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Tide turns in farmers favour
Editor: Farm North East
Filed 08 Mar 08
This article was originally published as the leader in Farm North East, February 2008.
It is reproduced here with the kind permission of its author and of the journal
The price of food has suddenly hit the headlines in the national press and is becoming a big political issue as the Chancellor of the Exchequer tries desperately to keep the lid on inflation.
But farmers who, according to the latest Lloyds TSB Scotland agricultural survey, are enjoying their second highest level of prosperity in 12 years, have nothing to be apologetic about.
Many of the comments made about food inflation are sheer bunkum and there is no gainsaying the fact that farmers badly need an income boost after more than a decade of relentless pressure on farmgate prices. Meantime, those further down the supply chain – and supermarkets in particular – have been prospering at farmers’ expense.
Let’s get things in perspective. The fact is that food is cheaper than it has ever been and has become 20% cheaper in real terms over the past 20 years. The average British family spends less than 10% of their income on food which compares with a third 60 years ago.
Put another way, the average household in 1977 had to work 69 days to pay their annual food bill; today it is down to 31 days. Average house prices in 1977 were three times average disposable income: today the figure is seven times.
If farmgate prices had kept pace with the general cost of living, farmers would be getting four times as much for their products compared with 100 years ago and wheat would be selling for £600/tonne. Even if farmgate prices since 1996 had reflected cost of living increases, prices would be 50% higher.
Food contributes less than 10% to the calculation for inflation in the UK (compared with 14% in the USA and 16% in the Eurozone). An increase of 5% in retail food prices will increase overall inflation by less than 0.5%.
The recent increase in commodity prices represents no threat to consumers nor the economy. It is a catching up process and is a reflection of global supply and demand, providing an opportunity for farmers, and the rural economy in general, to benefit from a long-awaited and long overdue recovery in farmgate prices.
Little wonder that Scottish farmers surveyed by TSB Lloyds are reporting increased prosperity and optimism for the future – despite all the problems of higher feed, fuel and fertiliser prices and the impact of foot and mouth disease and bluetongue restrictions.
Not surprisingly, arable farming is the most buoyant with 91% of farmers saying they made a profit – an increase of 16% on last year. Only hill farming reported a drop in profitability with only 65% of farms – down 10% - making a profit.
The improvement in profitability is giving farmers the opportunity of investing for the future and investment in 2007 was a third higher than forecast. There is plenty of anecdotal evidence of increased investment in farm buildings, tractors, combine harvesters and other farm machinery.
Farmers have reason to be optimistic but there will be plenty of challenges ahead and increased volatility is inevitable as we head towards a free, subsidy-free market.
The Single Farm Payments will continue to reduce as modulation bites further but Scotland’s Rural Development Programme, due to be announced shortly, will provide an opportunity to tap into alternative sources of income.
The outcome of the EU “Health Check” on the Common Agricultural Policy is also awaited with some trepidation with hints on the one hand that the basis of SFP might have to be changed before 2013 and, on the other, a recognition that suckler herds may well need some form of headage payment to stay in business – a concession which would be important for Scotland.
The message, from both NFU Scotland and the National Beef Association, is that the tide is turning in farmers’ favour and farmers have every right to hold out for the highest price they can achieve in a strengthening market.
Further reading recommended by Land-Care
Linklater, Magnus (2008). Who knows there's a food crisis? The early signs are there, but the world appears to be sleepwalking towards disaster
See HOMEPAGE, filed 07 Mar 08, www.land-care.org.uk Click Here to View
Irvine, James (2007). Livestock enterprises in Scotland's uplands are facing ever deepening problems: and so is the land on which they are based.
See SOCIAL/ECONOMIC/POLITICAL Homepage, filed 31 Oct 07, www.land-care.org.uk Click Here to View
Linklater, Magnus (2006). Linklater's Scotland: Could we be on the verge of losing another British industry?
See SOCIAL/ECONOMIC/POLITICAL Homepage, filed 21 Mar 06, www.land-care.org.uk Click Here to View