Examination of Witnesses (Questions 100-119)|
WEDNESDAY 30 JANUARY 2002
100. So could you say just a bit more about
the way in which any current retirement schemes, or you could
see retirement schemes dealing with this situation, or helping
with this situation?
(Professor Alliston) The Curry report had a comment
on that, that I thought was quite interesting, and that was linking
young people to old people who did not have succession within
their families. Now most farmers are grappling with succession
at some stage in their lives, but there must be a few people around
who probably do not have any offspring, do not have any logical
succession within their families; it may be a way of getting young
people in, I had not really thought about that.
(Ms Russell) I think, if I could add something to
that as well, it is not purely just young farmers that we are
losing, it is young people in farm business management and consultancy
advice and land management advice, it is wider spread than purely
the agricultural sector. What we are seeing is a decline in interest
in going into a whole sector that is regarded as being on the
down, and they think, "Well, we'll go into the City and earn
better money there."
(Mr Ansell) A major problem is, when incomes are low,
there is just the inability of the business to provide funding
for one generation to retire and pass on to the next; and many
farmers, I think, have to hang on, simply because they need a
share of the farm income, if there is one, to survive. Not many
farmers, I think, deal with a pension strategy early enough in
life, and they find themselves, in their late 50s, early 60s,
forced to carry on, particularly tenant farmers, because there
are simply not enough assets that they could cash in, if they
wished to, in order for them to survive on.
101. Is there any correlation between those
who are hanging on and the efficiency, or inefficiency?
(Mr Ansell) Charles, you wanted to say something about
efficiency and age.
(Mr Course) Yes. I think this is an interesting reflection,
as a consultant who deals with a large number of farmers, to some
extent, just to dispel the idea that all youngsters are novel,
innovative, though, I have to say, in terms of the clients and
the businesses that I deal with, some of the most innovative and
reactive tend to be older; and I think that is an important point
to take on board. If we moved out a large tranche of the older
population in the agriculture industry, those coming in would
not automatically just adopt vast new technologies and new policies.
The industry is not very innovative, and there is a lot, in my
view, of younger people coming into the industry who still have
just as blinkered views as their parents did. We also have to
be aware of the statistics, in terms of what the agriculture industry
is. A lot of people will continue to remain as partners in farming
businesses until they die, they will always do that, it is just
the nature of it; they may not be working in the business, they
may draw very little, it may be a function of the tenancy arrangement
that they have to live in the house, or whatever. And we should
not be too distracted by the statistics saying that the average
age is 55 to 60. And I recognise that farming is a relatively
old industry, on average, but in any industry where you have got
people remaining notionally a farmer, even though they may not
be a decision-maker, they may not be part of the business, until
the day they die, that will distort the statistics. And, in a
way, the fact that society is getting older, the average age of
farmers will get older. Also, I suspect that, sort of to concur
with what Kate said, the agriculture industry is not an attractive
place to come into at the present time, and, therefore, if people
are not coming in at the bottom end and the industry is going
to reorganise, and if we accept the premise that the number of
farmers must decline, I do not think we should be surprised to
see the average age going up. And, therefore, I would just caution
against average age as a measure of success in terms of policy,
because I think there is a lot of reasons as to why it could give
you the wrong answer.
(Ms Russell) If I could just add something to that
again, there may be a link between what Charles was saying there,
about the young people not being particularly innovative, because
we are not attracting the very best young people into the industry;
the young people that are going into the industry are doing it
almost in spite of the situation, rather than because it is an
attractive situation to go into.
(Mr Course) Yes; that is a default. If you are lucky
enough to go and get a job doing something else, you will not
go into farming.
(Ms Russell) Or you very much want to be in farming.
(Professor Alliston) Could I make just one point about
the New Zealand scenario. Where they did away with subsidies in
New Zealand, they did have to bring in a scheme to help farmers
walk away from their farms, so they had a minimum payment that
they paid to farmers, as a sort of retirement-type grant.
102. Can we look at the impact of the price
of land, because one of the problems that farmers have is that,
within reason, the price of land will only go up. Now I know tenant
farmers can renegotiate their rents for a period of time, but
because we live in a very small island the problem that farmers
have is their inputs are outside of their control. And one of
the things I have been worried about, and I think it has not been
picked up, in terms of the spread of animal disease, is that people
who are farming their existing holding more intensively, and that
can be a risk, not necessarily so, but it can be, if they do not
actually have the knowledge to do things in a different way, and
what they pick up is marginal pieces of land, grass-keep, and
so on, I am talking principally about animal farmers here, but
this must be a real worry. Because, in a normal recession, the
inputs across the board would be declining, and yet one of your
key inputs is going in the other direction, which means you are
continually being squeezed. Is there any way around this; because
I am great supporter, as I think you will know, of the tenant
farmer, and I think we could reinvigorate that, as long as the
holders of land understand they cannot keep squeezing higher returns
from their ownership of the land?
(Ms Russell) We discussed this outside, and we do
think that the current subsidy system has put a floor certainly
in the rental market, and obviously that has impacted on the capital
value of land as well. I think it is slightly unfair, rather one-sided,
to say that it is landowners who are pushing up the prices to
tenant farmers, because
103. No, I did not say that. Any piece of land
development potential, that is the biggest problem on this island.
(Ms Russell) Sure; exactly. And there are many other
demands as well; the lifestyle unit, the people with their big
City bonuses, coming and buying their 200-acre garden, and that
is a real factor in the land market. But the subsidies have put
a floor in the value that tenants are prepared to bid for land,
and, I would argue, it is widely regarded in the industry that
that is too high, and that established farmers who can spread
their costs over a larger area are out-pricing, again, young entrants
coming into the market, or people who are less able to do that.
So we see the value of marginal blocks of land, as you say, outlying
blocks of land, going up in really not justifiable rents, very
hard to justify some of those rents, and very hard to justify
a lot of the capital values on a purely economic basis. But there
are many non-economic factors that impinge on the decision to
buy land; a lot of farmers are still land-hungry, they want to
own their bit.
(Mr Course) Can I come back on the point about land
values, if we have time. You cannot say that development opportunities
push up land values, which pushes up rent, you just cannot make
104. It appears to be the case?
(Mr Course) It is simply not the case. The point that
Kate was making, which I think was either missed or ignored, was
that you need a willing buyer and a willing seller to rent land.
Landowners who buy land, whether they buy it at £3,000 an
acre or a quarter of a million pounds of development value, do
not force tenants to rent it; if tenants choose to rent it at
£90 an acre, that is an economic decision which they take,
and it may be marginal economics, but it is a choice they take.
I think the point that we want to make, as far as subsidy is concerned,
is that while you have got £80-ish an acre of support, that
will get translated into rent, because it will affect the open
market, marginal economic value that people will pay to take on
the extra 100 acres. So I think there is an important point there.
I think also, the capital value of land, landowners hold land
for reasons other than farming it, and that is where we have got
to look at separating the landownership issues and the operating
issues; and I think we must be very careful not to have subsidy
systems that support land values.
105. In the horticulture industry, in the last
ten years, there has been a dramatic reconstruction of that industry,
typified by survival of the fittest; there are not any subsidies
in horticulture. So perhaps it gives us a model of an unsubsidised
agriculture and what would happen. Mr Course, when you were talking,
you gave me the impression that by incrementally changing the
subsidy payments you could, in some way, trigger, to use modern
parlance, the re-engineering of agriculture; but the constraint
that rightly you allude to is the fact that, at the mid-term review,
the degree of the restructuring of current subsidies may be limited.
And the Curry report gives us some indication, in its comments
on modulation, as to how it wishes to see what we can change,
if you like, by way of the subsidy mechanism, how it wants to
see that. So the question is this. Given the external constraint,
given that we can only change a bit of subsidy via modulation,
by how much do you have to change the distribution of the money
to trigger the reconstruction that you talked about, and how much
do you get, in terms of moving down the scale of modulation, does
it actually trigger the reconstruction that you described?
(Mr Course) I think I can follow that. I agree with
you, the horticulture industry, I would say, is a good example
of how UK farm businesses would react to no subsidy. It is also
a good example of how the supply chain has improved; it is slightly
emotive, but the supply chain has shortened and condensed, and
there is a much closer connection between supermarkets, the retail
end, and the primary producers. So I think, to some extent, you
can use the horticulture industry as a model. If anyone wants
to comment on the organic, I think there is sort of an organic
anomaly, which we should not lose sight of. Going further then,
in terms of modulation, I could easily quantify it, if I did some
calculations, but I suspect one would find the rate of reorganisation
and restructuring being exponential to the reduction in modulation;
so 2 per cent modulation will achieve virtually nothing, 10 per
cent will achieve twice as much, 20 per cent probably will achieve
five times as much, I suspect it will be quite exponential. I
think, if you accept, at the present time, that a very large number
of farm businesses are losing money, any level of modulation that
moves money from one sector to another, and if all modulation
does is take away £10,000 from a farm business and give it
back in another way, no change. But if you take away £10,000
and redirect it somewhere else, to achieve something rather different,
then I think we will see some quite significant impacts at even
small levels of modulation, if we accept that the starting-point,
at the present, is that very many farm businesses are losing money,
and very many farm businesses are not sustainable at current levels.
106. But, the way in which the modulation mechanism
is operated, that would be done centrally; and, to go back to
a point that Mr Burnside mentioned in his question, it alludes
to this. Because how is the model to be constructed to achieve
what, going back to horticulture, has been achieved by the market-place;
because if you are trying to have a command and control system
that you say, "I'll get restructuring in different degrees
by fiddling around with modulation," how then does it work
out in spatial terms on the ground, because of the winners and
losers argument? Is it not too complex an equation for DEFRA to
manage, or some other mechanism to manage, with any idea that
it is going to get the result it wants?
(Mr Course) I think it is a complex issue, and I think
one of the things we have to be very careful of is using what
I described earlier on as blunt instruments to achieve change.
This may not be a direct answer to the question, but I think it
was. And I think possibly one of the things that is being alluded
to is that the modulation, or one of my views is that it should
not be regressive or progressive, I think any level of modulation
should be flat-rate. I think, if anything other than flat-rate
modulation, if one is taking away direct support payments they
should be taken across the board. I think to suggest that you
might take them away from the large-scale farm businesses, at
a higher rate than small-scale farm businesses, will do nothing
other than promote inefficiency and further exacerbate the problem.
So that is just a comment, but I think it is an important point,
in terms as far as modulation is concerned. I think one has to
accept that, if one modulated 10 per cent of all direct support
payments, it is then a question of where you redirect it, really.
One accepts that there is quite a clear pattern, in terms of where
support goes, in chunks of it to different parts of the country,
and in nominal terms you can see more of it going into the arable
areas rather than the livestock areas, and you can look at the
levels of intensity, so it is quite easy to get a picture of the
country that shows how much money goes where. If you take 5 per
cent away, it is obvious how much you have taken away; it is then
a question of where it is redirected under the second pillar as
to where you shift it to, but I think there has to be a recognition
that it is likely to get shifted from one part of the country
to another, from one sector of the industry probably to another.
107. It seems obvious, I think, to most people
that there is no pain-free option for the future of British farming,
and yet the farming community seem pretty reluctant to accept
this. I saw cows' ears thrown across the street in Bournemouth;
in Brighton, I went to a meeting to where the principal speaker
could not get, because someone had switched on the muck-spreader
and closed the road; and when the Minister visited the neighbouring
constituency of Corby, the local MP had to have the climate control
system flushed out on his car because they had squirted cows'
urine all over his brand-new Rover. This gives me the impression
that farmers are not particularly keen to consider some of the
tougher options; and one could even argue that some feel they
have a God-given right to survive, from generation to generation,
unlike shipworkers, unlike steelworkers, unlike people in the
motor industry, the coal industry. Can the Curry report inject
a dose of reality into the debate? We can sit, we can have rational
discussions about serious problems in this industry; but, when
I meet local farmers, that rationality, that cold reality, seems
to disappear, and not personally but things can get hostile, and
I have witnessed it enough times already.
(Professor Alliston) Chairman, can I respond to that.
I think the vast majority of farmers understand the situation,
in terms of change, they understand that we are going through
a time of necessity of change, and I think they would be already
doing it. And I think the argument about taking subsidies away
will somehow make something happen that is not happening now is
probably an exaggeration, because I think most forward-thinking
farmers are already grappling with the market-place, how they
can get closer to the market-place, how they can form co-operatives,
how they can form strategic alliances, and they are the people
that are forging ahead and are going to be the ones that are profitable
in the future. Now if there are people that are doing as you are
saying then I think that is unfortunate, because it does not actually
help the debate very greatly. But it is probably an expression
of sheer desperation that agriculture is feeling at the moment,
in that it is an industry that financially is toiling, but it
is also toiling in the public's awareness of it and public perception
of it, and, because of circumstances associated with foot and
mouth and with BSE, and so on, it has not got a good image out
there, and farmers feel that very personally.
108. I think there is sympathy for the farming
community, and they should not forget that, but, sooner or later,
we have to work together, we, as Government, and they, as people
working in the sector?
(Professor Alliston) I think the majority of farmers
would welcome that view and accept it.
(Mr Course) I am sure of that, and, the large number
of farm businesses that I work with, the vast majority have recognised
that there needs to be change, they welcome change, they want
to embrace it. Going back to the numbers, the statistics say there
are 170,000 farmers in the country; if only 30,000 of those have
got meaningful businesses, it is not surprising the that some
of the 100,000 turn up and make a noise.
109. Given that we have said that there is a
recognition amongst many of the farmers that they do have to change,
they have got to learn and change, and that the situation over
the last decade has been a decline in farm incomes, with small
farms losing out so much, and that Ben Gill has been exhorting
them now for a long time to co-operate, why is it that we appear
not to have a willingness for farmers and farms to co-operate,
as they may do elsewhere; or is that not the case?
(Mr Ansell) It is certainly the case that co-operation
is less prevalent in agricultural marketing, for example, here
than it is in most other of our direct competitors in Europe.
I think part of that is a legacy. We went down the marketing board
route in the last half of the last century and we had marketing
boards for quite a wide range of products, where many other countries
developed a co-operative movement. We have had quite a few spectacular
failures in the world of agricultural co-operatives as well. But
I think there are new types emerging, not quite of that sort,
but I think, for example, in things like machinery, sharing rings,
in buying groups, that kind of co-operation, that is increasing,
I think, and I suspect that will work probably better than some
of these rather sort of huge and unwieldy co-operatives that have
not really succeeded in a more competitive trading environment
in the last few years. So I do think there is quite a lot of informal
co-operation taking place, which perhaps is not as easily discerned
as some of the more large-scale and obvious agricultural marketing
co-operatives that you get in other places.
110. And have you thought about or identified
areas where, rather than small-scale co-operation, small farms,
or any farmer, would benefit if they did have a more co-operative
approach; have you looked at this, where it might really benefit
UK agriculture and farms?
(Mr Ansell) My impression is that the things that
work best are when a group of farmers, who know each other and
work in roughly the same sort of business and geographic area,
perceive that there is a mutual interest in them doing things
together, and that interest can be quite powerful, very significant
savings in cost can be achieved. Supermarkets are wanting to source
products from a smaller and smaller number of buyers. I think
farmers are aware, even large farmers, that they need large quantities
of uniform products. So I think that is driving the business forward
in some areas; but I think, personally, it will be relatively
small groups of farmers, with linked interests, who are likely
to drive the process forward.
(Mr Course) I think there is a lot of examples of
farmers co-operating. I think a first comment is, for co-operation,
do not read co-operative; there is a vast amount of co-operation
between farm businesses which is not under the co-operative umbrella,
and David mentioned the sort of history of failure within the
co-operative movement. There is a very large number of farmers
that are already co-operating, by some means or other, but there
seems to be a view that farmers do not co-operate. There is a
lot of smaller-scale farmers, traditional farmers, who value their
independence, and whilst they can remain independent they will,
and therefore there is a "needs must" argument. But,
in terms of forward-thinking farmers, and the horticulture industry
is a very good example, if you look at the restructure that has
taken place in the horticulture industry, there is a vast amount
of co-operation, whether it is forming supply chain companies,
or processing companies, whether it is working together, whether
it is sort of selling from one farm into a pack-house; but there
are very, very few examples in the horticulture industry where
farmers do not co-operate, where they are not doing something
together, through the chain. I would say, also, in terms of, if
you look at the marketing organisations, the proportion of commodities
sold through marketing groups, not necessarily co-operatives but
marketing groups, and they may be commercially-owned companies,
sort of farmer-owned companies, there is a large proportion of
commodities in this country, a significant proportion, actually
sold through marketing groups, and a significant proportion of
inputs purchased through the groups. At the farm level, there
is a vast amount of co-operation. Taking a slightly "edge
of the spectrum" example, contract farming arrangements,
a contract farming arrangement is an example where a farmer cannot
afford to own machinery and employ the staff to run his farm,
and uses another farmer maybe to do all or part of his business.
A pretty significant part of the land in this country is farmed
under those types of arrangements, and that is a form of co-operation.
I think, just because it is not under the co-operative banner
and a mutual society status banner does not mean there is not
some pretty significant co-operation going on in the industry.
111. Just before we go on, to modulation again,
I am afraid, can you just give us your view as to whether the
current legal framework for these co-operatives, which are much
under the sort of archaic rules of friendly societies and mutual
societies, is actually a modern-day, sensible, legal entity for
these new co-operatives to function?
(Mr Course) My direct view on that is, no. And I quantify
it slightly by saying that the main reason that many farmer-owned
groups have set up as co-operatives is to take advantage of the
tax breaks given to mutual societies; if what is required is co-operation
between farmers then those sorts of tax advantages, in my view,
ought to be offered to us as a limited liability company.
112. Thank you very much. I agree entirely with
that. Really, there needs to be a modernisation, because I think
the Act is something like 1873.
(Mr Course) And I speak there as a director of a co-operative
and a number of farmer-owned companies, where it is a nightmare.
113. Going on now to the modulation again, which
is very much the heart, it is the very controversial bit in Curry,
and such, and the various rates, you said earlier on, I think
it was Mr Course actually said, that you felt that subsidy in
order to get changes ought to be more targeted, and then later
on you said that you were totally in tune with the fact that any
modulation ought to be flat-rate. How do you get targeting and
maintain flat-rate modulation?
(Mr Course) What I meant by that was that support
should be targeted to a direct objective; for example, if one
wants a hedgerow, pay for a hedgerow, if one wants an upland hill
farmer, pay for an upland hill farmer. That is what I meant by
specifically target. If one wants environmental
114. So flat-rate for getting the money in,
targeting for spending it?
(Mr Course) Yes. My flat-rate point was, personally,
I think it would be wholly wrong and economically inefficient
to take 10 per cent modulation away from 1,000-hectare farmers,
and 5 per cent modulation away from 200-hectare farmers. So what
I think is economically inefficient is progressive modulation.
115. But you also said that you work mainly
with large farmers, so perhaps your particular view might be more
biased in the fact that it is people that you work with?
(Mr Course) That particular view is very much as a
free-market economist, rather than in terms of looking at my client
116. Do you believe that there should be a threshold
beneath which modulation does not apply?
(Mr Course) I say, personally, no; and, again, I come
back to the statistics, that we have got about 170,000 farmers
and there are 89,000 of them under 30 hectares. The vast majority
of those are part-time farmers, they are people who have another
career, another income, who happen to own ten or 30 hectares;
if you have a threshold, effectively, you are looking at large
amounts of transfer payments to part-time farmers.
117. But the amounts of money for modulation,
in those sorts of levels, is tiny.
(Mr Course) Trivial; exactly.
118. Compared with the costs of actually monitoring
and administering the scheme. So the costs of administering a
flat-rate scheme are hugely more expensive than a more targeted
and progressive scheme?
(Mr Course) If it is administratively more efficient
to pay somebody with 30 hectares 100 per cent, rather than 90
per cent, and I struggle slightly to see how that could be administratively
more efficient, then fair enough, because you are talking about
only a few hundred pounds.
119. Has anybody done any of these calculations?
(Mr Course) Not personally, no.