‘Farm viability in the EU - Assessment of the impact of changes in farm payments’

[Jim Webster]

This is the title of an interesting study which you can find on

http://www.lei.dlo.nl/publicaties/PDF/2010/2010-011.pdf

It does give a feel for just how vulnerable different sectors are in different EU member states.
Unfortunately Rumania hasn't been a member long enough for the figures from there to be included as it was over a three year period.

Jim Webster

[Courier]

There is a lot to get through in that report -
But interesting that it appears to have been compiled by a Dutch organization yet paid for by our own beloved D.E.F.R.A.

[peasantman]

Nothing new or surprising in the report. Just states the obvious. Another complete waste of taxpayers money.

[Jim Webster]

Originally Posted by peasantman

Nothing new or surprising in the report. Just states the obvious. Another complete waste of taxpayers money.

Oh I don't know.
If it was so obvious before, I'm surprised you didn't cash in and sell them the report yourself

There is a lot of stuff that could be very useful, they divide farms into 5 catagories, basically 1 is doing OK and 5 is going down the tubes as we watch.

Tables 5.2 and 5.3 have which countries have most and least farms in each category.

UK is shown to be one of the states with the lowest % farms in categories 1 and 2 and does have the highest % in 3 and 4

Category 3 is no income, survives on cash flow and cannot replace all the stuff that wears out
Category 4 is the same but with even less income, survives on credit or income from off farm.

Given that we now have these numbers in writing, a report sponsored by Defra, I think that's a big move forward

Jim Webster

[Malcolm]

It's a rather hypothetical execise but it does show how dependent we are on subsidies compared to the other countries.

[Jim Webster]

Originally Posted by Malcolm

It's a rather hypothetical execise but it does show how dependent we are on subsidies compared to the other countries.

Yes and it does show what a poor state our industry is in compared to some many other member states.

And whilst Rumania isn't included it does flag up Elmsteads point that the East is less dependent and in certain ways may even be better structured than the west

So of it was a bit simplistic, the assumption that certain sectors (intensive livestock and vegetables for example) would survive the dropping of subsidies without much difficulty, when overlooking the fact that intensive livestock is dependent on the subsidised sector for feeds. A big fall in the amount of grain produced is going to hit them.


Jim Webster

[Mayo]

With interest, I note that the Brazilian government has just announced they intend to pump about 53 billion US dollars into their Ag industry. This coming year.

It is a myth that only the EU subsidises farmers.

[Elmsted]

Jim.

Interesting to note that DEFRA commisioned the report. One could conclude of course that they are seeking information to defend the position of UK before reforms. But despite what some say the mindset needed to understand the EU agricultural sector will not be found in the UK. It is a totaly different view held by the other 27 members.

From which flows a little bit a comment I might make regarding your analysis of intensive livestock and grains consumed. Their understanding of the word and methods involved are very different than yours. With regard to veg etc,I have always tried to point out that the UK supermarket system of being the way most things are sold roughly put. That on the mainland this is not quite the case.

We are in the east from Vienna north to the baltic swimming already in huge stocks of animal food that the west is un willing to buy. So a reduction does not hurt too much. We also as yet have not mentioned the volume of farm produce comming eastwards on the back of higher subsidies which act against local producers. I can not see on the scan I have made any mention of this. Namely as subsidies decline in the west your competitive advantage in certain sectors declines.

Oh and as usual a note of history. It is only nations who have conquered and oppresed us that spell Romania with a U instead of the correct O.

Best wishes.

[dgw]

According to the latest NFU figures as released on their e mail bulletin today; 55% of UK farms would be unprofitable without SFP; but (incredibly?) 80% of European farms would be okay without it!

I find these figures rather hard to believe in that I always considered UK to have larger than average farms, and Europe in general to be more dependant on the SFP. Can somebody verify these figures and enlighten me as to how the UK seems to be more dependant on SFP than the rest of Europe?

[Jim Webster]

Originally Posted by dgw

According to the latest NFU figures as released on their e mail bulletin today; 55% of UK farms would be unprofitable without SFP; but (incredibly?) 80% of European farms would be okay without it!

I find these figures rather hard to believe in that I always considered UK to have larger than average farms, and Europe in general to be more dependant on the SFP. Can somebody verify these figures and enlighten me as to how the UK seems to be more dependant on SFP than the rest of Europe?

It is explained in the report, but basically the east hasn't got much SFP so if you take it off them it won't be missed as much
Also there are various sectors that are more dependent on SFP and the UK has a lot of them.

Also the North West of Europe isn't all that efficient, we produce large volumes at low margin, so we don't have the resiliance, if there is a small cut in the margin, we produce large volumes at a loss. The report reckons that our low margins are due to high overhead costs

basically we use a lot of borrowed money, have expensive land and use a lot of paid labour. All of these push up overhead costs and make us less efficient and less resiliant when compared to those countries that don't do this

We may need to look at how we measure efficiency. We've been taught by banks and government that efficiency is maximising output and running expensive highly capitalised businesses. Well they would tell us that wouldn't they
Perhaps efficency is really running a business that can pay you a decent living year after year after year, allowing you to build up a pension and generally have a reasonable lifestyle

Jim Webster

[dgw]

Thanks Jim; but what about the traditionally militant countries in the 'old' Europe, such as France etc. who always kick up the most fuss about protecting their farmers incomes; are they not also more reliant on SFP?

[Jim Webster]

Originally Posted by dgw

Thanks Jim; but what about the traditionally militant countries in the 'old' Europe, such as France etc. who always kick up the most fuss about protecting their farmers incomes; are they not also more reliant on SFP?

There is a nice map showing that on page 13,
It is done in shades ranging from pale yellow (least dependent) to a dark red, (most dependant).

The most dependent areas are Scotland and the old East Germany.
England, Denmark, and North France come next with Sweden and Finland.
The rest of the continent is far less dependent.

if you want the details it is all there, page 13
http://www.lei.dlo.nl/publicaties/PDF/2010/2010-011.pdf

Jim Webster

[peasantman]

Originally Posted by Jim Webster

Oh I don't know.
If it was so obvious before, I'm surprised you didn't cash in and sell them the report yourself

There is a lot of stuff that could be very useful, they divide farms into 5 catagories, basically 1 is doing OK and 5 is going down the tubes as we watch.

Tables 5.2 and 5.3 have which countries have most and least farms in each category.

UK is shown to be one of the states with the lowest % farms in categories 1 and 2 and does have the highest % in 3 and 4

Category 3 is no income, survives on cash flow and cannot replace all the stuff that wears out
Category 4 is the same but with even less income, survives on credit or income from off farm.

Given that we now have these numbers in writing, a report sponsored by Defra, I think that's a big move forward

Jim Webster

But how do they know this stuff with any degree of accuracy? I have never completed a survey to this effect nor has any farmer I know. Categorising businesses in this way using what data is available from national governments/surveys would in my view be prone to serious error.

Neither I nor any farmer I know has been directly asked the questions necessary to place me in one of the above categories.

And as the report says, no account is taken of the ways businesses would adapt - which makes its prediction of failures extremely hypothetical.

I don't see how the report moves us forward. It says we in the UK are most reliant on SFP, yet this gives rise to two opposing arguments:-

1) Keep paying us the SFP or we'll go bust
2) Stop paying us the SFP and force us to get our house in order.

It does not make it any easier to choose between 1 and 2.

Thanks for flagging up the report - it is of interest, but seriously I am not sure it adds much to the CAP reform debate. But I would be interested to hear how it would!

[Elmsted]

Originally Posted by peasantman

But how do they know this stuff with any degree of accuracy? I have never completed a survey to this effect nor has any farmer I know. Categorising businesses in this way using what data is available from national governments/surveys would in my view be prone to serious error.

Neither I nor any farmer I know has been directly asked the questions necessary to place me in one of the above categories.

And as the report says, no account is taken of the ways businesses would adapt - which makes its prediction of failures extremely hypothetical.

I don't see how the report moves us forward. It says we in the UK are most reliant on SFP, yet this gives rise to two opposing arguments:-

1) Keep paying us the SFP or we'll go bust
2) Stop paying us the SFP and force us to get our house in order.

It does not make it any easier to choose between 1 and 2.

Thanks for flagging up the report - it is of interest, but seriously I am not sure it adds much to the CAP reform debate. But I would be interested to hear how it would!

I think what it does along with the recent NFU report is point out that as subsides are reduced some places like UK and east Germany are likely to suffer the most. But it also shows that it therefore effects the least number of farmers. So from political viewpoint is more acceptable.
And as the report is drawn to an extent from a lot of EU data which will go in to their model for making the reforms is good to know for DEFRA. Who commissioned the report.

And as a personal view I would have thought it was a wake up call to save the SFP from now on until what the reform is going to be exactly is known. And as the dependence factor is primarily down to gearing of the business seems easy to know where one might firstly use that SFP saving.

IMO any how

[lazy farmer]

Originally Posted by Elmsted

I think what it does along with the recent NFU report is point out that as subsides are reduced some places like UK and east Germany are likely to suffer the most. But it also shows that it therefore effects the least number of farmers. So from political viewpoint is more acceptable.
And as the report is drawn to an extent from a lot of EU data which will go in to their model for making the reforms is good to know for DEFRA. Who commissioned the report.

And as a personal view I would have thought it was a wake up call to save the SFP from now on until what the reform is going to be exactly is known. And as the dependence factor is primarily down to gearing of the business seems easy to know where one might firstly use that SFP saving.

IMO any how

just an idea i don't know the truth of it or not but does the rest of europe have a higher new entrant rate ? surely if this is true then you would have a more forward thinking ambitious industry? prehaps more able to cope without SFP? here we have more of an industry passed on through the generations to people who in a lot of cases arent "any good" or as in my own case arent looking to expand massively and are just trying to make there job/life as enjoyable as possible.

lazy

[peasantman]

Originally Posted by lazy farmer

just an idea i don't know the truth of it or not but does the rest of europe have a higher new entrant rate ? surely if this is true then you would have a more forward thinking ambitious industry? prehaps more able to cope without SFP? here we have more of an industry passed on through the generations to people who in a lot of cases arent "any good" or as in my own case arent looking to expand massively and are just trying to make there job/life as enjoyable as possible.

lazy

Round here, the people who had it passed on to them and weren't any good have generally had to sell up. The land in this area (mid lincs) has been amalgamated into units of thousands of acres. The reason for this seems to be that people who have made money in other industries have bought many acres of land because it is a safe haven for their cash and also benefits from inheritance tax relief. I am not blaming them for doing this. They are protecting their own interests as we all should. I don't think the removal of SFP will affect this type of "farmer" very much. Even if they stop growing crops they are unlikely to take their money out of land, as at the moment, regardless of SFP it is the safest place to put it. So, if SFP is removed and people hang on to land for security of their capital, but don't produce food on it, then that does not bode well for food supply security, in my opinion. I think this scenario could well be the outcome of SFP reduction in a good many cases and in fact for small as well as large farmers. Provided you don't have a big overdraft to service, you would be mad to sell up, regardless of SFP, purely because of inheritance tax relief. It is somewhat different on the continent I believe. Inheritance tax relief is not so generous.

I don't see much mention of this in the report.

[yellow belly]

when or if the sfp goes or is reduced farmers will adapt to the new economics as the farmers did in new zealand

if many farmers /landowners decide to stop farming then their land may become available to those left ,if the rent demanded leaves a farming margin then it will still be producing at whatever level of imput is profitable
as at any time the financially over geared will pack up this may be an opertunity for others to reduce their costs

[Fen lad]

My two penneth!

The value of subsidy (SFP) is capitalised into land values / rentals in UK - we see this on threads on this forum where rents qouted a circa £100 acre or so. And if one looks at UK data on profit and loss accounts for the 'average' UK farm business the profit is the SFP. But the business generally trade at a small surplus before the rent and finance charge. Thus if SFP removed there would be no rent paid (and same for all) and those with large mortgages to service (a rental on borrowed cash) would struggle. Otherwise there would be several operators able to farm adequately because the trading margin is there already - but the SFP is siphoned off as rent. Take maybe two years to sort out but most reasonable land would continue to be farmed.

[yellow belly]

Originally Posted by Fen lad

My two penneth!

The value of subsidy (SFP) is capitalised into land values / rentals in UK - we see this on threads on this forum where rents qouted a circa £100 acre or so. And if one looks at UK data on profit and loss accounts for the 'average' UK farm business the profit is the SFP. But the business generally trade at a small surplus before the rent and finance charge. Thus if SFP removed there would be no rent paid (and same for all) and those with large mortgages to service (a rental on borrowed cash) would struggle. Otherwise there would be several operators able to farm adequately because the trading margin is there already - but the SFP is siphoned off as rent. Take maybe two years to sort out but most reasonable land would continue to be farmed.

we have had plenty of time to plan for this sfp plus els income may fall by half or more
many tenants will have rent revue aniversary in 2012 /2013 and we should know the level of payment that will be made by then and rents revued to take account of the change in income
land owner-farmers who have had sfp should have used to restructure and pay down debt
the family farm who owns the farm and shares the profits may have more to readjust
the land owner who does no farming will have the most to readjust