This post is by Chris Clark of Nethergill Farm. It is the first in a short series about the options for the future of upland hill farming in the UK.
With the increased uncertainty regarding the viability of hill farms, the time is now ripe for farmers to think radically about hill farm management and consider new alternatives in a way that has not been possible since the last war. The justification for the old hill farming world is going or maybe has already gone.
This is the first of a series of blogs in which I will consider the current state of managing and farming land in the UK above 200 metres, how we can take back more control and how to maintain or even increase the number of hill farm holdings.
Deep financial crisis
Although it may not currently feel like it, the upland rural economy is in as deep a crisis as it has ever experienced. This is characterised by a lack of profitability. Farming is governed by commodity prices and so is beset with low profitability and inadequate incomes for farmers. Defra has assessed that in 2014-15 half of UK farmers failed to cover their costs of production and, even after all support payments are included in farm revenue, almost 20 per cent of farms failed to achieve a farm business income. The situation will almost certainly be worse for hill farmers. Like every business, farms need to generate at least enough revenue to cover their variable costs, otherwise, cash leaves the business. Public funds should not be used to support businesses that are losing value in this way.
This lack of profitability forces the need for income sources from outside the business, and not just from farm subsidies, such as the Basic Payment Scheme and environmental payments. Income generated by a working spouse and benefit payments claimed through the Family Tax Credit are also significantly supporting hill farming families. However, Universal Credit is replacing Family Tax Credit and it looks likely that farming families will lose out because of their self-employed status. And, because of the marginal nature of upland farming businesses, hill farmers are likely to suffer the adverse effects of Universal Credit more than most.
The problem has been further exacerbated by the new Countryside Stewardship scheme. Hill farmers coming to the end of their Higher-Level Stewardship agreement have been unable to seamlessly move into a Countryside Stewardship scheme. The time lag between the old and new schemes is exerting substantial cashflow pressure on those upland farms attempting to maintain their environmental schemes and associated payments.
Another issue is that farm businesses need access to debt finance, but the high street bank’s approach to lending to farm businesses is changing. Rather than asking for business or personal collateral as security, banks are now asking farm businesses to show their capacity to service the overdraft or loan. This requires a robust profit and loss account which most upland farms struggle to achieve.
Uncertainties in the global market
A robust profit and loss account relies on meat prices holding up and this is contingent on a single market agreement with the EU. Without that, the post-Brexit market for beef, lamb and dairy products will need regulation, with appropriate support, tariffs or quotas. This will be vital to ensure the continuity of farming in upland areas. And there are significant uncertainties in the global market: world prices for beef are currently almost half the present EU price and New Zealand lamb is approximately 75 per cent below the EU price; the UK currently exports £300 million of lamb mainly to the EU; and tariffs on butter and beef keep produce from low cost food exporting countries, like Australia, the US, Canada and China, out of the UK and the rest of the EU. These are the countries with which the government is planning to negotiate bilateral trade deals. There is a risk that reductions in agricultural commodity tariffs could be used as a trade-off for a deal with a country like the US.
A changing industry
The financial situation is problematic enough, but the structure of the UK’s sheep industry is also changing. In 1971, the sheep industry was 86 per cent stratified, meaning it was organised into hill, upland and lowland farms with hardy hill and upland breeds transferred to lowland farms to fatten for market or to cross-breed with lowland sheep. However, in 2012 that had reduced to 56 per cent and is still on a downward trend, with more farmers operating closed flocks. The result is a significantly decreased demand for the ‘Mule’ ewe, a hill-upland cross-breed used to produce lambs for meat on lowland farms and the staple of the hill farmer’s revenue stream. Aggravating the demand for hill-born lambs further is the significant long term decline in the consumption of sheep meat as younger consumers show a preference for other meats.
There is a belief in the hill farming community that, to make a profit, single unit farm holdings will have to grow to new minimum economic sizes. In the 1950s it was possible to work a farm of 100 acres viably, this increased to 300-400 acres by the 1970s and is now poised to reach 2,000-3,000 acres. This trend, on its own, will cause upheaval in farming and push small farmers out of the future rural economy.
Farm businesses must take control
But increased production and more farming subsidies are not the solutions. Although the situation sounds dire, farm business managers, large and small, could mitigate the detrimental effects by taking back control of their own businesses. Four options face farmers today:
- Reshape the hill farming business model.
- Become involved in the downstream food supply chain.
- Expand non-food activities and use the land in new ways.
- Quit farming altogether and allow land abandonment.
Much is made of the hill farmer’s attachment to the land, to feeding the nation and the link with the past. However, when the romance is stripped away, land ownership and primary food production in the uplands can now be more of a liability than an asset. Fundamental changes are needed to avoid a future of economic inactivity and significant changes to landscapes in hill farming communities. In forthcoming blogs, I will illustrate the alternative farm business models that could help to reduce the likelihood of hill farmers leaving the uplands.
[Image: Sheep by Tristan Ferne from Flickr Creative Commons]