains as it is. Strutt and Parker meanwhile who did some figures for the report, found that farms would need to earn £34,000 or £100 an acre on average in order to match median household income, and at present half fall below that level. To counter this, Minette is calling for the next iteration of the Sustainable Farming Incentive to be tied directly to food production.

Minette also calls for mandatory country of origin labelling for the out of home sector, which accounts for half the money spent on food. The emphasis should be on transparency and honesty she says, and this huge sector has no requirements placed on it at all. Time is not on our side she tells government and action needs to take place urgently. Defra has said that government will now consider the review and publish a response.

Meanwhile we see milk prices continuing to drop due to the high levels of supply, up 6% year on year, fuelled by high margins and comparatively cheap concentrate feed. To compound this, the rest of the world is also experiencing strong growth and looking at the EU, the biggest exporter which was badly affected by the blue Tongue virus last year, but (apart from Ireland) has come on song this year and increased its production by around 6%, and milk prices there are also falling accordingly.

The USA is the second biggest milk exporter in the world also in over-supply having expanded on the back of good margins last year. More cheese and whey processing have come on-stream with 15 new cheese factories now operational, increasing capacity by some 410,000 tonnes a year (only slightly less than our total UK cheese production). Farms have expanded to fill these factories, and an estimated 200,000 extra dairy cows are now being milked, a 25 year high, and production is already up 3.2%.

USA cheese and butter are traded at a considerable discount on world markets compared to EU prices, offering lower returns and adding to the pressure on commodity prices within the USA, which will lower milk prices further. Will these lower prices in retail shops stimulate demand? It might do with butter, as many consumers are currently subsidising the real thing for cheaper alternatives. What might be another brake on this production surge in the UK in addition to lower milk prices? Well, a lack of forage this winter might, together with high beef prices, reducing herd size as farmers cull more dairy cows.

Looking to the future, we should also be keeping an eye on India, the largest milk producer in the world (300 million cows), whose population is consuming more dairy products every year driven by rising standards of living. Production is expected to see strong growth of 3.6% between now and 2034 as the national herd grows and inefficiencies improve.

With a population of 1.5 billion people, 47% of those under 25 years old driving the consumption of dairy, the population is predominately vegetarian, but dairy products are valued as an important source of protein, fat and calories. Their increased consumption of dairy is remarkable compared to other developing nations, especially when we consider that lactose intolerance is high, driving the sales of lactose free products.

Currently only 25% of the milk goes to dairies, but this is changing and whilst Indian Farmers are protected for cultural reasons, there are good export opportunities. The UK has more than doubled its exports to India in the last 5 years, mainly high-quality cheeses and milk powders which are in demand, and this is expected to grow. We now have a free trade agreement with India which could increase this trade, albeit with a 30% tariff as India protects its farmers.

Commodity prices led by oil and food, are in fact globally heading towards a 6-year low. This will help ease inflation across the worldwide economy. The World Bank comments that global food prices are set to fall by 6.1% this year and 0.3% next year, with the biggest declines in grain (rice, wheat and maize). However, increase in the prices of some foods has driven inflation in the UK which is also sensitive to the cost of imported foods such as beef, cocoa, and dairy. However, latest figures show annual grocery inflation is at 4.5% and falling at the fastest rate in 5 years whilst collectively, overall global commodity prices are set to fall by 6% over the next 2 years.