#economicsfest: What future for farming and the food supply chain?

The UK’s agriculture sector faces multiple challenges to which it must adapt quickly – including Brexit, Covid-19 and environmental degradation. Higher public spending and agricultural policy reforms offer an opportunity to re-evaluate our approach to the countryside.

Agriculture in 2020 is being reshaped to face the challenges of the 21st century. Brexit is at once an opportunity to transform our natural environment and an existential threat to farms across the UK. A bold vision is needed to ensure that the agricultural sector can tackle the problems of a growing population, disrupted supply chains and calls for environmental sustainability. But the budget-stretching effects of Covid-19 weaken the case for continuing farm subsidies at their previous levels of £3 billion a year.

With this array of challenges threatening the sector, we attended the Bristol Festival of Economics online event ‘Brexit, Farming and the Food Supply Chain’ with University of Oxford economist Dieter Helm, hosted by Charlotte Smith of the long-running BBC radio programme Farming Today.

Access the recording here.

Agriculture makes up 70% of the UK’s cultivated land, but accounts for just 1.48% of employment and 0.7% of UK GDP. With the uncertainty of a potential ‘no-deal’ Brexit and the perceived disruption to food supply chains at the beginning of the pandemic, some argue that farming is a national security issue. Dieter Helm dismisses this as a protectionist ploy. He argues that the future of UK farming should not be in free trade, but a ‘fair’ trade system that raises environmental standards.

Related question: Does rationing essential goods help to prevent panic buying and shortages?

How might UK agricultural policy change after Brexit?

The Agriculture Act (2020) is a milestone in UK agriculture because for the first time in over 40 years, the government is determining domestic agricultural policy. The new legislation aims to provide public money for public goods, so farmers will be subsidised for activities such as improved soil quality and flood risk reduction rather than land acreage. Dieter Helm argues that it will be hard to not achieve public good provision more effectively, given the low bar set by its predecessor, the European Union’s Common Agricultural Policy (CAP).

Unusually in these polarised times, repealing the CAP has received largely bipartisan support given that it did not benefit the majority of farmers (Ciaian et al, 2015). Under the CAP, 50% of farms share just 10% of subsidies, while three-quarters of funds go to the richest quarter of farms, which are often the largest (Bateman and Balmford, 2018). The wider damage of the CAP to UK agriculture and biodiversity is exemplified by the 56% drop in farmland bird numbers that has occurred since its introduction (Harris et al, 2018).

The CAP provides a generous public subsidy to private good production (food), but the land also produces a range of public goods. At present, farmers have incentives to increase food production, but this neglects the critical role that their land plays in maintaining more intangible goods such as water supply and biodiversity. Explicit payments from the government are required to preserve these as there is no market, for example, for the mental health benefits of walking across public land.

What remains unknown about post-Brexit agricultural policy?

The largest source of uncertainty for the agricultural sector is whether the trade deal negotiations between the UK and the EU will reach a satisfactory conclusion before the end of the year. Competition rules, state aid and fishing rights remain areas of disagreement, and any deal must be passed through both UK and European parliaments before 31 December.

The tariff implications of a no-deal Brexit are particularly stark for upland beef and sheep farmers. Levies of 84% and 48% respectively on beef and lamb exports would decimate trade with the EU market, which makes up 90% of exports. Dairy farming is also severely at risk. Nick Whelan, chief executive of dairy processor Dale Farm, has said that over half the milk produced in Northern Ireland would be subject to tariffs of over 40%, in a sector where the profit margin is only 3%.

The question remains as to whether many farms will be viable if no trade agreement is reached, despite the current CAP support being guaranteed until 2022, and the government now considering interim subsidies before the new Environmental Land Management (ELM) scheme is rolled out in 2024. Subsidies make up 61% of profits for the average English farm, but access to their largest export market is also vital.

A future for UK farming?

Leaving the EU (and the CAP with it) presents an opportunity for the UK to set its own agricultural policy. UK agriculture is globally uncompetitive, and the CAP acted as a form of protection. There is now an opportunity for these standards to be lowered, which some, including Sonny Perdue, the outgoing US agriculture secretary, argue would give the UK a competitive edge as it opens up trade beyond Europe.

But in Dieter Helm’s words, 'free trade scares the hell out of farmers’. Agriculture’s lack of competitiveness lies much deeper than any regulatory disadvantage. Productivity is low, technological take-up is slow and the workforce is ageing. The fundamental geography of the UK countryside, ‘a patchwork of small farms and hedgerows’, prohibits any real competition with the vast fields of Ukraine and cattle ranches of Argentina (Helm, 2020).

It would, in fact, be better for ‘fair trade’ to be enforced, by requiring imports of food to meet a similar level of animal welfare and environmental standards. This could include banning neonicotinoids in line with the EU, prohibiting the use of glyphosates in the near future, and implementing a carbon border tax. This would ensure producers of imports adhere to the same ‘polluter pays’ principle as UK farmers would under Dieter Helm’s proposed system.

Yet despite anxiety about ‘chlorine-washed chicken’, which acts as a byword for low food standards, UK farmers have no claim to environmental piety. Although it constitutes a tiny segment of the UK economy, agriculture produces 10% of the country’s carbon emissions. Now that it is increasingly possible to track diffuse pollution, farms such as poultry farms in the Wye Valley have been confirmed as a major source of water pollution.

Post-Brexit trade regulation must do far more than protect farmers, it must also protect the UK’s ‘natural capital’ – the stock of natural assets that make up the ecosystem and biodiversity. Protection of natural capital is critical for preserving water supplies as well as opportunities for leisure, which are beneficial to mental and physical health.

Currently, farmers are benefitting from the expansion in public spending resulting from the government's response to Covid-19. But without the network of farmers’ unions across Europe, UK farmers will be less sure that future parliaments will make the same provisions for them. The CAP, Dieter Helm argues, is a poor system of agricultural protection, but it does offer farmers in the EU a greater degree of certainty than any national replacement.

What is the technological outlook for UK agriculture?

An area that could lead to significant improvements across the agricultural supply chain has come from recent technological innovation within the agricultural space. Branded as the ‘fourth agricultural revolution’ or ‘Agriculture 4.0’, researchers believe that although by no means a silver bullet, technological innovation will serve to strengthen the UK agricultural sector over time (Department of International Trade, 2020).

The Festival of Economics event discussed ‘vertical farming’, which aims to reduce the quantity of land area used by building farms vertically as opposed to the horizontally. This means that farms can be located closer to urban hubs, reducing the distance and carbon emissions from transport (USDA, 2018). This method can also protect biodiversity loss through cutting back on high area industrial farming (Scientific American, 2019).

Farming vertically also requires greater human intervention in fostering a healthy crop environment, and offers greater control and efficiency over the process through temperature monitoring, soil sampling and 24-hour LED lighting (Verticalfarm, 2019).

While there are significant energy costs for such a system (The Economist, 2010), with the growing ‘greenification’ of the national grid and the innate positives of a contained environment, the prevalence of vertical farming will continue to grow (UK Government, 2019).

Genetic modification in crops represents another innovation predicted to bring higher yield and reduced environmental degradation. Either through selective breeding or gene modification, traits such as higher nutrition and resistance to common pests can be improved (Qaim, 2016). Resistance would reduce the incidence of crop failure and limit the amount of harmful pesticides used by farmers, improving the health of rivers and surrounding wild areas (Toughhill, 1999).

Technology may help, Dieter Helm argued. Digital ledgers and improvements in ecological accounting are expected to bring greater awareness to environmental consequences of farmers’ actions and potential incidents along the supply chain (Leong et al, 2018). Through leveraging technologies such as blockchain, a collective set of accounts is created that provides accurate information of the authenticity of the supply chain. This could have positive effects on the long-term sustainability of UK agriculture and ensure that environmental damage is minimised as the sector develops.

Where can I find out more?

'Net zero: How we stop causing climate change': Dieter Helm's latest book focusing on carbon consumption and how to reduce it
'Agriculture after Brexit': Paper by Dieter Helm in the Oxford Review of Economic Policy
'Land use: Policies for a net zero UK': Report from the Committee on Climate Change
Farming Today: BBC programme hosted by the Festival of Economics event chair, Charlotte Smith