Summary
European farmers provide a secure supply of safe food, manage the land and contribute to the wider rural economy. They have to cope with multiple risks such as often unpredictable and catastrophic weather conditions, the impact of political decisions and volatile international markets while delivering public goods such as a managed environment. They do this within the framework of the EU’s Common Agricultural Policy (CAP). Within the UK, agriculture is a devolved matter in Scotland, Wales and Northern Ireland.
Price volatility is an inherent feature of agricultural commodities markets. We found that adverse effects at farm level are caused more by unanticipated periods of sustained low prices than by an increase in levels of volatility. Farmers can manage both by taking measures to increase levels of resilience.
Incremental changes to the CAP have resulted in farmers being more exposed to market forces. Direct income payments continue to provide a degree of financial stability, helping them to withstand protracted periods of low prices. We heard, however, that they can reduce incentives for innovation and efficiency gains.
We also investigated how public policy is used to support farmers in other major producer countries, in particular the United States, Canada and New Zealand. We found that there are fundamental differences between the organisation and structure of the agricultural sectors in the EU and those countries and believe that these differences render the models used by those countries unsuitable for general application in the EU. Lessons can be learned, however, from the US and Canadian approaches to insurance schemes, for example.
We believe that subsidised insurance schemes should not replace the current provision of direct income support through the CAP. They may, however, play a supplementary role in helping to counter the effects of extreme weather events. One-off support packages can also help to counter the impact of uncontrollable factors, but the UK Government should articulate the specific circumstances in which it will seek to access such funding at EU level.
We also see merit in the development of a range of financial instruments that can help farmers manage risk. We recommend that the European Commission and Member State governments work proactively with the financial sector to develop and promote more accessible and practical risk management tools. Government policy should ensure that farmers receive the training and education required to make use of these new instruments.
We were told that farmers needed to acquire the appropriate business skills, knowledge and expertise to calculate and manage their costs of production and overheads. We also heard about the merits of benchmarking. The UK Government should identify examples of best practice in the areas of knowledge exchange and dissemination and seek to promote them across the UK.
We were told that public funding may be keeping less progressive farmers in business at the expense of new entrants. We recommend that the UK Government works to identify the main barriers preventing farmers from exiting the sector, that they consider using Rural Development funding to accelerate the necessary structural change and that they create opportunities for new entrants into farming.
Agriculture has a critical role in the provision of public goods, such as high animal welfare standards and environmental stewardship, and this role should be recognised in the policy and funding framework. We recommend that the European Commission consider restructuring the CAP based mainly around the provision of public goods, potentially removing the distinction between the two pillars currently governing Direct Payments on the one hand and Rural Development on the other.