ARTICLE ORIGINALLY PUBLISHED SPRING 2019

The subsidies disappeared all at once – but farming on the bottom of the world is more profitable than ever

The prospect of Britain’s departure from the Europe an Union is creating demand for comparative analyses o understand what life could be like on the outside. It is particularly instructive to compare British farming, which has significant government and EU intervention, with that of New Zealand – which is subsidy-free. 

There are striking similarities. There are also aspects of British (and European) farming that are arguably ahead of New Zealand – as well as areas where New Zealand farming is unarguably stronger. 

Two countries with a lot in common

First, the similarities. Britain and New Zealand are both endowed with excellent soils, maritime climates and broadly similar farmland resources – though NZ produces a wider range of produce, extending as it does from almost sub-arctic to sub-tropical latitudes.

Both produce premium quality foods for demanding middle-class consumers – the UK primarily for its domestic market; NZ, for middle-class consumers across Asia, Europe, America and the Middle East.

Both countries are developing environmental strategies for their land-use sectors. In the UK this builds on the Environmental Stewardship Pillar of the EU CAP – which provides a base from which new proposed environmental services payments can be extended when (or perhaps, given Westminster wrangling, if) Brexit takes place.

Irrespective of Brexit tussles, the UK’s farming and food industry is showing impressive environmental ambitions. 

At the Oxford Farming Conference in early 2019, Minette Batters, President of the NFU, outlined plans for British farmers to achieve net zero greenhouse gas (GHG) emissions by 2040 or earlier.

NZ’s not dissimilar environmental measures have their origins in the country’s efforts to be ‘clean and green’, leading the world in standards on GHG, water, and management of biodiversity.

NZ takes its Paris commitments seriously. The country has committed to establishing an average of 100 million new trees per annum over ten years. Assuming half are on degraded land, this will be a gain of 500,000 hectares in the NZ forest estate. Craigmore Sustainables has a major focus on forestry and hopes to contribute over 50,000 hectares to that afforestation.

NZ, like the EU, has decided not to release GM into its food production sector. Its customers simply do not want GM food. NZ farming, though strongly science-based and innovative, is ultimately market-led – and decided not to grow something its customers did not want. 

More generally, both the UK and NZ are addressing the ‘de-commoditisation’ of a sector that is now moving to ‘healthful nutrition’ (in the widest sense, including environmental health).

Where British farming may be ahead

One area in which, in my view, UK and EU agriculture may be well ahead of NZ is in the process of linking farms to retailers and consumers. Unlike NZ, where farm-to-supermarket information flows are only satisfactory (many consumers are far away overseas), the UK has built up a world-class infrastructure of commercial and information links between farms and retailers over the past 20 years. 

For example, approximately 60% of UK dairy farms have long-term, fixed-price off-take agreements for their milk from retailers. An impressive achievement. As this writer is only too aware, all NZ dairy farmers are exposed to the full volatility of the global milk market. NZ prices have ranged from 16 pence to 45 pence, while most UK dairy farms received a steady 29 pence per litre.

Similar arrangements have emerged in British beef, pork, chicken and fresh produce. These ‘aligned contract’ relationships are not about just price, but embrace quality, security of supply, animal welfare and other values.

Another area of strength for British farmers is their positive relationship with the public. Perhaps because of public access to privately held farmland, taxpayers and consumers in the UK are generally supportive of their farmers and growers.

Politicians on all sides in the UK have indicated that a large part of the current £3.2 billion of annual farm support payments are likely to continue, at least in some form. This is a remarkable illustration of how highly the United Kingdom values its farmers and landscape.

New Zealand, as is well known, does not subsidise its farmers. Furthermore, attitudes of the public and government have shifted in the past 20 years – and NZ farming is no longer as esteemed as it once was. One reason for this is the behaviour of some NZ farms, especially with regards to the nutrient pollution of rivers and streams. Fortunately this is now being addressed by catchment-based farm nutrient loss-management programmes, which (for instance) recently lifted river water quality in Canterbury. However, the NZ farming sector still has a way to go to fully regain the trust and support of its public.

Where NZ farming may be ahead

NZ farm productivity gains, in the 30 years since the removal of subsidies, have been spectacular. For example, a 66% reduction in the number of sheep is now producing the same amount of meat from 23% less land with a 40% reduction in GHG emissions per kg of lamb.

Between 1990 and 2010 NZ farmers transformed large amounts of land from grazing/arable to more intensive dairy farming – increasing per hectare revenues by four times. (And jobs per hectare by the same amount.) This innovation was the leading reason for the revitalisation of rural towns after a slump in the rural economy after 1985.

More recently, land has come out of dairy and into horticulture, a still higher-value land use, typically increasing revenues per hectare (and employment) by eight times (after a four-year delay for conversion). Craigmore Sustainables estimates that another NZ$5bn to NZ$10bn 

of investment needs to take place to fully build out the NZ horticultural opportunity. It is worth noting that export sales from NZ horticulture have grown by 7% per annum for over two decades.

Compared to this level of innovation – though there have been some honourable exceptions – mainstream British farming can appear somewhat in the doldrums. For example, in cereals, Britain has not seen any significant improvements in yields per hectare and factor productivity. It is hard not to conclude that subsidies have curtailed innovation within the EU and the UK. 

As an amateur economist I also cannot resist mentioning that economic policies that allow property owners to borrow money at 1% are not great for innovation. They prop up the already wealthy and inflate asset prices so that new entrants cannot innovate.

It does not seem to have escaped Michael Gove’s notice that subsidies effectively make European and British agriculture the equivalent of school tests that nobody fails. (Maybe it was no accident he was brought from education to agriculture!) Although their passing was lamented at the time, I don’t know a single NZ farmer who would seek to return to production or area-based subsidy support.

What happened in the NZ restructure

NZ discovered very suddenly that it was unable to subsidise the most important sector of its economy. As a result, subsidies were all removed at the same time.

Despite predictions that 20% of farmers would have to go, only 1% of NZ farms entered receivership – though another 4% chose to go (sold their farms voluntarily) over the next five years. In general, environmental outcomes improved as a result. My father led NZ Federated Farmers for six years in the 80s – negotiating the deregulation and the end to subsidies. One of the positive achievements was that fertiliser use on average fell by 30%, whereas farm production only fell by 10%.

Farmers believe we are ‘born’ to grow more crops and livestock. We will happily do this even on marginal land, given the resources. Subsidies therefore almost always lead to over-intensification of land use. Removal of subsidies helps farms focus on what soils and landscapes really should be farmed, and which should be used less intensively or not at all.

How British farming and food can now progress – and play to its strengths

It appears that the UK’s restructuring, in contrast to that in NZ, will be gradual and mixed. The proposed environmental services strategy, if well implemented, appears broadly logical and attractive. It is also a tremendous commercial opportunity for farmers, especially hill farmers and smaller operators. 

In my view (and my wife and I do own a small Oxfordshire organic farm) it is privilege to farm in a country where farms can get taxpayer money to do things that many of us, in countries like NZ, seek to do anyway.

However, the environmental services payments will need to be well designed – a major opportunity for the UK research and agtech sectors.

Opportunities for both countries

I see major commercial and ethical opportunities for both NZ and the UK to export their technology and standards in farms, food and the environment to the world. 

The imposition of standards on imported food is also a powerful way to promote British exports of these tools and services, as well as to lift food quality and environmental standards.

Such a strategy would play to an area where the UK is well ahead of NZ – and in my view is world-leading: the sharing by British retailers of standards and other measures to link farmers and growers with these “representatives of the consumer”.

Forbes Elworthy manages the Craigmore Station – a sheep, beef and deer property farmed by the Elworthy family since 1864.