Industry Eye: Government has to wake up to the much undervalued role of the farmer

There are similar contradictions in agriculture. The UN has estimated we must increase world food production by 70 per cent between now and 2050 – yet the price of grain has crashed.

The distinction must of course be made between revenue and capital markets. Although predictions are that the world will only just produce what is needed this year, we still have the carry-over stocks from the bonanza 2008 world harvest. Farmers do not have surplus storage capacity, so they have to sell one year's crop before the next harvest in order to make space. The short-term position is characterised by excess supply from the carryover stocks, even though the prospect is of serious shortages ahead. So the revenue position is weak but the capital outlook is strong – which is why land prices have held firm while grain price has halved. Can farmers survive at current prices? Generally speaking, they have a capital-intensive business that can act like a sponge: absorbing cash when times are good to provide a buffer when times are hard. But capital can only be drained for so long. Food production in this country is economically unviable for most farmers, and has been for years.

Our cost base is too high, and the bargaining position of the individual farmer too weak. The Government's analysis of Total Income from Farming – the contribution to GDP from the farming sector, equating to net UK farming profitability – shows that profit has rallied to just over 4bn after a pretty depressing decade.

The collapse in grain price over the past two years has been offset, nationally, by a near doubling of beef and sheep meat prices. However, hidden within the figures is income from different forms of support payment (mainly the Single Payment Scheme), amounting to 3.65bn last year. Without that income, the vast majority of businesses would have lost money. Even including it, the average farmer took home less net income per hour than the National Minimum Wage.

Farmers are hugely undervalued. They produce food to the most stringent of standards, so cheaply that most of us spend less on it each year than on cars or holidays.

We should be more grateful. The financial support they receive from central Government is not great – approximately 0.5 per cent of Government expenditure, which is far less than the cost of education, health etc. And on top of cheap food and quality husbandry, it enables the Government to manipulate the provision of less easily quantifiable benefits such as clean water, tourism in rural areas, diversity of landscape and wildlife and so forth.

The Common Agricultural Policy is up for review over the next two years. We cannot afford to get it wrong.

James Farrell is a partner at Strutt and Parker and head of their business in the north of England. He can be contacted on 07702 317221 or at [email protected]

CW 12/6/10