Radical Rural: Agriculture

Rural areas are often seen as being fairly leafy, prosperous places full of rich landowners raking money in from farming subsidies, with perhaps a few incomers commuting to well paid jobs in towns or working online, and the odd well-healed pensioner who’s retired to the enjoy the rural idyll. However this belies a starker reality of hidden poverty, an aging population, lack of opportunity and low incomes contrasting with enormous wealth and power. So what are the issues and what can be done about them?

This is the first of what I intend to be several posts (if I get time!) looking at some of them including agriculture, land ownership, fuel poverty, transport and infrastructure, energy and jobs. I’ll start off with agriculture as it is by its very nature rural.

Galloways

Agriculture is an industry so closely and inherently associated with rural areas, that it seems surprising that those who make decisions affecting these areas sometimes forget that producing our food is the main income-generating industry in many rural areas. It may not be the largest direct employer in rural areas (the NHS is), but agriculture and the trades and professions associated with it employ at least 10% of the rural workforce. Farming is often viewed as a well rewarded occupation, and in some cases it can be, but the picture is very patchy. When NFUS want to show the worth of farming to the economy they trot out a well heeled Range-Rover owner who has owns an arable or dairy farm. When they are arguing for increased subsidies they present an upland sheep farmer who is struggling to eke out a living. So what is the truth?

What do farmers earn?

There are certainly some farmers and landowners who are making money very nicely indeed. Buccleuch Estates says that it represents the business interests of the Europe’s largest landowner 10th Duke of Buccleuch and his family. In 2012 Buccleuch Estates received over £500,000 in publicly funded agricultural support via the EU Common Agricultural Policy (CAP) payments(1) in addition to profit from sale of farm products and the increase in the capital value of their land.

Meanwhile, Scottish Government statistics show that even with CAP subsidies, nearly a quarter of Scottish farm owners work for less than the Minimum Agricultural Wage (MAW)(2).

Agric1

So what are the causes of the huge variation in farm incomes and do they matter? Farm incomes are made up from the profit made from producing livestock or crops plus subsidies. The income which a farmer gets is a balance of income from sales and subsidies against cost which include buying stock, seeds, equipment etc, labour, and for tenant farmers paying the rent.

The graph(2) below shows how income from farming is made up from costs, sales (output) and subsidies. The balance between these affects how profitable a farm is.

Agric2

Overall without subsidies Scottish farming just about breaks even, but there are variations between different types of farms – dairy and arable farms are more profitable than upland sheep and beef. Most industries which aren’t making a profit would go to the wall, but because we all need food, subsidies are paid to farmers to keep them in business.

How CAP payments work

Subsidies via CAP payments originally started in the 1950s with the aim of improving food security in Europe. In the aftermath of second World War this was sensible, but by the 1990s they had more than achieved their aim and created grain mountains and milk lakes, and the scheme was restructured in 2003 with the aim of keeping farmers farming without creating surpluses. Payment was therefore “decoupled” from food production, and made on the basis of land area. To justify the public money being given to farmers without any requirement to produce food there is a now requirement for farmers to look after their land (keep it in Good Agricultural and Environmental condition – GAEC). In return they receive a Single Farm Payment.

To complicate things, a “transitional” arrangement was put in place to help farmers adapt to the new system and bolster the income of farmers who had previously had high rates of production by making the payment received per hectare a proportion of what they received under the old scheme (the “historical element”). This is reinforced by targeted coupling of a small proportion of payments up to assist some sectors such as beef farmers. So farmers with the most productive land and the biggest farms which are capable of making the most profit get the most subsidy, while those with smaller farms on less productive land get least. Does this seems fair? Because Scotland has less high quality agricultural land than England the average payment per hectare in Scotland (€130 in 2013) is much less than in England (€229 in 2013), although because of the very large size of some estates the average payment per farmer in Scotland is more. The EU recently awarded the UK €223 million to bring payments up to an average of €196 per hectare, but instead of giving this to Scotland it intends to spread this across the UK including regions which already get an average of more than this.

As well as the Single Farm Payment (also know as Pillar 1 payments), there are additional (Pillar 2) payments available for specific purposes. Some of these are paid to farmers who carry out agreed environmental improvements on their land, although uptake of these is reportedly low. There is also the LEADER scheme which funds projects to sustain rural communities. Scotland’s Pillar 2 payment rate at €12 is the lowest in Europe.

The Problems with CAP

The requirements to obtain these payments can be fairly minimal and have led to a growth in “slipper farmers” – people who do very little actual farming and just meet the minimum requirements to obtain payments. In some case this can mean nothing more that ensuring that grass is cut to prevent the incursion of scrub (although it could be argued that on some marginal land allowing scrub and woodland to develop might be more beneficial in terms of carbon storage, flood prevention and biodiversity than maintaining grass).

The profitability of slipper farming has led to investors buying farmland purely to claim the payment. Not only have slipper farmers moved in to the land market, there is also a lucrative market in trading the payment entitlements, so that someone can rent low quality rough grazing, but buy the entitlement to payment for a higher rate of payment from a farmer who was entitled to claim this for more productive land.

Slipper farming and trading the entitlement to payments has pushed up land prices, and made it harder for new farmers to get started. This is an important point when you realise that the average age of a farmer owner in Scotland is nearly 60.

As a result of payment trading, retaining elements within the scheme and no upper limit on how much can be paid to any one farmer, the top 10% of farmers receive 48.6% of the total 2011 Scottish farm budget of £710.4 million(3).

But as well as the issue of fairness, there is the issue of what this system of subsidies does to the rural economy. If payments are made to slipper farmers who do not live in rural areas, money goes out of the rural economy altogether. This is also true to a large extent for payment made to large landowners who may chose to invest the money in other business interests rather than their farms.

Part of the problem is the size of farm in Scotland. In most EU countries land is owned by a lot of small family farms. This is not the case in Scotland where a few very large enterprises own a high proportion of agricultural land. Only the Czech Republic, Slovakia and Bulgaria have more farmland (Utilised Agricultural Area – UAA) held by very large farms than the UK. (The EU statistics only show member states not “regions” like Scotland – within Scotland the concentration of land in large estates is even more marked than the UK generally). But whereas in the former eastern European countries the large farms are former collective farms which are run as co-operatives which divide their profits between many people in the UK large farms are often owned by individuals or private companies (although the murky and incomplete system for registering land ownership in Scotland makes it difficult to see how does actually own land here).

Agric3

The last problem is that while to some extent CAP keeps food prices low it also subsidises the supermarkets who benefit from being able to buy food at less at the cost of production (with smaller farmers being kept going by CAP), and sell it to us for whatever they think we will pay. Public money is going into the dividends of supermarket shareholders.

Is Agriculture an Independence Issue?

Ok, so there’s a problem with how we reward the farming industry, but what’s it got to do with Independence? After all agriculture is already a devolved area right? Well, yes and no. While agricultural policy within Scotland is devolved, all dealings with the EU are counted as Foreign Policy, so although policy on agriculture is devolved, negotiation with the EU on CAP have to go via the UK Government, whose recent behaviour with regard to the top up payments shows that they do not have Scotland’s best interests in mind. CAP is our biggest source of EU funding, and yet we do not have control of it.

We have seen CAP is far from perfect, but it does provide some support for the rural economy and could do more. Given that Scotland’s per hectare CAP payments currently full below the EU minimum for a member state it is likely that an Independent Scotland would received more in CAP subsidy than it does at present. However if rUK get their wish and the in/out referendum on EU membership votes for “Out”, Scotland could be left with an uncertain amount of agricultural support with the budget to support agriculture in Scotland being tied up with whatever finance rUK decides to allocate to Scotland.

What can done?
CAP is a tangled mess, which most governments are afraid to change radically because of the power of the wealthy landowning lobby, but we need to recognise that in its current form CAP is not effectively supporting the majority of farmers, nor is it helping rural communities or the environment – it is funnelling public money from taxpayers to the extremely well off.

There are things which could be done within the current system if there will political will at a European level: capping the maximum payment per farmer at €300,000 (£248,000) would still be a generous hand out on top of earnings from the farm business itself and any non-farming income arising from the land. Especially compared to the earnings of someone on the minimum wage which are £13,100 for a 40 h week, 52 weeks a year. The EU recently proposed just such a limit, but it was vetoed by the UK government.

Moving Scotland towards a pattern of land ownership which is more like that of other European countries would also help, and moves towards more effective taxation of the capital value of land, and greater rights for tenant farmers could help to achieve this.

We could jiggle money between Pillar 1 and Pillar 2 funding to prioritise rural development and environmental protection, (although the EU sets limits on this) or we could reconsider whether there should still be enhanced transitional payments made to farmers who have historically been paid most, but perhaps more fundamentally we need to re-evaluate what CAP is for. Is it to sustain rural communities or to encourage sustainable land use or to ensure that we have affordable food? All three are valid considerations which need to be balance. However CAP certainly shouldn’t encourage slipper farmers; create a speculative market in agricultural land, or to give public money to already profitable businesses. But it is actually possible to fix CAP in its current form? Maybe it is time to consider alternatives.

Perhaps there could be a citizen’s income for active farmers to ensure that everyone got at least the minimum agricultural wage, but there was not scope for excessive payments to be made. Free marketeers might favour removing payments altogether and allowing the markets to set food prices which adequately rewarded farmers (interestingly the free-market anti-EU Tories seem rather quiet on this which might not be surprising given that many of their supporters benefit from CAP funding!).

There aren’t quick answers to this, but its time that we started to think about this, not just at European or UK level, but at a Scottish level.

1) Common Agricultural Subsidy payments can be searched on the Defra website at http://cap-payments.defra.gov.uk/Search.aspx. At the moment searches cannot be made for payments to “natural persons”. In case you’re wondering what an “unnatural person” might look like and fearing that Scotland might be owned by cybermen, a “natural person” means an individual rather than a legal entity such as company, trust, community group or co-operative. The EU had originally intended that the amount of CAP payment made to all recipients of CAP whether natural people or not should be published, but in 2010 the European Court ruled that this breached Data Protection rules.

2) Economic report on Scottish Agriculture 2013.
http://www.scotland.gov.uk/Publications/2013/06/5219/downloads

3) http://www.andywightman.com/?p=2896

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