Full-scale change is needed for small farms to survive
A change in mindset is needed across the food supply chain if small-scale farmers are to survive the removal of direct payments, warns economist Sean Rickard. Here, he tells us what course of action he believes is needed.
Many small farm businesses only survive with the help of government support and now that direct payments are being removed, their future is uncertain, says Sean Rickard.
“The Government says it is going to give them money back in another form. We will wait and see, but they’ll never get it all back and whatever they receive will have to be set against the costs of carrying out certain environmental schemes.
“Unless there is a change in direction on the part of the Government, I am rather concerned for the agricultural industry.”
There are opportunities, Sean continues. Farmers with additional skills such as marketing can vertically integrate their business into processing and/or retail to capture the value of their product’s credible attributes such as sustainability, animal welfare and provenance. Consumers, particularly middle-class consumers, are increasingly interested in the products supplied at the farm stage of the supply chain, he says.
“But to suggest vertical integration is the way to go for every single farmer is just fanciful. By encouraging all farmers to do that, we are in danger of pushing them into a worse position.”
Average farm sizes will continue to increase, and growing businesses benefit from economies of scale, Sean continues. “Frankly, larger farms tend to be more efficient and unit costs are lower. That, however, is not necessarily sufficient, particularly if you’re stuck on the periphery of the market.
“The mindset of some small farmers is that 'this is my way of life and the Government will always support me because they promised to'. I’m afraid they have been misled. I believe the Government is actually moving in the opposite direction.
“About half of the farmers in this country voted for Brexit and for the Government, Brexit means importing more food. That’s the last thing that farmers want.”
Relationships are key
“I believe farmers can greatly strengthen their position by working cooperatively. However, real change can only be realised if vertical supply chain relationships are transformed from transactional to partnerships. Trust is seriously lacking in the food supply chain. Farmers tend not to trust their buyers and vice versa. Both sides suspect the other is out to rook them, and sometimes they are because it is just a transactional relationship.”
The horticultural industry, which historically has not received the same level of support as agriculture, has many lessons to offer. “They learnt it wasn’t sufficient to just grow food, they had to pack it too, so they integrated down the supply chain. Then they realised that as they can only grow produce for part of the year, they can import from abroad for the rest of the year, keeping the supermarket shelves full year-round and creating greater dependence from their buyers.
“But even here, relationships tend to be transactional rather than real partnerships. In other words, supplying the same buyer year after year isn’t guaranteed.”
Lessons from other industries indicate vertical relationships founded on long-term commitments, involving high levels of trust and genuine concern for the success of each other’s business, could transform the agricultural industry’s prospects. “Such relationships are very rare in agriculture and yet food processors are increasingly dependent on the credence attributes delivered by farmers for their competitiveness.”
In contrast, many relationships are the polar opposite. “I’ve heard of buyers encouraging a farm to undertake a specific investment and then going to another farm and saying ‘look this is what your rival is doing. Can you do that a bit cheaper for me?’ And they probably can because they have not needed to bear the cost of development.
“You wouldn’t do that in a trusting relationship. If the food industry is to capitalise on the credence attributes in which UK farmers lead the world, it must start with a new mindset. Changing a mindset is incredibly difficult but change it must.”
About Sean Rickard
After brief careers as a musician and a graphic artist, Sean studied at the London School of Economics – specialising in the economics of industry – followed by post graduate study at Birkbeck College, London. He then embarked on a 20 year career as a professional economist, culminating in the role of Chief Economist and Head of its Economics Group for the National Farmers’ Union, working at very senior levels with government and the European Commission.
Farmers are currently seeing the biggest changes in agriculture for more than 50 years. As a mutual insurer, we’ve stood by South West farmers since 1903 and through our Future Farming Programme, we are helping our Members and the wider farming community navigate the changes ahead in this transformative time.Future Farming Programme