Vicki Hird, head of sustainable farming at Sustain, a coalition of civil society groups in the UK, said: “Farmers have no control over setting prices and are ever poorer for it. It’s estimated that 25% of farm households [in the UK] are living under the poverty line.”
She added: “The current food crisis is not a new one, just accelerated due to the Ukraine invasion, and unless governments recognise this and act to tackle the real causes – the corporate profits at the expense of farmer incomes, workers’ wages, consumers and the environment – we will just lurch from this crisis to the next.”
She called for government action to halt the worst abuses and restore balance to the food system. “Strong supply chain regulation and curbing financial speculation on food crops is key to ensure that everyone has enough food now and in the future.”
Their solution – their proposal – is that in order to reduce food prices farmers should earn more.
This is not a sensible proposal.
Shockingly they have received no funding from the Bill and Melinda Gates Foundation!
They do have far better accountants than yesterdays example, BOLD, who last year disclosed nearly 50% of Sustains annual expenditure as grants to food power partners. Clear as mud. Predictably enough most of the other expenditure, over 43% of the total, consists of our old friends staff costs and consultancy.
Anyone else seeing a pattern?
Not only that, but their solution for increasing farmers’ incomes is for government to regulate more.
Yup, that’ll work this time, for sure!
Not earn more. Be paid more.
Sustainable farming is tautology. Farming = sustainable food supply, year round in the same location.
It replaced hunter-gathering which was not sustainable as available food became exhausted, requiring a nomadic existence.
It might not be a bad idea for DEFRA to stop handing out money to landowners for growing thistles and ragwort instead of food.
“Strong supply chain regulation and curbing financial speculation on food crops is key to ensure that everyone has enough food now and in the future.”
IIRC the reason that onions have the highest price volatility in the USA and so are at highest probability for farmers to lose money is precisely because it is illegal to speculate (create a futures market) in onion prices. It is the only crop in which there isn’t a futures market.
” their proposal – is that in order to reduce food prices farmers should earn more.”
I think what many farmers feel is that no-one wants food prices to rise in the shops, just for the producer to get a bit more of the amount of profits there are in the entire food production, processing and retailing system, instead of the processors and retailers getting the vast majority. For example the big 4 super markets made over £4bn in profits last year, while farming made £6bn (which was a very good year, that figure was £3.5bn in 2016), of which around £3bn is subsidies and environmental payments and a proportion is non-farming income (diversification projects). Thus the profit for the entire farming industry from actually producing food is probably in the region of £2-3bn. If you add up all the profits from the food processing and retailing industry (which is dominated by a very few players) they are making many times what the producers do. Its all about market dominance – there few processors and retailers and lots of producers, and there is a fundamental asymmetry between the two. That is what needs addressing. Either the supermarkets and processors should be broken up, or farming should be allowed to form large marketing groups of our own, to even up the market position. Farming used to have Marketing Boards, which represented them collectively against the buyers (the Milk Marketing Board was one) and very effective it was too at keeping the price to the producer up. But that was destroyed in the name of ‘competition’ and of course the retail cartel then just drove the producer price into the floor once they were gone.
@ Jim
Yeah, no competition in the supermarket space is there (cough, Aldi/Lidl). If farmers can’t make a living at the current price they charge, then we need larger farming enterprises to even things out.
I agree wholeheartedly with Jim’s views (above). What amazes me is that the supermarkets can do this to food producers (and drive small shops out of business too), but the monolithic NHS can’t use its position to drive down the price of drugs.
Part of the way the supermarkets drove many small shops out of business was by providing free parking whereas Councils started to charge for parking in town centres, and also conspired via business rates to make running a small shop disproportionately more expensive relative to turnover than the superstore.
How much of the Big Four supermarkets’ £4bn profit comes from actual food?
As opposed to toothpaste, bog roll, booze and Fairy liquid?
“Yeah, no competition in the supermarket space is there (cough, Aldi/Lidl)”
There is competition between them, in the retail part of the market, but they use their market power to drive down the prices from their suppliers in the wholesale sector. For example they often demand that their suppliers pay for the price promotions – all the BOGOF deals are paid for by reductions that the supplier has to make in the price they get. And the suppliers are forced to agree because the alternative is no sales at all. That sort of behaviour is only possible because the supermarkets have excess market power, a virtual monopoly in fact. They are so large that suppliers have nowhere else to go when faced with their demands. If there were 50 chains of supermarket instead of 5 or 6 then there would be competition between them in the wholesale market as well, they would have less power to drive prices down.
700,000 tonnes of Norfolk sugar beet going into petrol – Insane: https://www.greencarguide.co.uk/features/the-uk-gets-its-first-bioethanol-plant/.
Excavator Man, the NHS doesn’t pay over the odds for all the drugs. My off-patent prescription drug costs the NHS £1.08 but they were happy to charge me £9+ up until the time I turned 60.
“If farmers can’t make a living at the current price they charge, then we need larger farming enterprises to even things out.”
It doesn’t work like that in farming. There are economies of scale to a certain point, then it doesn’t scale any more. For example an arable farm can operate with one combine, one drill, one crop sprayer and 2 or 3 tractors up to a certain area. Once you reach the limit of the capability of that set of machinery you have to buy a whole new set of machinery. So arable farms tend to be most efficient at around 1000-1500 acres, because thats the limit of the machinery. If you then farm 3000 acres you don’t save any money because you need a whole new set of kit and the employees to drive them, and the input costs (seed, fuel, fertiliser, chemicals) per acre are the same for 100 acres as 100,000. Its why there is no Tesco Farms Inc farming a million acres – there just aren’t any economies of scale to be gained by being that large, and to be frank the profitability of farming is such that it only really works at what I call a peasant level – that is to say the owner of the farm also works and manages it. There isn’t the level of profitability that allows a corporate type business (where all the workers and management are employed and the shareholders expect a return on capital) to make any money. The Co-op famously used to own and run a large farming operation for many years, which supplied their stores, they found that it was loss making and they eventually sold the land and got out of the farming business.
Jim – I think that economy of scale does continue at least in the US Midwest. Forget owning extra combines etc., there are companies and crews that specialize in harvesting – they just travel from farm-to-farm doing all the harvesting. Plus the machinery is all GPS controlled, so extremely efficient. They’re like a swarm of mechanical locusts.
Henry:
Don’t they also do that here? There are farms near us in Sussex that have lots of combines and seemingly specialist kit like big irrigating systems sitting there for most of the year. And big hangar-like barns. For a few weeks a year all hell breaks loose and they go roaring around the lanes. I always assumed they were companies that specialised in buying, servicing and renting out the kit.
“there are companies and crews that specialize in harvesting – they just travel from farm-to-farm doing all the harvesting.”
Try doing that in crowded old UK…..anyway it still doesn’t make any difference, the cost per acre is the same whether there are 100 combines in one field or one. All that changes is the speed and the amount you can do. One combine can harvest X acres in a season, and costs a fixed amount to do it. Having two (or 200) gets more done in the same time, but does not reduce unit costs at all.
You just aren’t getting the fact that the costs to grow and harvest 100 acres of grain are roughly the same for as for 10000, when looked at on a per acre basis. Indeed the 100 acre farmer maybe cheaper, because he’s using his own labour, he can use old cheap secondhand equipment (and fix it himself), and his variable costs (seed/fertiliser/chems/fuel) are exactly the same as the 10k acre farmer. Possibly less even, as he’ll use less fuel, as his equipment is smaller and cheaper to run, and he has less far to haul his grain to a grainstore (a 10k acre farmer will want to have one massive central grainstore, not 10 smaller ones spread out across the farm). The 10k acre farmer will also have all employed workers and managers and expensive new equipment (because when you need to harvest such a large area you need reliable equipment because you have a limited window of opportunity to do it before the grain is lost). In farming big is not always better, when it comes to cost of production, which at the end of the day determines profitability.
Put it this way, when times are hard in farming its not the little farmers who go bust, its the big ones, because the big ones have massive cost bases and a small change in fortunes can sink you pretty quickly.
Incidentally I see from their accounts Tesco’s return on capital invested was 6.6% annually from 2018 to 2022. That would equate on my farm to a profit of about £800k. Can I have the same please? (note my profit over the last few years as been about 10% of that number, a large proportion of which was agricultural subsidies).
@ Jim
So, if I understand your argument, large farms don’t work because the cost of doing stuff doesn’t decrease with scale? Or put another way, a large farm won’t get discounts for bulk purchases.
But large scale wholesalers can dictate lower prices to producers?
I think if there were 5 farms covering the whole UK that they would be able to negotiate very good terms from suppliers.
Jim: if you inherited your land then the way you calculate your return on capital invested isn’t being done the same way as that comparison to Tesco investors.
Jim ( or anyone actually), be patient here, it is a very long time since I looked at this.
Shirley harvesting and transporting grain ( or whatever ) are one-off costs ? Won’t the scale of production of a large farm absorb this better than a small farm ?
What cost-savings ( if any ) are there in having a contractor reap your fields as opposed to have a combine doing nothing in a barn 48-50 weeks a year ?
“all the BOGOF deals are paid for by reductions that the supplier has to make in the price they get”
When I worked in food production many years ago they even invoiced us for the advertising for the BOGOF campaign
“Shirley harvesting and transporting grain ( or whatever ) are one-off costs ? Won’t the scale of production of a large farm absorb this better than a small farm ?”
What scales of production? What can a large farm do that is (say) 25-50% cheaper than a small one? Can it drill more acres than the capacity of the machines to do so? Can it make its workers work more hours than they already do for no more pay? The fixed costs (machinery mainly) have physical limits, once you hit them there’s nothing more to be gained. The costs of inputs (as I have repeatedly said) are the same. Fertiliser and fuel are globally traded commodities, you don’t get much (if any) of a discount for bulk. A few quid a tonne or a few pence per litre maybe, but nothing to write home about. This stuff arrives on ships in the tens of thousands of tonnes, and millions of litres. Ditto agrochems and seed (a lot of people use their own seed, so its cost is just what you could have sold it for, so no discounts there). then there’s rent – you pay per acre, so renting 100 costs the same as 1000, on a per acre basis. The only economies of scale a bigger farm can get are to use its existing machinery and labour inputs to produce more output by taking on more land. Once you hit the ceiling of the physical capacity of the machinery and workers then you have to start all over again with a new set of machinery and more employees. There really is no great advantage to have one 3000 acre farm over two 1500 acre ones. Maybe you could economise on one admin employee, and long term have to replace one grainstore/grain dryer set up instead of two, but thats a very long term investment that won’t make a great deal of difference to the year on year costings.
“What cost-savings ( if any ) are there in having a contractor reap your fields as opposed to have a combine doing nothing in a barn 48-50 weeks a year ?”
Its probably cheaper in cash terms to get a contractor in to harvest one’s grain, and not have a £300k combine sat doing nothing for 10 months of the year. However you are then reliant of the contractor turning up when you need him, and given the UK weather every farmer knows its better to have an expensive machine sat doing nothing for 10 months of the year than watch your crops rot in the fields because the contractor took on too much work and didn’t get to you in time, or suffered breakdowns, or whatever. Because harvesting (in the UK at least) is SO weather dependent, and the entire profitability of the farm depends on it going right, most people like to have the control of having their own kit so they can get on with harvesting precisely when they want to. Sometimes just a few days can make the difference between getting your crop harvested in good condition, and watching it sat in the rain for weeks, and finally harvesting something worth a fraction of what it was a month earlier.
Jim
Good. Thank you very much.
A question re Jim’s comments on food production/distribution.
Where’s the most added value being done?
Jim: Plus, I would expect that everybody wants to do the harvest at the same time. It’s no good saying it takes one day to harvest a farm, so one machine can harvest ten farms in ten days, when all ten farms need it done on the same day to fit the weather, so you need ten machines. They seem to be falling for the boiled egg fallacy.
Plus, I would expect that everybody wants to do the harvest at the same time. ”
Precisely. Harvesting in the UK takes place from mid July to early September, with different crops being ready at different times. Roughly speaking its goes Winter Barley, Oilseed Rape, Winter Wheat, Spring Barley/Wheat, Beans, Linseed. Any given crop will have a window in which its fit to combine, if you miss that its either rapidly losing quality or in some cases lost entirely (OSR seed will drop out of the pods once they get too dry, and the heads of barley will also fall onto the floor if left in the fields too long. Wheat however will tend to hold together quite well, even after weeks of bad weather).
“Where’s the most added value being done?”
Well its difficult to determine that, when one part of the process is controlled by so few organisations. The supermarkets are making out like bandits, but is that because they are adding the most value, or because they are abusing their market position? Getting food from field to fork is a process, every part of it requires the other parts, so who is to say who is creating the most value? Is manufacturing the oven ready pizza creating the value, or growing the ingredients, or putting it on a shelf for someone to buy? I would argue that there’s a fixed amount of value created by the whole process and who gets the most of that value is determined by market power, not how much actual value they have added themselves.
Put it this way, were the entirety of the UK to be farmed by just 10 large organisations, and there were no supermarket chains, just thousands of small independent supermarkets, all competing to get supplies for their shops, who do you think would be getting the most value from the food production system? The shops or the farmers?
@Adollff,
I had in mind the thing I read on the Interweb thingy about a child being denied a course of a cancer drug that cost £600k per course, and the drug company was quoted as saying that they had to recoup the costs of development before the drug came off patent, whereupon it would be as cheap to produce as paracetamol. Which made me think that £600k + 45p could provide 2 courses. Or, £600k + £45 could produce 100 courses and so on, if the negotiation included paying separately for the development.
If the prescription charge for a quid’s worth is 9 times as much, then it’s the other way round, agreed.