House of Lords - Economic Affairs

Select Committee on Economic Affairs Minutes of Evidence

Memorandum by the National Farmers Union (NFU)

The NFU welcomes the opportunity to respond to this consultation on the economic impact of immigration. The NFU represents the interests of approximately 55,000 agricultural and horticultural businesses, many of whom will either directly or in-directly rely on the UK's migrant work force.

As the vast majority of the migrant work force within agriculture and horticulture are from Europe our response will be targeted towards the affect that this group has on the economy. However, this does not preclude similar conclusions from being draw for those from outside Europe which are also employed within these businesses, or within the wider economy.

1. What are the numbers and characteristics of recent immigrants—age, gender, country of origin, immigration status, duration of stay, skills and qualifications? How do the characteristics of EU migrants differ from other migrant groups? What are the expected future trends for immigration from within and outside the EU?

The NFU estimates that just over 15,500 A8 workers were employed within UK agriculture and horticulture in Q2 2007, with a further 7,000 employed within the food, fish and meat processing sector. The age and gender of immigrants employed within horticulture, as within other areas of the economy, has been shown to be biased slightly towards males (57%) of a younger age (65% 34 or below).[1] Similar figures are not available for agriculture, however more general Home Office figures[2] for the A8 countries which will include the vast majority of agricultures migrant labour show similar trends of 58-59% male, and 82% aged 34 and below.

Table 1

ORIGIN OF A8 AGRICULTURAL WORKERS


Country	%

Poland	57
Lithuania	20
Latvia	12
Slovakia	6
Czech Republic	3
Hungary	1
Estonia	1
Slovenia	0
Total	100

Source: Home Office Border & Immigration Agency

The origin of A8 agricultural workers is dominated by Poland, Lithuania and Latvia, which as members of the EU have full free movement rights, and rights to work within the UK. Within the horticultural sector the picture is slightly different due to the role of the Seasonal Agricultural Workers Scheme (SAWS), which until 2007 provided more restrictive access to workers from other areas of Europe. Table 2 shows that in 2005, Russia, Ukraine and Belarus (combined) were the third most important source of seasonal/casual workers, with a quarter of all horticultural businesses recruiting from these countries.

Table 2

HORTICULTURAL RECRUITMENT


Country	%

Poland	54
Latvia/Lithuania/Estonia	28
Russia/Ukraine/Belarus	25
Hungary/Romania/Bulgaria	20
Czech Republic/Slovakia	14
Elsewhere in Eastern Europe	13
Western Europe, other countries	10
Not stated	19

Source: Horticultural Development Council

It is our strong belief that migrant labour within specific sectors such as agriculture and horticulture provide a short term opportunity for those from transitional economies to experience work within western countries before returning to their home countries. As such it should be considered separately from the issue of long term migration. This view is supported by the Home Offices figures for A8 countries which show that over half (56%) intend to stay for less than three months, and that only 9% intend to stay for more than two years.

Table 3

INTENDED LENGTH OF STAY


	%

Less than 3 months	56%
3 to 5 months	2%
6 to 11 months	3%
1 to 2 years	4%
More than 2 years	9%
Don't know	26%
Total	100%

Source: Home Office Border & Immigration Agency

Due to the nature of the work which migrants undertake within agriculture and horticulture, much of which is manual labour, skills and qualifications are relatively less important than aptitude and a willingness to work. In many cases migrant workers are undertaking jobs which the domestic workforce is unwilling to do. However there is increasing anecdotal evidence that for migrants with sufficient motivation there are growing opportunities within supervisory and managerial roles.

As agricultural and horticultural recruitment is mostly limited to within Europe it is impossible for us to make comparisons with other areas of the world; however we can make comment on EU vs. non EU workers. Information provided to the NFU by a SAWS operator (soft fruit) comparing the productivity of workers from different countries showed that in 2006, 62% of their workforce from Russia, Ukrainian and Belarus meet their target work rates, compared to just 45% of those from within the EU. This helps explain the success of the SAWS scheme amongst growers, and the concerns over plans to limit the scheme to just Romanian and Bulgarian workers from 2008.

Table 4

UK HORTICULTURE MIGRANT LABOUR 2008


	SAWS (A2)	Other (A8)	Total

Required # workers	16,045	14,185	30,230
Expected # workers	15,570	9,530	25,100
Difference	-475	-4,655	-5,130
% Difference	-3%	-33%	-17%

Source: NFU Survey of Agencies/SAWS operators

It is generally accepted that the supply of new workers to agriculture and horticulture from the A8 countries reduced during 2006 (total applications to agriculture/horticulture down by 12% [-2,800 applicants] on 2005).[3] During 2007 this trend looks to have continued with the total number of applicants down by 21% (-1,615 applicants) during the second quarter of 2007 as workers transfer to other sectors to take employment in the UK or remain in their home countries to work.

Current indicators are that this trend will continue during 2008; a recent NFU survey of agencies and SAWS operators within the horticultural sector has forecast a shortfall of over 5,000 workers. Beyond 2008 as the economies of the A8 countries continue to expand taking standards of living and job creation with it, we expect that the numbers of migrant workers will continue to decline. This will bring pressure on those businesses that rely on this labour and create further demands for immigration from outside of the EU's borders.

2. In what sectors and occupations are immigrants employed? How do migrants' labour market outcomes—including their employment rates and earnings—compare to those of local workers? What determines migrants' performance and integration in the UK labour market?

In 2006 19,900 A8 workers[4] registered agriculture/horticulture as their intended employment source, this made it the third biggest employment sector after "administration, business and management" (99,220) and "hospitality and catering" (38,675). In addition food/fish/meat processing was the fifth biggest employment sector receiving 10,640 applications, and retail was the seventh biggest (9,920 applications), showing the importance of the migrant labour force across the UK food supply chain.

Although there is little information available regarding rates of pay for migrants across the whole of agriculture, we know that in the horticultural sector the average hourly wage for casual/seasonal staff (the vast majority of which would have been from Eastern Europe) was £5.90/hr[5] (2005). This was well below the national average for the same year (£10.69/hr),[6] and confirms the view that migrants perform tasks, at rates of pay, which most domestic workers would be unwilling to work at. As an example less than 10% of the national work force received less than £6.00/hr in 2005, showing that even if there was some degree of substitution of domestic labour (of which we believe there to be very little), the impact would be limited to a relatively small number of low earners.

3. Why do employers want to hire immigrants? Which sectors and occupations in the UK economy are particularly dependent on migrant labour and why? What is the impact of immigration on mechanisation and investment in technical change? What are the alternatives to immigration to reduce labour shortages?

Employers within the agricultural and horticultural sectors, along with those further down the supply chain (ie food processors), have hired migrant workers as it has become increasingly difficult to recruit a domestic workforce in recent years. Jobs in these sectors often involve hard physical work and long hours and the domestic work force has been generally unwilling to undertake this work and has sought alternative employment. Add to this the seasonal nature of horticultural production in particular, where peak planting and harvesting periods may only last a few months, and it becomes almost impossible to attract a full time domestic work force. However it must also be said that migrant workers are an attractive source of labour to UK employers because of their work ethos, efficiency and dependency and because, particularly in the case of the SAWS, they provide a source of labour that is guaranteed to remain on farm during the crucial harvest period.

Anecdotal evidence suggests that migrant labour has become important to almost every sector of agriculture either directly (eg herdsmen within the dairy industry) or in-directly (eg by working in the hatcheries which supply chicks to poultry producers). However it is within the horticultural sector where the dependency is most evident. In 2005 81% of soft fruit growers, 67% of top fruit growers and 60% of field vegetable growers all employed seasonal labour from abroad.[7] Add to this the importance of labour within these businesses total cost structures (labour equal to 36% of total costs[8] across all horticultural businesses), and it is evident that the loss of this source of highly productive and relatively low cost work force would have a devastating impact on an industry which contributes an estimated £1 billion[9] gross value added (GVA) to the UK economy.

Agriculture and Horticulture are both mature sectors with relatively slow rates of technical change; as such immigration is unlikely to substantially delay the introduction of new mechanical techniques. If fact there are some good example of how mechanisation has been used in conjunction with migrant labour to optimize efficiency. For example, the use of harvesting rigs in field vegetable (and increasingly soft fruit production), which allow workers to concentrate on harvesting/picking operations which can not be replicated by machine, whilst the rig collects and transports the harvested crop to the fields edge for onward transport to the packhouse.

At present there appear to be few alternatives to immigration if we are to prevent a labour shortage which would have a damaging impact on the horticulture industry.

4. What impact has immigration had on the labour market, including wages, unemployment and other employment conditions of the UK workforce, and has it differed for skilled and unskilled employees? How does the minimum wage affect the impact of immigration?

Please see question 2 for our views on the limited impact of migrant labour on the domestic market; this is supported by recent studies[10] which have concluded that there remains little evidence of a significant impact of immigration generally on domestic employee's wages. Although there is some evidence that migrants low wages have held down the average earnings figure, this in itself does not mean that domestic earnings are not rising, with estimates suggesting that the total affect is broadly around 0.1 percentage points over the past two years.[11] The NFU's view is that if immigration did have any small impact on wages or unemployment within the unskilled sector, that this is best resolved through other social policies (ie education and training). Any reduction in immigration would simply harm the economy and prove to be an inefficient way to assist low-wage domestic workers.

Wage rates in agricultural and horticulture are set by the statutory Agricultural Wages Board and as such is unique in the economy in setting minimum rates of pay and conditions across a range of graded positions. These rates of pay prove sufficiently attractive to migrants to encourage them to want to work in the agricultural and horticultural sectors.

5. What is the economic impact of illegal immigration, including on employment, wages and the fiscal balance?

The very nature of any illegal activity means that information surrounding its impact will always be limited in availability and accuracy. Whilst there may be some illegal employment in the agricultural/horticultural sectors the NFU's view is that it will be limited; partly thanks to the success of legitimate schemes such as the SAWS.

In the future the only reason for any significant increase in such illegal activity would be if legitimate sources were prevented from meeting the demand for migrant labour.

6. What is the economic impact of a net change in the UK population? If there is a net increase, does the impact differ when this comes from higher immigration rather than from changes in birth and death rates?

The NFU's view that the economic impact of increased immigration and population will be positive should be both uncontroversial and unsurprising, as an increase in total workers yields an increase in total output. It is also well accepted that migrant labour makes relatively fewer demands on our welfare system (98% of all national insurance numbers for migrants from the A8 countries having been allocated for employment purposes vs. just 0.9% for benefit purposes[12]) due to their age and health. In addition immigrants tend to complement rather than replace domestic worker skills, and move to areas of employment and "filling gaps" in a way which the domestic workforce is less willing or able to do.

7. What has been the impact of immigration on key macroeconomic indicators: GDP and GDP per head, unemployment, productivity, investment, inflation and asset prices especially housing? Do the economic effects of immigration vary over time?

Although we are not in a position to provide specific evidence, the NFU supports the generally held view that immigration (particularly short term seasonal migration) is positive for growth (GDP) whilst helping to control inflation. For example, Professor David Blanchflower of the Monetary Policy Committee (MPC) recently argued[13] that the rapid increase in migration from Eastern Europe to the UK following EU enlargement in 2004 has boosted the supply potential of the economy relative to demand, so reducing inflationary pressures and the need for higher interest rates. In addition we would like to point out that migration has previously been estimated to contribute 0.4% to GDP, and was responsible for the Treasury increasing its expected future GDP growth trend from 2.5% to 2.75%.[14] Regarding asset prices, especially housing, increase are considered to be driven by domestic buyers (rather than immigrants) in a market where supply consistently fails to meet demand. As such the growing number of A8 workers registering within the construction industry (5,185 in 2004, 7,255 in 2005 and 9,010 in 2006) should be considered a positive influence on the market, by helping to increase supply.

8. How does immigration affect the public finances? Do immigrants contribute more in taxes than they use in public services? As the UK population ages, does immigration affect the shortfall in pension funding?

As noted in the answer to question 6 migrants within the agricultural/horticultural sector, most of which come from the A8 countries, are considered to be net contributors to public finances. In entering the economy at working age they are making an instant contribution to the economy without the costs associated with having been born and educated in the UK (medical, education costs etc). Equally most (see answer to question 1 above) will return to their home countries long before retirement, meaning that they will not burden the host country with the costs associated with old age (ie pensions, health etc). Regarding the aging population and the UK's pension shortfall, whilst migrants who chose to return to their home countries before retirement are by default net contributors to the state pension scheme, they should not be relied upon to fill the long term pension's gap.

9. How has immigration affected public services such as health care, education and social housing? How has this varied across the country?

As noted above, in the vast majority of cases, migrants are considered to make few demands on the welfare system. Where there have been notable additional demands on our public services they have been localised to areas with specific industries/companies, which have become reliant on a migrant work force. As such, these areas economies rely more than most on the contribution made by immigration, and their public services should be assisted in adapting to meet these growing or new requirements. There is also anecdotal evidence that migration has contributed to the maintenance of some public services (eg education) because the children of migrants have used local village schools contributing to the maintenance of this vital service in the rural economy.

10. How does the impact of immigration vary across different regions of the UK?

There is little information available regarding the regional impact of the migrant work force within agriculture, however within horticulture the picture is a little clearer. Most migrant workers are centered in areas of soft fruit and field vegetable production, as such over half (54%) are estimated to be within the South East and East Midlands.

Table 5

DISTRIBUTION OF CASUAL WORKER DAYS


Region	%

South East	31
East Anglia	16
East Midlands	23
South West	4
West Midlands & Wales	11
North & Scotland	11
North West	3
Total	100

Source: Horticultural Development Council

11. Are there any relevant parallels and lessons for the UK from the economic impact of immigration on other OECD countries?

The economic impact of immigration within other OECD countries will vary depending on the type of immigration, their level of employment, industrial structure etc. However a useful parallel can be drawn with the USA, where immigration has contributed to long running growth (above the levels seen in the EU) at controlled levels of inflation. Foreign-born workers accounted for 15% of the US labour force in 2006,[15] and have accounted for about half the growth in the labour force over the last decade. Despite these high levels of net inward migration (significantly above that of the UK), a recent study by their governments Council of Economic Advisers found that "immigration has a positive effect on the American economy as a whole and on the income of native-born American workers".

Key findings

1. On average, US natives benefit from immigration. Immigrants tend to complement (not substitute for) natives, raising natives' productivity and income.

2. Careful studies of the long-run fiscal effects of immigration conclude that it is likely to have a modest, positive influence.

3. Skilled immigrants are likely to be especially beneficial to natives. In addition to contributions to innovation, they have a significant positive fiscal impact.

12. How do differences in migrants' skills affect the economic impact of immigration? Does immigration fill skill gaps? What impact, if any, has immigration had on education and training? What is the relationship between the Government's migration policies and labour market policies?

Whilst there is some indication that skilled workers have a greater economic impact than unskilled (see answer to question 11), this should not detract from the contribution made by those unskilled workers within the agricultural/horticultural sectors. UK agriculture contributed £5.2 billion[16] to the national gross value added (GVA) and provided employment for a total of 541,000 people. Many of these business rely on the contribution of migrant workers, so that domestic workers can concentrate on higher value supervisory and managerial tasks. In addition agriculture/horticulture provides many of the raw materials required within other areas of the agri-food sector (food & drink manufacture, wholesale, retail and catering) which added a further £68.4 billion to the nation's economy, and generated some 3.6 million jobs (14% of all employment in the UK), much of which may be lost without the contribution of unskilled migrant labour.

13. How can data on immigration be improved? What improvements are already being put in place? To what extent have "inadequate data" affected public policy? How confident can we be in forecasts of future immigration and how important is it that such forecasts are accurate?

Currently the Home Office Border and Immigration Agency (along with the Department for Work and Pensions, HM Revenue and Customs and Communities and Local Government) report the number of workers from the A8 countries that apply to work in the UK rather than the actual number (net migration) within the countries workforce. This has the affect of exaggerating the scale of migration within the media and the general publics understanding. As an example during 2005 the total number of A8 workers registering in the UK was 204,965[17], however as this figure fails to account for those who stay only for a short period of time before returning to their home country, it grossly exaggerates true underlying immigration figure of 64,000.[18] Whilst we understand the reasons for the reporting of "application" figures, improving the data by also including a net migration estimate would help prevent the situation from being high jacked by those with an anti immigration agenda.

As much as accurate data is required, far more effort must be put into defining the cultural, social and economic benefits of migration.

14. How do the Government's policies, including immigration and labour market policies, affect the scale, composition and impacts of migration? How will the points system for immigrants from outside the EU operate? How will the Government decide where there are skill shortages in the economy as the basis for its points system? What has been the international experience, eg in Australia and Canada, of such a points system? How will the Government respond to employers asking for non-EU workers to fill low-skilled jobs?

The government's policies and controls over long term immigration, and the need to fill specific skills shortages, should be considered separately from the need for short term seasonal labour in sectors like agriculture and horticulture. As such it is important that successful long running schemes like SAWS are allowed to continue operating in their existing form, without becoming unduly burdened by excessive bureaucracy.

It is important that the Government is able to separate immigration from the short term seasonal demand for labour which is required by the horticulture and agriculture sectors. Recent Government changes to immigration policy affecting A2 workers, has led to a negative impact on the operation of the seasonal agricultural workers scheme (SAWS). In turn this has affected the availability of workers for the horticulture industry during the 2007 harvest affecting the ability of this sector to supply produce to British supermarket shelves.

Our understanding is that the Migration Advisory Committee will inform Government policy on skills shortages in the economy, although final decisions will be made by Ministers. While we welcome the establishment of an independent group of wise people, we are concerned that the time lag between accepting that there is a skills or availability shortage in the economy and amending policy will lead to difficulties for sectors such as horticulture where the availability of labour during the busy harvest period is crucial.

15. Should more be done to help immigrants boost their productivity in the UK?

Horticultural businesses already fund research, via the Horticultural Development Council, into increasing the productivity of seasonal workers. Government assistance towards the costs of this work would enable a much greater investment to enable horticultural businesses in the UK to remain competitive.

28 September 2007

1 Horticultural Development Council-Horticultural Employment in Great Britain (2006). Back

2 Home Office Border & Immigration Agency-Accession Monitoring Report A8 Countries (May 2004 to June 2007). Back

3 Home Office Border & Immigration Agency-Accession Monitoring Report A8 Countries (May 2004 to June 2007). Back

4 Home Office Border & Immigration Agency-Accession Monitoring Report A8 Countries (May 2004 to June 2007). Back

5 Horticultural Development Council-Horticultural Employment in Great Britain (2006). Back

6 National Statistics-2005 Survey of Hours and Earnings. Back

7 Horticultural Development Council-Horticultural Employment in Great Britain (2006). Back

8 Horticultural Business Data-Reading University (2007). Back

9 Defra/NFU Calculations. Back

10 "The Impact of immigration on the British labour market" Economic Journal, 115 (November), F324-341. Back

11 UK Economic Outlook, March 2007-Price Waterhouse Coopers. Back