The Future of British Farming: Accentuate The Technology and Eliminate the Subsidy

MAY 31, 2017 RICHARD FERGUSON

Editor’s Note: Richard Ferguson is founder of Ferguson Cardo, an agribusiness consultancy and research group in the UK. With several years experience in the industry working for groups such as PwC and Renaissance Capital, Ferguson recently wrote a new report on the future of UK agriculture in the wake of Brexit. Here he offers some key insights from that report.

The future of British agriculture lies not in an annual £3 billion infusion of inefficient subsidies and misallocated capital via the Common Agricultural Policy, the European Union’s farm subsidy programme. Rather, the UK has the potential to re-pivot, refocus and redeploy its capital and energies towards the nation’s value-added agricultural technologies and cutting-edge science capabilities. This transformation will allocate capital efficiently and bring wide-ranging social and economic benefits across the UK economy. It may also redefine the country’s objectives in trade, aid and economic diplomacy.

To feed a world of some 10 billion people, according to the United Nations’ Food and Agriculture Organization (FAO), almost 77% of the additional output from farming will come from intensification and higher yields; only 20% will come from increased farming area. In other words, farming output growth in the future depends critically on the greater use of agricultural technologies, ranging from equipment to genetics.

The possibility of a Brexit-driven reconfiguration of the UK’s food and agricultural sector suggests that a period of significant transformation and structural adjustment lies ahead. Set against an industry already in the midst of rapid technological displacement, value-chain disruption and regulatory change, a transformative event such as Brexit appears to add to existing uncertainty.

However, while the potential institutional, financial and operating frameworks that will arise from Brexit suggest a wide range of possible outcomes, the process, if mapped successfully, can be a positive one. The UK’s current position is not unique. In the 1980s, the government of New Zealand instigated a reform programme to transform the country’s food and agriculture sector, the results of which were immediate and painful as well as long-term and beneficial.

At the core of the transformation that shook New Zealand’s agriculture sector in the 1980s and 1990s was a pressing need to access new markets in the face of external economic shocks and structural adjustments, such as the UK’s decision to join the then European Economic Community (EEC) in 1973. While there are obvious direct parallels between the New Zealand case study and Brexit, both situations remain distinct and unique. However, we would contend that an agenda focused on long-term goals can deliver significant economic and social benefits even if they come with considerable short-term costs. The battle about to commence is set to be as brutal, complex and ideological as that which determined the direction of the British economy in the late-1970s and early 1980s.

The UK must also consider to what extent environmental considerations should influence the policy-making agenda. What is the role of government in terms of regulation, environmental compliance, bio-security and food trust? Alternatively, can a free-market, liberalisation agenda deliver wider social, political and environmental objectives as well as economic goals? Can the UK use its fledgling – and flourishing – agtech knowhow to raise productivity, build exports and deliver added value to the British economy?

The British government, budget pressures notwithstanding, has to ask whether a pound spent subsidising a marginal farm in the Pennines is better spent on developing world-class facilities across the technology and biosciences sectors. How many UK startups and early-stage companies fail to thrive because they lacked capital at a vital stage of their evolution?

There are other strategic considerations for the UK if it wishes its food and agriculture sector to prosper. A global imperative is: how do we feed a world of 10 billion people within a generation when its current needs are delivered by an army of unsophisticated and undercapitalised smallholders? We contend that the Department for the Environment, Food & Rural Affairs (DEFRA) and the Department for International Development (DFID) need to shift their respective – and parallel – focuses on agriculture subsidies and development aid to collude with the Department for International Trade (DIT) and the Foreign & Commonwealth Office (FCO) to bring much of the UK’s technological, commercial, developmental and diplomatic ambitions in food and agriculture under a joint strategy.

This is relevant for the domestic landscape too. Britain has a large food deficit. The country needs to build its export capabilities and this is best done in commercial sectors where capital delivers the highest returns and creates the most economic value added. Subsidising agriculture may no longer make sense. The country needs to consider what are its best resources – whether technological, scientific or financial – and how best these can be combined. Such an assessment is hindered by many factors: the food and agriculture sector – excluding inputs, trading houses and the consumer end of the value chain – is notoriously fragmented. The most promising opportunities lie in the most awkward places to invest capital. An agricultural technology full of promise struggles to get funding, let alone access challenging new markets. In short, how do you get a world-beating piece of agtech into the likes of Africa or Asia ahead of your competitors?

The triggering of Article 50 by the British government on 29 March 2017 offers a strategic opportunity for the UK to eliminate agricultural subsidies after 2020 and refocus efforts on the promotion of value-added agricultural technologies. Make agricultural subsidies a thing of the past.