E-scooters at a crossroads
E-scooters at a crossroads

Looking beyond subsidy: does the Agriculture Bill miss the opportunity to innovate?

Words by:
October 8, 2018

Working in the bubble of a city, it can be easy to forget that just under 70 per cent of the country is farmland. But the sector’s economic and political significance is large. While the industry is not one of the UK’s top employers, it still provides around 475,000 jobs directly, as well as supporting a further 30,000 indirectly. Last year it contributed £10.3 billion to the national economy in Gross Value Added terms (a rise of 20 per cent from 2016). It also plays a vital supporting role, providing 61 per cent of the raw materials for the wider UK agri-food industry, which is worth around £108 billion of GVA to the national economy and provides over 3.7 million jobs.

But the sector is facing significant challenges. Changes to industry methods from disruptive and emerging technologies promise to revolutionise how food is produced in the UK. Furthermore, the sector is facing a fundamental change in how it is regulated and funded post-Brexit.

For investors, the economics of the sector have been dictated by EU policy for decades. The Common Agricultural Policy (CAP) was described last year by MEP for South West England Molly Scott Cato, who is a substitute on the European Parliament Agriculture Committee as “unfit for purpose.” Its Direct Payments System, which pays income support based on the amount of land farmed, is unpopular among many in the farming community. Small farmers see it as rewarding land ownership rather than innovation and good farming, as it pays the most money to the largest landowners. In the UK, ten recipients receive 50 per cent of the total farming subsidies.

As the first example of major agricultural legislation introduced since 1947, and one of the first practical departmental bills to map policy for a post-Brexit UK, the Agriculture Bill is an attempt to address the way farming in the UK is subsidised and to take advantage of the demise of CAP. It seeks to shift the emphasis of subsidies away from land ownership, in favour of paying farmers for sustainable land management such as better air and water quality, improved soil health, higher animal welfare standards, public access to the countryside and measures to reduce flooding.

While the Bill provides an opportunity for the government to set out its vision for the future of agriculture in the UK, it also has the potential to put in place a regime as controversial as the CAP that is being replaced. Investors and potential investors in farming, agricultural land and associated assets will have to understand the implications it will have, as well as the details of a newly forged and unexplored system where payments are linked to outcomes.

Under current proposals, cuts to Direct Payments will begin in 2021 and continue until payments cease after 2027. These cuts will be introduced progressively, with annual payments of up to £30,000 cut by five per cent in the first year of the transition, while payments of £150,000 or more will fall by 25 per cent.

Payments will be delinked from farms themselves, allowing farmers to use payments to boost their pension pots rather than having to reinvest all the income. Environment, Food, and Rural Affairs Secretary Michael Gove MP has said this is a deliberate tactic to encourage older farmers to retire. The average age of a farmer has now risen to 59, and the shortage of viable farmland coming to market is driving up prices, creating barriers for new market entrants. Commentators have predicted the uncoupling of the payments from farms will eventually lead to a reduction in the price of land, with an increase in retirees leading more land to come to market.

Publication of the Bill provoked a concerned reaction from the industry, with many disappointed about its lack of vision and the neglect of wider related topics like food production, food market price volatility, free trade and access to labour.

At a Liberal Democrat Party Conference fringe event entitled “What should the UK’s future food policy look like?”, Ian Wright, CEO of the Food and Drink Federation, Elise Wach of the Institute of Development Studies and Stuart Roberts of the NFU all agreed the bill is a “missed opportunity for the whole food supply chain.”

Wright commented that the government significantly underestimated the role of food and farming for the UK economy and that it was “really important to see food and food policy as an arm of economic policy.” More vocally, Glyn Roberts of the Farmers Union of Wales has described the phasing out of the Direct Payments System before the economic consequences of Brexit are known as having “potentially catastrophic consequences for food production.”

Meetings between Environment Secretary Michael Gove and the industry since the initial unveiling of the legislation, have reportedly allayed some fears about the bill and the perceived lack of government vision, with Richard Griffiths, CEO of the British Poultry Council commenting that the bill was a “good first step.” However, the lack of wider vision or connection to broader economic issues in the bill may still prove an issue for some in the industry and limit what it is able to accomplish.

One area not included in the bill, but part of a newly prioritised workstream by DEFRA and a new £90 million fund from BEIS, is Smart Farming. The money provided by BEIS will help farmers and agricultural supply chain businesses to utilise robotics, AI and data science, and will help to develop solutions to issues within farming, such as land availability, unpredictable weather conditions, and poor supply chain management. New “challenge platforms” will bring together businesses and academics to tackle specific issues, and “innovation accelerators” will explore the commercial viability of new technologies.

There is much to interest investors keen on innovation in the UK’s urban agriculture industry, with new farming and food projects developing in the UK’s cities, particularly in London, around the use of hydroponic systems. These systems allow the growth of food products without soil or natural light, using blocks of porous material where the plants’ roots grow, and artificial lighting such as low-energy LEDs. Such systems overcome cities’ lack of space and allow growers to simulate any set of environmental conditions for food production they need. The new market in medicinal cannabis, which could potentially open up once regulations are changed to allow forms of the drug to be prescribed by doctors, could also see these types of spaces used to develop optimised marijuana farms in the UK’s cities.  The advances in this field of technology are abundant, with many companies looking for funding to scale new products or enter new areas.

Other examples of innovation include drone use to better assess crops’ performance across large farms, and enhancements so fertiliser and pesticides can be applied precisely to each plant to reduce over-use and wastage, improving the environment and saving on costs. Better monitoring of climate conditions can inform farmers’ sowing and harvesting plans. The benefits of automated and autonomous vehicles are also a potential game-changer for the industry, with combine harvesters, tractors and other farm machinery being able to operate independently.

The potential opportunities for businesses and investors in the industry are significant and potentially far greater than might be suggested by the Agriculture Bill as it stands. While subsidy and what will replace the Direct Payments System will be of obvious interest, it will be interesting to see what, if anything, will be added to the bill as it makes its way through Parliament that presents more niche opportunities, particularly if the bill is supplemented by further government publications to make up for what is perceived as lacking.

Speaking to the Grocer Magazine, NFU Director of Brexit Nick von Wesneholz neatly summarised the key problem with the Bill: “the key issue is not what the bill does, but what the current and future government does with it.”

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