Dear George
7th March 2001
The reaction to this outbreak of foot and mouth disease has bordered on the hysterical. Blaming the disease on modern farming methods and freer trade is perhaps understandable from those in the front line, but it is also plain wrong.
Let me start by placing the current outbreak in perspective. At the time of writing, the number of confirmed outbreaks stands at 150, on 0.2 per cent of the 130,000 holdings with livestock in Britain. So far 100,000 animals have been destroyed. Even if this number doubles, it would represent only about one third of the 600,000 beef, sheep and pigs slaughtered each week in Britain or 0.5 per cent of the total number that will be slaughtered this year.
For those affected, compensation may only cover some of the cost. But again, the problem should not be exaggerated. For farms that have delayed the sale of animals, there will be a loss of cash flow, but once the ban is lifted the animals will be sold. In terms of the industry's income, the impact will be the cost of the extended feeding of these animals-about ?1m per week and rising-plus any subsequent reduction in prices. Lower market prices are likely for pig farmers where delay reduces values, but less so for other animals. Despite the loss of income the pig sector will recover. Last year's outbreak of swine fever-resulting in the destruction of 260,000 pigs-did not prevent incomes on pig farms improving rapidly over the year. A more serious longer-term cost to the livestock sector could be the export ban. Once the disease is eradicated, the EU market-where we sell most of our meat exports-should quickly be opened up again, but other overseas markets will take a matter of months.
The disease will hasten the departure of some farms from the industry, though this should be set against the fact that for more than 30 years the number of farms has declined at an average of more than 1,000 per year. Without wishing to minimise the suffering in some farm households, it is absurd to suggest that this outbreak threatens the industry. Recovery will be rapid. And in part this will be due to the food system's detailed record-keeping, which is proving much more adept at tracing the movement of animals than was the case in the last outbreak in 1967.
One of the reasons for the over-reaction to the scale of the outbreak is, I suspect, that it coincided with a recovery in farm incomes after three years of historically low incomes. The earlier fall in income had nothing to do with modern farming methods. Low farm incomes were the product of the strength of the pound against the euro. Of the gross revenue for British agriculture-estimated at ?15.3bn last year-about ?3.5bn was subsidy, divided between purchases of commodities such as cereals, beef and milk and direct payments to farmers. (The value of the intervention and tariff barriers is estimated at another ?1bn to ?2bn.)
The problem for farmers is that these subsidies are paid in euros. But in the mid-1990s when the weak pound boosted farm incomes to very high levels and commodity prices reached a cyclical peak I do not recall any complaints from farmers about access to world markets or modern production systems.
What about the broader claim that the "crisis" in agriculture is the result of intensive large-scale farming, the modest opening up of EU agriculture to global trade and the fact that the supermarkets allegedly force animals to travel long distances. When the dust settles on this unhappy episode, and we discover how it started I will be very surprised if any of the items listed above played a part. The most likely villains are bad farming and traditional livestock markets.
There are few issues in life that are clear cut and it would be foolish to pretend that modern farming practices do not impose some costs. But these must be set against the benefits they deliver. In my 20 years of experience with food and farming the supermarkets have broadened the range of choice for consumers while forcing the food chain to improve quality and hygiene. Farmers accuse the supermarkets of abusing their market power to keep farm-gate prices low. Non–farming critics even suggest that they have encouraged the concentration of production on larger farms and destroyed local centres of production.
Yet the driving force behind lower prices is technology. Productivity growth is the basis upon which rising incomes are built. If farm incomes are to keep pace this can only be achieved in one of two ways. Either the food chain adopts the technology that increases the average size of operation, or it must rely on ever larger handouts. Larger units deliver economies of scale, while centralisation provides conformity and continuity. The result is lower prices and consistently high quality.
In 1970 the average household spent 26 per cent of its income on food, the equivalent figure today is around 15 per cent. This is a very real benefit, particularly for those households where incomes are low-it is not good enough for affluent commentators to declare that people should be forced to pay more for food. One familiar disadvantage of modern techniques is that we can produce all the food we need with fewer people. Over the past 25 years British farming has shed the equivalent of 180,000 full time jobs.
Would things be better if we could return to more locally based centres of food production? Firstly, this could only be achieved behind tariff walls, which would presumably require us to leave the WTO and the EU at enormous costs to other industries. Secondly, consumers want the choice and competition produced by trade. Thirdly, there are many very poor countries that desperately need to be allowed to sell us foodstuffs.
We will do nothing to improve the environment by attempting to return to some mythical small farm idyll. If the objective is to improve the environment and animal welfare then let us take away the production subsidies from farms-most of which feed only into higher land prices-and divert the money saved into targeted schemes to this end. It would be daft to allow an outbreak of foot and mouth to condemn a generation of consumers to higher food prices, less choice and probably lower quality.
S?
Dear S?
8th March 2001
You are right to suggest that the dangers of foot and mouth have been exaggerated. We'd have been rather better served if our officials had reacted to BSE with the alacrity with which they have tackled foot and mouth, and reacted to foot and mouth with the complacency with which they handled BSE. I would be surprised if the cost of foot and mouth-a disease which interferes with the fattening cycle but from which most animals recover-matched the costs imposed by the foot and mouth control programme.
You are right too to point to the distorting effects of farm subsidies. They have raised the price of land, chemicals and machinery, helping to drive some 300,000 small producers out of business since 1947. Because they reward acreage and production, 80 per cent of the public funds for farming find their way to just 20 per cent of our farmers.
This is not an accident of policy. For decades, British governments have campaigned against the redistribution of European money. After the 1999 CAP negotiations, the ministry of agriculture boasted "The government fought hard-and successfully-against the commission's proposal" that "the bulk of the subsidy cuts should be targeted towards larger farms." It has refused to use the European funds available to help new farmers enter the industry, choosing instead to buy small producers into retirement. We can, I hope, agree that the near disappearance of small farms from Britain is partly the result of social and economic engineering by successive governments.
In other industrial sectors, producers are being encouraged to concentrate on low volume, high value production. In farming, the only sector whose scale is definitively limited by geographical constraints, our tiny islands are pushed into competition with million acre grain farms in Canada and Russia, and million sow "hog cities" in North Carolina.
The few British farm products which do enjoy international success-such as Stilton cheese and Scotch whisky-arose from small-scale, specialist production. The farms whose trade has boomed in Britain are those supplying organic food and local markets. The demand for organic food currently exceeds supply by 230 per cent, and is growing at 40 per cent a year. In 1998, Britain had two local farmers' markets. Today there are around 300. I'm sure you'll agree that farmers should respond to this demand. But where is the demand for GM ingredients, or for pork produced on the other side of the world but packaged here and then labelled "British," or for pesticide residues in fruit and vegetables?
You write that you will be "very surprised" if global trade is responsible for the outbreak of foot and mouth and that the "most likely villains are bad farming and traditional livestock markets." Forgive me if I've missed something, but it was my understanding that the theory of spontaneous generation died with Pasteur's experiments in 1859. The virus must have come from somewhere. If you are really suggesting that foot and mouth did not arrive in Britain with meat imported from another part of the world, I hope you have a robust alternative hypothesis.
There's no question that technological change and economies of scale have reduced the price of food. But you have mentioned only the least of the costs they impose. Jules Pretty of Essex University has calculated that intensive farming's measurable externalities-the contamination of drinking water, damage to wildlife habitats, soil erosion and mass slaughter and compensation programmes-amount to ?2.3 billion a year, or an average of ?208 per hectare. We pay for farmers' reduced costs, in other words, through higher water bills, poorer health, and public money which might have been spent on schools and hospitals. It is not clear how this could be construed as a benefit to the community, especially to its poorer members. As a fellow free marketeer, I hope you'll support my contention that producers should carry their own costs, rather than dumping them on the rest of us.
It is also clear that only some of the savings these externalities afford are passed onto consumers. The superstores are economically efficient. They shift ?250,000 of goods per member of staff per year, while small independent stores can move only ?50,000. They bypass wholesalers, they are powerful enough to demand rebates from suppliers, they pay, in most places, lower business rates than smaller shops. Yet still they manage to charge more for their raw farm products than most specialist retailers: generally an extra 30-40 per cent on meat, fruit and vegetables. The organic lamb sold in my local farmers' market marginally undercuts the conventionally reared meat in the nearest superstore.
It's hard to see how you can dispute the contention that the supermarkets have "encouraged the concentration of production on larger farms." The big chains are currently seeking to reduce their suppliers to no more than three for each farm commodity they buy, as this helps them to centralise distribution and standardise their products. Last year Asda/Walmart entertained the idea of taking this concentration a step further, by setting up a single pig farm in Poland to supply all the pork it sells in Britain.
Neither can you reasonably deny that they have increased the distance over which food travels. The consumer group Sustain tracked vegetables grown just outside Evesham first to Hereford, then to Dyfed, then to Manchester, then back to a supermarket in Evesham. The superstores improve their economies of scale by storing entire lines in one place.
By cutting out the middleman, moreover, they have undermined the livestock markets, helping to ensure that even the farmers who don't sell to the big chains have to travel much further to find a buyer. This problem is compounded by the supermarkets' practice of pasturing English cattle in Scotland for a fortnight in order to sell them as "Scotch beef," and English lambs in Wales, to sell them as "Welsh lamb." In this respect, the spread of foot and mouth has been assisted by the sale not of cheaper food, but of more expensive food.
You suggest that we could return to local food production "only... behind tariff walls." But as the proliferation of farmers' markets suggests, the change can be brokered partly by means of the consumer choice you rightly celebrate. And there's another possible solution, which is to internalise the externalities of long distance transport. One reason the superstores are able to centralise their distribution and why produce from the other side of the world undercuts our own is that fuel is too cheap. Government figures show that even before the concessions in the new budget, big trucks were paying only 90 per cent of the costs they impose on the infrastructure, human health and environment. There is no tax at all on aviation fuel, despite the massive environmental and social costs of flying in food. If farmers really want to revive local markets, they should start campaigning for more expensive fuel.
George
Dear George
9th March 2001
The mantra that small farms are more deserving of public funding is questionable. Firstly, the very smallest farms; namely part–time farms are steadily growing in number and now account for 47 per cent of all farm holdings in Britain. These farm households earn the bulk of their income in other occupations, produce less than 3 per cent of total agricultural output and occupy some 5 per cent of the farm land. Secondly, the farms that are disappearing are the smaller "full–time" farms. There is no evidence to show that such farms produce either higher quality food or better protect the environment. What studies do show is that it is the management ability of the farmer and the resources and incentives available that matter and in my experience these are more likely to be found on larger scale farms.
The evidence suggests you are misguided in your desire to protect smaller scale farms from market forces. Far from protecting any particular size group I would like to see all production subsidies rapidly phased out. This would drive the less efficient out of the industry as in any other sector, but have the beneficial effect that farmers would need to more carefully align what they produce with market demands. If you are correct in your belief that there is a demand for low volume, high value foodstuffs, then this will be supplied. Forced to get closer to their customers some farms would change to more extensive practices. But as I believe there are much larger markets for cheaper food many would not, indeed could not. The authorities could use the funds saved in subsidy to enhance the attractiveness of environmental schemes though there is no reason why these should be targeted at smaller farms.
I am not impressed with your attempt to link the outbreak of foot and mouth to trade. No system is perfect, but if the rules are adhered to the risk of spreading infection is very low and this must be set against the benefits of trade for both exporting and importing countries.
I am even less impressed with your calculations of the environmental cost of farming. I suspect we could repeat the exercise for all process industries with laughable conclusions. A comprehensive calculus would have to include the wider benefits of cheaper, good quality food-better health, wider employment opportunities and so on and then the net cost might not be very large. In any event, the system you like to knock has been improving. Modern precision farming technology continues to reduce usage and the likelihood of pollution, though such techniques are costly and therefore confined to larger farms.
Of course, the supermarkets are not saints but it is society's demand for greater regulation that has driven the smaller abattoirs out of business. Even if they still existed, it is farmers more than supermarkets who delight in trading and marketing animals around the country. Supermarkets would much prefer direct purchase avoiding livestock markets.
The fact that the supermarkets are seeking to reduce their suppliers is hardly evidence of "encouraging large scale farming." It is evidence, if other sectors are any guide, of compressing supply chains so as to reduce transaction costs, and improve understanding between supplier and consumers. As I explained in my first letter, larger farmers tend to have a cost advantage but smaller farms can achieve many of the advantages by joining together in "groups" to increase supply and benefit from the sharing knowledge and costs. It is the attitude of farmers that prevents this, not the supermarkets.
Your own words make it clear that the system you criticise does not prevent the emergence of small scale successes, such as specialist cheeses. And market forces-aided to a considerable degree by the supermarkets -are encouraging the expansion of organic production. As the output of organic food grows, so the laws of supply and demand will ensure that the premium price is reduced, causing hardship for some organic farmers. Should we then protect them?
S?
Dear S?
10th March 2001
You have failed to grasp my arguments, let alone to answer them. You claim that I want "to protect smaller scale farms from market forces." My purpose is precisely the opposite: to expose all British farming to the market. My complaint about the distribution of subsidies is that, as a result of government policy, they protect one faction-the biggest farmers-at the expense of the others. The resulting distortions in the structure of the industry ensure that it is less capable of responding to demand and, in the long term, less viable. If subsidies are to be sustained, this must be redressed.
But, like you, I have long argued that production subsidies should be dropped altogether, saving public funds for environmental measures. In this respect we are in agreement. Incidentally, your claim that "there is no evidence" to show that small farmers better protect the environment is quite untrue. A study by the Institute for Food and Development Policy shows that small farmers in the US devote 17 per cent of their land area to woodland, compared to 5 per cent on large farms. Research published in the Journal of Agricultural and Applied Economics suggests that small farms are twice as likely as large ones to subject their land to soil conservation techniques.
But let's stick to the issue of protectionism. Your response convinces me that I am the free marketeer, and you the protectionist. By dismissing the issue of externalities, your model ensures that intensive agro-industry, the superstores and national and international transport all continue to receive massive subsidies: the public money devoted to mopping up the mess these sectors leave behind. You maintain that a "comprehensive calculus," taking into account such factors as "better health" and "wider employment opportunities" would reduce the net costs imposed by big business. In truth it would do precisely the opposite.
Let's ignore for the moment the massive, though currently incalculable future cost of the misuse of antibiotics on intensive livestock farms. Let's ignore the costs of treating the current and future victims of nvCJD. Let's ignore the poisoning of farmers and consumers by pesticides, and concentrate on the issue of employment. A study of 93 new superstores by the big chains' own reseach organisation, the National Retail Planning Forum, shows that the opening of every large outlet destroys a net 276 jobs, as a result of the closure of small shops.
But though it would favour my argument, unlike you I wouldn't include employment in a "comprehensive calculus" of externalities. I don't need to. There is, as I have shown, already quite enough evidence to reveal that the money made by the superstores and intensive agro-industry is extracted only at a corresponding cost to ourselves. This social and environmental subsidy shields them from fair competition in a genuinely free market.
George
Dear George
11th March 2001
We agree that agricultural subsidies are distorting. As currently paid they are skewed towards larger farms who produce the bulk of output. If they were removed altogether the industry would become more intensive not less. Sectors of the industry that are not supported-such as horticulture and intensive livestock-have developed into more technology-driven large scale businesses than in the heavily supported sectors. And this should be no surprise. The purpose of headage payments, set-aside and quotas is to slow the structural consequences of technology.
I therefore fail to grasp how removing production support would shift the sector towards the more localised, low-tech production you want. And I am further at a loss to understand how removing support would weaken the supermarkets, prevent the growing concentration of food processors or hinder international trade. You might slow the trend towards larger scale farming if you concentrated all support on smaller farms but in so doing you would introduce new distortions.
The only way the trends outlined above might be efficiently reversed is if consumers demonstrated a desire to purchase locally produced food from local outlets. If they did this then local prices would rise and businesses would respond. But supermarkets are far more responsive to consumers than farmers and have done more than farmers to provide the standards of quality and hygiene that people demand. And it is the supermarkets that are responding to consumers by encouraging an increase in the supply of organic produce.
S?
Dear S?
12th March 2001
You have chosen, again, not to engage with my arguments about externalisation, the issue that's central to any sensible discussion of this subject. I can only assume you have nothing to say in your defence.
Perhaps, like me, you can see all too clearly that an unsubsidised market in which the costs of the biggest players are routinely dumped upon other people remains an unfair one. Perhaps you understand, but dare not admit, that the neo-liberal perception of freedom is lopsided: celebrating freedom to act, but not freedom from the adverse consequences of other people's actions. In a free and fair market, in which the social and environmental costs of intensive production were reincorporated, the price of its products would rapidly overtake the price of food from small organic farms. It is hard to imagine, in these circumstances, how the superstores and intensive agro-industry could survive the market forces from which they have so far been shielded.
Your claim that farmers are not responsive to demand mystifies me. They have responded all too well to the demands of the CAP, which is why the environment has been so badly damaged. They have responded all too well to the demand of the superstores, which is one reason why so many have gone out of business.
The necessary market changes will be hard to achieve. The department of the environment attempted a small step in this direction in 1997, by proposing a parking tax on out-of-town superstores, in the hope of recovering the costs of the traffic problems they cause and removing one of their unfair advantages (free parking) over city centre shops. After lobbying by the superstores, the idea was dropped. Consumer behaviour alone cannot broker these structural market changes: we need to be active citizens as well as active shoppers. Only then will we be able to exercise choice in a genuinely free market.
George
