AG704 : AGRICULTURE, ENVIRONMENTAND SUSTAINABILITY

ECONOMIC AND POLICY ISSUESASSOCIATED WITH THE SUSTAINABILITY

OF AGRICULTURAL SYSTEMS

OBJECTIVES

1. to assess the current sustainability of farmingsystems from the economic and financialperspective

2. to outline possible future policy developments

3. to discuss topical issues associated with theeconomic and political sustainability ofagricultural systems

Agriculture and the national economy

1994 1996 1998

Percentage of GDP 1.5 1.4 1

Percentage of workforce 2.4 2.3 2.3

Self sufficiency

% of all foods 73 70 68% indigenous 86 83 82

Consumer spend on foodas % of income 17 16.5 16

Financial and Economic Sustainability

Related to the micro and macro economicperspectives outlined by Richard Lowerance

Very volatile indicators: the price of crude oil, orpossibly imported Soya could have a major impact onthe financial sustainability of a given farming system

However, financial viability underpins businesssuccess which in turn impacts on the way the land ismanaged and therefore the ecological and agronomicsustainability of systems

But, attempts to instil financial viability via subsidyhave not always led to ecologically sustainablefarming practices

INDICATORS OF FINANCIAL VIABILITY(SHORT-TERM SUSTAINABILITY)

Various standards available from the Farm BusinessSurvey

Return on tenants capital=100* MII/ tenants capital

Gearing =100* net capital/ total assets

Working capital = current assets - current liabilities

Liquidity ratio = liquid assets : liquid liabilities

Return on proprietors stake = 100* profit/proprietorsstake

Level of borrowing

Article 39 57/58 of the Treaty of Rome in short,

To increase agricultural productivity…….

To ensure a fair standard of living…….

To stabilise markets

To assure availability of supplies

To ensure goods reach consumers at a fair price

EU subsidies in million ECU

1986 % of tot 1990 % of tot 1992 % of tot 1996 % of tot

EU 15 8629 100.0 14242 100.0 18993 100.0 35299 100.0UK 835 9.7 968 6.8 1310 6.9 3781 10.7IRL 225 2.6 499 3.5 533 2.8 1094 3.1NL 114 1.3 156 1.1 213 1.1 406 1.2France 1398 16.2 1592 11.2 2725 14.3 8242 23.3Italy 1829 21.2 2947 20.7 3583 18.9 3804 10.8Germany 2285 26.5 2938 20.6 4726 24.9 5344 15.1

Subsidy per head employed in 1996

Subsidy Agricultural Subsidy per head millions of ECU Employment employed in ECU

EU 15 35299 16000000 2206UK 3781 600000 6302IRL 1094 300000 3647NL 406 250000 1624France 8242 1500000 5495Italy 3804 4300000 885Germany 5344 1200000 4453

How is subsidy related to the economicsustainability of UK agriculture?

Level of subsidy to agriculture 3781 M ECU

OR £3060 M

Gross output from UK agriculture in £16414

Support as % of gross output 18.6%

Total income from farming(provisional 1998) £2173 M

Support as a % of farm income 140%

SO WHERE DOES THE SUPPORT GO?(Provisional figures for 1998/99)

Intervention boards £1053 M

General measures 2184 M

i.e Area Aid Payment cereals £780 M Suckler cow premium £350 M

Agri Environment £170 M

i.e ESA, NSA, CSS

Conservation £16 M

Agriculture in special areas £129 M

i.e. HLCA

Other £3.4 M

TOTAL £3554

Environmentally sensitive areas: how do theyimpact on financial sustainability?

For further information see

http://www.maff.gov.uk/environ/envsch/esa2.htm

22 ESA's in England- flagship environmental policy

Total spend seems to be about £60 M

Uptake is variable across schemes, as are thepayment levels

In some cases joining the ESA can make asignificant contribution to farm income

Some join tier 1 of the scheme without makingmany (any) changes to their farming practice

However, joining constrains change in farmingpractice for a 5-(10) year period.

SHROPSHIREHILLS ESATier 1A - All Land £20 per ha

Tier 1B - Permanent Grassland £35 per ha

Tier 1C - Extensive Permanent Grass£50 per ha

Tier 1D - Moorland £75 per ha

Tier 2 Heather Moorland £95 per ha

Hay Meadow Supplement £90 per ha

Wet Area Supplement £160 per ha

Extensive Grazing Supplement £60 per ha

Commons Supplement £5.00 per ha

Woodland Tier £150 per ha

Public Access Tier £170 per ha

Reading Region Farm Business Survey

Management and Investment Income (£/ha)

1996 1997 1998

Milk producers <50ha 212 -55 -80

Milk producers >50ha 342 257 -108

Milk and arable <150ha 215 29 53

Milk and arable >150ha 337 162 85.6

Cattle and sheep -15 -177 -176

Cereals >150 ha 244 52 0

Cereals <150ha 134 3 -71

Pigs and poultry 734 4.7 n/a

ALL FARMS 218 32 -119

CONCLUDING THOUGHTS

Short-term financial viability of many farms iscurrently under threat

Certain farm types are more threatened than others

Agriculture makes a small contribution to thenational economy at a high cost to the taxpayer

The environmental consequences of currentchanges in agriculture are difficult to predict

Pressure to reduce subsidy and to tie them in withenvironmental benefits

Can the government "afford" to let theconsequences of current change run their fullcourse?