Summary of conclusions and recommendations
1.Price volatility is an inherent feature of agricultural markets, and it will remain a normal risk to be managed by farmers as part of their business strategies. (Paragraph 29)
2.Despite increased volatility in agricultural prices in recent years, we conclude that the overall level of price volatility is no higher than at other times in the past. (Paragraph 35)
3.Both price volatility and low prices present challenges for farmers. In our opinion, adverse effects at farm level are caused more by unanticipated periods of sustained low prices than by an increase in levels of price volatility. (Paragraph 46)
4.A degree of price volatility sends crucial market signals, which inform production and investment decisions. It also provides incentives for innovation and efficiency gains. (Paragraph 59)
5.Preparedness for price movements will assist farmers in their investment and business decisions, but it will not eliminate risk. (Paragraph 60)
6.Various sub-groups of farmers experience volatility to different degrees and therefore require different strategies and support to strengthen their resilience. We recommend that the UK Government encourages tenant farmers seeking to diversify and strengthen their resilience. The UK Government and the devolved administrations should also investigate the impact of short-term tenancies on the ability of farmers to make necessary investments. (Recommendation 1, Paragraph 77)
7.Changes to the framework of the CAP have resulted in a greater exposure of production decisions to market forces. Direct Payments, however, provide income support which maintains a degree of financial stability for some farmers. (Paragraph 94)
8.The shift in the CAP towards income support and greening is likely to continue. Future policy decisions must focus on addressing the outcomes of price volatility and periods of prolonged low prices and help farmers to develop resilience mechanisms rather than controlling prices. (Paragraph 100)
9.While we note the Commission’s ambition to simplify the CAP, the focus must be on reducing complexity for the farmers who use it. (Paragraph 101)
10.One-off support packages can help to counter the impact of extreme natural disasters or catastrophic events that are beyond individual farmers’ control. Policy should, however, focus on building the sector’s resilience in the longer term. (Paragraph 106)
11.We recommend that the UK Government clearly articulate the specific circumstances under which it will seek to access EU funding to provide emergency aid for farmers in the wake of an extreme natural disaster or a catastrophic event. (Recommendation 2, Paragraph 107)
12.Direct Payments provide farmers with important income support to withstand protracted periods of low prices. They can, however, reduce incentives for innovation and efficiency gains and hold back much needed structural change. (Paragraph 124)
13.We recommend that the UK Government works to identify the main barriers preventing farmers from exiting the sector and investigate ways to overcome these barriers. They should consider how Rural Development funding can be used to accelerate structural change and create opportunities for new entrants into farming. (Recommendation 3, Paragraph 140)
14.There are fundamental differences between the organisation and structure of the EU agriculture sector and those in Canada, New Zealand and the US, especially with regard to scale and amenity and environmental use of land. These differences render the models used by these countries unsuitable for general application in the EU at the present time. (Paragraph 159)
15.Even though the Canadian and US experiences have rather different contexts, lessons can be learned on where and how subsidised insurance and disaster compensation may be applied. (Paragraph 160)
16.We recommend that the Commission and the UK Government undertake a structured review of public investment deposit schemes in other countries, with a view to identifying approaches that would work in the EU. This would give farmers a secure and guaranteed option to save in times of plenty and withdraw in times of need. (Recommendation 4, Paragraph 161)
17.The UK Government’s efforts to explore how a futures market for dairy could be established in the UK is a positive step and there may be scope to expand this exploration of futures markets to other commodities in the future. (Paragraph 172)
18.Subsidised insurance schemes should not replace the current provision of support through the CAP. Uncertainty over costs and administrative complexity weigh against such a change. Nevertheless, we believe that insurance instruments may have a supplementary role to play in helping to counter the effects of extreme weather events, for example, and therefore should not be ruled out entirely. (Paragraph 190)
19.We recommend that the UK Government give further consideration to the use of the mutual fund option within the risk management toolkit available under Pillar 2 of the CAP. (Recommendation 5, Paragraph 191)
20.The UK Government has a key role in facilitating the use of financial instruments by farmers as the options offered by the EIB need to be constructed within the Rural Development Programmes. We recommend that the UK Government promote the use of financial instruments and raise awareness among farmers with operations of different sizes and in different sectors. (Recommendation 6, Paragraph 203)
21.We recommend that the UK Government works with the private sector in developing new financial tools which could be accessed under Pillar 2 of the CAP. (Recommendation 7, Paragraph 206)
22.We urge the EIB to speed up the work on financial instruments and work more closely with Member State governments and agricultural bodies to disseminate their work. (Recommendation 8, Paragraph 207)
23.The success of the Commission’s efforts to promote the use of financial instruments will ultimately depend on their inclusion by Member States in Rural Development Programmes. It was disappointing that the UK Government was unable to provide us with an assurance that they will make use of any of the options being developed by the EIB. (Paragraph 208)
24.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. (Recommendation 9, Paragraph 217)
25.Government policy should ensure that provision is made for training and education to farmers in accessing and making use of new financial instruments. We encourage bodies who have a role in providing advice to famers, such as levy boards, to commit sufficient resources for this task. (Recommendation 10, Paragraph 218)
26.Regulatory and implementing technical standards under the Markets in Financial Instruments Directive (MiFID II) should not place an unfeasible burden on farmers, which might discourage them from using financial risk management instruments. (Paragraph 225)
27.We consider that national taxation policies can make a major contribution by developing regimes such as sheltered reserves and income averaging. The UK Government’s extension of the system of tax averaging for farmers announced in the 2015 Budget was a positive development. (Paragraph 229)
28.The funding of agricultural research should be recognised as a priority for both the UK Government and the European Commission. We recommend that they do much more to promote links between research projects and agribusinesses. Joint commitment between the European Commission, Member State governments and the private sector will ensure that research efforts are focused on the areas of greatest need. (Recommendation 11, Paragraph 238)
29.The evidence based approach to policy making must be maintained. Agricultural research should inform policy direction at both EU and Member State level. Public-private partnerships can assist that research. (Paragraph 241)
30.The provision of knowledge exchange and training differs across the UK. The UK Government should identify examples of best practice of knowledge exchange and dissemination wherever it is to be found and actively support them. It should also increase its efforts to deliver broadband to ensure that farmers in rural areas can access the necessary information online. (Recommendation 12, Paragraph 255)
31.Benchmarking in agriculture should be promoted among the farming community and encouraged by the UK Government. There is a long term business case for equipping farmers in all parts of the UK with the knowledge and expertise to calculate and manage their costs of production and overheads. Farmers should share their data with their peers to facilitate this benchmarking. (Recommendation 13, Paragraph 261)
32.The least supported farming sectors appear to possess better business skills. Sectors that have enjoyed historic support now face greater exposure to market forces and should, as a priority, be equipped with the skills to improve business knowledge. (Paragraph 262)
33.The CAP’s objectives go beyond the production of agricultural goods. They include the provision of public goods, such as land management and maintenance of ecosystem services, as well as the mitigation of adverse social impacts in rural economies. (Paragraph 270)
34.Given that the agricultural sector is often expected to provide public goods, there is a case for financial support in certain circumstances. However, policy should display much more explicit links between the expected outcomes and the use of public funds. (Paragraph 271)
35.There is a case for public intervention where there is market disruption caused by events beyond the control of the industry, such as the recent Russian ban on imports from the EU. (Paragraph 273)
36.Given the significant synergies between agricultural and environmental policies, they should not be treated as separate policy areas. We urge the UK Government to demonstrate that their 25 year plan for food and farming and their 25 year plan for the environment are consistent with and support one another. (Recommendation 14, Paragraph 275)
37.We recommend that the European Commission consider a restructuring of the Common Agricultural Policy primarily to support the provision of public goods. (Recommendation 15, Paragraph 281)
38.Market signals are key to encouraging farmers to take the right course of action to increase resilience. This will need to be reflected in any future policy to ensure that these signals are not removed. (Paragraph 283)