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Farms shouldn't be sacred cows

One in 10 British dairy farmers will be driven out of the business by Christmas if planned milk-price cuts are imposed by the supermarkets, claimed Andrew Hemming, vice chairman of the campaign group Farmers For Action.

Farmers for Action is encouraging people to sign an online petition to be sent to Defra (the UK Department for the Environment, Food & Rural Affairs) which claims: ‘The UK government must do more to protect the interests of British dairy farmers. The low price of milk is forcing extremely hard-working farming families into poverty and increasing the dependence on antibiotics used with animals that will have a devastating affect on the industry. If the price of milk is not increased soon, then the UK will suffer a shortage of supply and thus pay more in the long term.’ Blockades of milk-processing plants have taken place in Worcestershire and Derbyshire. It seems likely that more blockades will occur in the future, despite a deal ‘in principle’ being agreed recently with Jim Paice, the minister for agriculture.

Many critics of the supermarkets have also pointed out that, unlike other industries, dairy farmers do not set the price at which they sell their product. Many have contracts to supply milk to processors, but the amount they receive varies. Three processors now dominate supplies of fresh milk to the big supermarkets, which in turn account for nearly two thirds of sales to the public. Arla (which supplies Tesco, Sainsbury’s, Asda and Morrisons) has an estimated 43 per cent of the market; Robert Wiseman (Tesco) has 35 per cent; and Dairy Crest (Sainsbury’s, Morrisons, Waitrose and M&S) has 22 per cent. In total, 87 per cent of UK milk is purchased by just five per cent of the processors. This, we are told, gives far too much power to processors and supermarkets who are able to cut ‘farm gate’ prices.

Let’s leave aside Farmers for Action’s blatantly populist nod to the misinformed notion that cattle on intensive farms are pumped full of antibiotics (see Time for an injection of common sense). The fact is that the number of dairy farms in England and Wales has been falling steadily for some years. In 1995, there were 35,741 dairy farms; by 2010, that had dwindled to 15,716. It is thought that dairy farms currently number around 11,000 and some speculate that another 8,000 farms will cease milk production over the next few years. The average herd size in the UK is 117 cows (with considerable regional variation). This is significantly above the EU average of 42, and the trend is for the herd size to increase further. Yield per cow is increasing, and is currently around 7,315 litres per cow per year. Again this is much higher than the EU average. So where are things going wrong?

Farms would be profitable, goes one argument, were it not for big supermarkets making unfair demands and forcing inhuman animal-welfare practices on producers. Others see the problem located within the international markets, where farmers and consumers are at the mercy of commodity traders. The reality is almost the opposite of this. The problem of farm profitability largely comes down to the state protection from market forces that British farmers receive.

For most of the twentieth century, agriculture was treated as a special sector of the economy. The Milk Marketing Board was established in 1933 to control milk production and distribution in the UK. It functioned as the buyer of last resort, thereby guaranteeing a minimum price for milk producers. The Second World War engrained the idea that national self-sufficiency was paramount. The vast majority of milk available in Britain is still produced in Britain.

The first farming subsidy in the UK came in the form of the 1947 Agriculture Act. Following legislation, the 1952 Agriculture (Ploughing Grants) Act and the 1957 Farm Improvement Grant continued to favour the development of farms dependent on government. Grants and subsidies carried on during the 1960s, with new provisions encouraging small farms to amalgamate with larger ones and to encourage farmers to retire early. When Britain entered the European Economic Community (aka, the Common Market, now the EU) in 1973, many of the subsidies stopped, but the Common Agricultural Policy (CAP) continued to support prices artificially, protect markets and provide subsidies. Today, subsidies to UK farmers are meant not only to increase agricultural productivity but also to protect standards of living for farmers and farming communities in the EU and to bring consumers cheap food.

Subsidies are production-based (meaning the more acres of cereals you grow or the more animals you have, the greater the subsidy), so the bulk of the subsidy goes to the larger, richer farms. It is commonly stated that within the EU, 80 per cent of farm subsidies go to 20 per cent of farmers. So while much subsidy goes to old aristocratic landowners, all dairy farmers are protected from the market forces that would incentivise them to innovate their way out of their current troubles.

While encouraging an increase in the productivity of a particular industry may be a positive role for government, protecting that industry from competition can only cause it problems in the long run. An industry that must compete in a world market, where opportunity promotes innovation and where the need to increase profit develops the productive process, will quickly becomes stagnant if it is protected from these pressures. Where does the desire to improve come from when profit is secured through policy rather than through the possibility of improvement? Instead of innovating, the various sectors of the industry compete for a larger slice of an already existing cake. For farmers, at the bottom of the chain, it is the ‘gate price’ which is being squeezed, to the extent that milk production is no longer profitable for many farmers.

So although a dairy farmer with the average number of cows for the UK receives little subsidy for his milk, he may well receive grants for ‘stewardship of the countryside’. He probably makes just as much money by contracting himself out as a labourer on other farms, opening a farm shop or becoming part of the tourist industry by converting barns into holiday cottages, than he does from food production. This is a consequence, not of rampant corporatism, but of protectionism.

As regards milk supply and food security, the fact is that most of Britain’s milk comes from bigger farms. In 2008/09, 3,484 farms jointly produced more than one million litres of milk. This accounted for 59 per cent of the total milk supply in Britain. In contrast, 5,008 farms (40 per cent of the industry) produced less than 500,000 litres of milk - just 13 per cent. These 5,008 farms could go out of business without affecting the milk supply drastically.

Farmers for Action argues that the livelihoods of the farmers from these 5,008 farms need special protection from the market. But they already have such protection – that is how they have been able to survive up to this point even though their contribution to the national milk supply is negligible. Society is being asked to subsidise people who run unproductive businesses. But these businesses are largely unproductive and unprofitable because of subsidies, because they are shielded from what every other small business owner in the country has to face – the realities of economic life.

As a National Farmers Union (NFU) spokeswoman said: ‘We are not talking about large businesses here. They are small firms, often one- or two-man bands, who have large overdrafts and quite big loans.’ This doesn’t sound much different from lots of small businesses in many different sectors throughout Britain. Farmers are generally a resourceful, able and self-sufficient bunch who should welcome opportunity; the special pleading from Farmers for Action is doing them no favours. Farming is not special - and it needs to sink or swim like any other sector of the economy.

The bottom line is that milk should be cheap. Developments in agricultural productivity and practices have consistently lowered the price of food to the consumer. Cheap food is the agricultural sector’s contribution to the development of modern society and needs to continue. If farms with 117 cows cannot contribute to the continued lowering of prices, then what is their reason for existing?


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