Estates Director John Varley presents his thoughts on farming in Devon post Brexit

Transcript of John Varley's presentation to the Devon Farm Management Association, entitled: “Taking advantage of the breakpoint – a perspective on the choices Devon farmers will have to make over the next five years”

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Estates Director John Varley presents his thoughts on farming in Devon post Brexit

Thank you for inviting me this evening. Like many in the room tonight, I am considering how emerging trends may shape my business’s strategic thinking over the next few years – the opportunity to present my thoughts to you has given me a great opportunity to research and reflect.

The first thing to say is that Brexit presents Devon agriculture with an opportunity – I voted to remain so we could sort out the EU from the inside –however, now we are leaving we should be free to expedite a competitive and vibrant agriculture industry. It is clear that an “agricultural breakpoint” is occurring – potentially on a scale not seen since at least the 1970s, the first time in over 40 years that the British Government has an opportunity to take control of agricultural policy. But whilst most commentators are focussing on Brexit and the choices we have in how we untangle ourselves from the Common Agricultural Policy, there are a number of linked “disrupters” which may shape the future for those who own and manage land-based businesses.

Disrupter number 1

Consumers, markets and trade:

Consumers are the most important stakeholder for food and farmers. We ignore them at our peril. They have always wanted inexpensive, high quality and safe food. Consumers now have more and more information at their fingertips about their food and its value chain. Consumers change industries more than Governments – Primark now thinks a bit harder about the conditions in their factories in Asia; Apple is focussed on reducing the suicides in its production plants in China; governance in oil companies has changed out of all recognition after a string of environmental and human disasters were exposed across the world – all due to public pressure after the lid is lifted on how products are manufactured and exposing the collateral damage incurred in making them.

Our children are both influencers and the influenced. Social media and connectivity is driving shifts in consumer thinking and behaviour. My youngest daughter is 17 and has been a committed vegan since watching ‘Cowspiracy’. I am under pressure to close the in-hand organic dairy and grow quinoa. At this year’s Open Farm Sunday how, with our farm under restrictions for bTB, do I explain our dairy bull calf policy?

Society has come to accept that the percentage of household spending on food is relatively low. Over the past 50 or so years spending on food has fallen from around 40% to 11% of household income.

For some 11% is still too high and Policy Exchange – a right wing think tank – claims that “UK food prices remain higher than in a pure market”. There is an emerging body of opinion that a significant cause of perceived higher prices has been the combination of tariffs and agricultural support, increasing costs and subsidising inefficient methods of production. While the average EU tariff is relatively low at 2.7%, agricultural tariffs are more than three times higher than this at 8.5%. For some product groups tariff barriers can be substantially higher e.g. processed chicken at 88%. Beyond direct prices, consumers also pay above the odds for food indirectly through the tax system and wider public expenditure, to put right damaging activity to the environment by agricultural operations.

Some people fear that lower prices will come at the expense of lowering standards. In the EU the body responsible for standards, the European Food Standards Agency, has adopted an approach based on the precautionary principle. This has led to a divergence of approach between EU and foreign producers. E.g. Chlorinated chicken, hormone-treated beef and GM.

On leaving the EU there is pressure for the UK to adopt perhaps a more objective, science and evidence led approach to food standards. This may bring both opportunity and risk. Certainly, what we should be expecting is much more transparency and accreditation to help consumers make informed choices. Red Tractor is already looking at slurry capacity on dairy farms and some talk of a “Green Tractor” label considering wider environmental outcomes. But is this really enough?

At Clinton Devon we are funding research to understand and reduce the environmental impacts of our business, including understanding the links between our farming practices and monitoring water quality downstream, with a view to making such data available to all. We take very seriously our responsibilities not to pollute or damage the water environment and know that society increasingly expects this of us.

Devon farming has a powerful and positive brand. We have an opportunity to exploit and develop it and give consumers, supermarket buyers and processors the confidence that buying products from Devon farming enterprises guarantees standards in quality. Equally, as I have mentioned, brands can get damaged – the collective challenge is to put protection of our brand centre stage across Devon’s farming enterprises.

Disrupter number 2

Business competitiveness and productivity:

In 2015/16 over half of farms earned less than £20,000 and 42% of farms did not make a profit. Income per worker remains only £19,000 a year. A set of statistics which would make most investors, not looking for tax breaks, steer well clear.

Total income from UK farming is £3.6bn, including subsidies of £3.1bn or 87%. The existing financial model for agriculture does not appear robust, nor offer confidence for the future – especially if direct subsidies are to reduce and the outcome of new international trade agreements remain uncertain.

British farmers used to be amongst the most productive in the world, especially in the 1970s. In recent decades, however, productivity has stagnated and is now below that seen in many other countries - many farms today are not sustainable without substantial subsidy. The management of the withdrawal of farming support is going to be a central issue for the new domestic policy. The goal should be to create a highly productive, dynamic farming sector, which is more specialised and capable of competing in global markets.

The low productivity of UK agriculture cannot be blamed entirely on the CAP. Other EU countries have seen better performance, despite the negative influences created by the CAP regime. Cuts to R&D investment, high land prices, energy costs and an aging and non-specialist workforce have all had an impact. As an industry, we need to demonstrate active leadership in addressing these issues. Technology, skills, new business models and innovation will surely have a role to play here.

At Clinton Devon Estates we expect that ultimately all AI semen we use in our dairy business will be sexed semen within two years. We are looking to trial an automatic system that detects lame cows before humans can and use Body Condition score cameras to monitor weight gain and loss in livestock. All this to improve productivity and animal health and well-being. We have been using drones to identify early stages of tree disease and we are now looking to use this technology on the farm to survey land and crops and maybe eventually, uploading the results to equipment, allowing precise application of inputs, reducing costs and increasing yields.

We need to establish the next generation of farming leaders. Succession on merit and new entrants from new backgrounds. A striking feature is the age of the workforce. Median age of farmers is 59, compared to 40 in the workforce as a whole. Bringing young people into farming is not straightforward – including the high cost of buying or renting land, expensive rural housing and poor career paths. An irony of one of the core objectives of the CAP – “the creation and maintenance of employment” is that UK employment in agriculture has fallen dramatically from over 3% in 1960 to just over 1% today.

Subsidies allow investment in mechanisation, substituting capital for labour. CAP support proportionately benefits larger farms, which grow more rapidly than smaller farms. Since 2005 the number of smaller farms has shrunk with the average size of holdings moving from 69 to 80 hectares. As technology and machinery get more expensive, there is pressure on the larger farms to grow and spread costs. The smaller farms, on marginal land, may not have either the capital or opportunity to take on more land. CAP support, in many cases, is the only driver of on-farm investment. Without it and without a new business model, the consequences for farm viability, never mind improved performance, maybe bleak.

There strikes me to be an opportunity to evolve new forms of collaboration between farming enterprises, between different ownerships, landlord and tenant and non-farming enterprises to drive benefits from scale and scope and investment in skills and capital. At Clinton Devon we have commissioned legal opinion on a concept called a “Co-operative Contracting Agreement” – CCA – where a landlord and one or more tenant form a LLP or similar to establish a new form of business partnership. Early days, however, we recognise that existing tenancy models may not enable the innovation and approach to risk required post Brexit.

The industry should be benchmarking itself against not just the most efficient farming enterprises globally but also benchmarking against other industries – being the best in class for procurement, business processes, human resources, skills and financing. We need to upskill and place new knowledge in the hands of farmers to make more informed decisions – increasing productivity and competitiveness. As well as productivity, we need a big focus on health, safety and wellbeing – the industry is in the spotlight for its woeful track record in serious work-related injury, fatalities and mental health.

The opportunity to invest and change work practises to make farming a safe place to work goes hand in hand with the same investment to make business more efficient and productive. This also goes for animal health. An area where the UK is a leader, although there is much more to do – we need to embed animal health along with demanding work place safety into business as usual - it should be a unique selling point – a vivid example of the high standards we strive for and used to differentiate our products; a contributor to productivity improvement and our passion to be the very best for people, livestock and the wider environment.

As industry leaders we should be commissioning research and development and knowledge transfer, providing the tools to help farming enterprises transition to new models of business and developing centres of academic excellence; focusing on the unique opportunities facing agriculture in the South West. Our local colleges and universities should be rising to the challenge, reinventing themselves to be ready to support future industry models with science and evidence rather than unguided research or courses; pointing the most able students to careers in agriculture – careers in a globally competitive industry, exploiting technology, AI and science.

At Clinton Devon we are co-sponsoring with Exeter University a Phd student, Matt Holden, who is asking the question “Can productive landscapes enhance natural capital?” – assessing the environmental impacts of current farming systems and identifying how progressive enterprises can be both profitable and provide benefits for both wildlife and people.

Upskilling and continuous professional development should be the norm. Qualifications and licenced training must become pre-requisites for some agricultural roles – e.g. livestock management and machinery supervision and operation.

Disrupter number 3

Rural economy priorities:

There are obvious synergies between agriculture and rural economies, which is why agriculture and its value chains remain an important contributor to rural employment. It is no longer the biggest employer though and in terms of Gross Value Added, agriculture, forestry and fishing combined represent just 2% of the overall rural economy and 0.55% nationally. Is GVA the right measure for our industry’s contribution?

My experience is that in Devon agriculture has been undervalued by policy makers for its contribution to the local economy. Post Foot and Mouth the Estate struggled with the then RDA to take seriously the need to support land-based business in its recovery. There was a level of ignorance then and even now LEPs and Local Councils view agriculture and forestry as something very different to a “real business”. LEP and Local Authority plans need to recognise the value of land- based business to the economy and support joined up strategies to attract investment and develop the skills required to sustain and grow successful farming and forestry enterprises.

A new model of appreciating the contribution made by agriculture is gaining traction across Government and academics. It’s called “Natural Capital” – it is what you have always been delivering, but someone has now found an algorithm to put a value on it. A very long algorithm.

This is a potentially big disrupter – both in policy and market terms. The challenge is how value can be captured from the “natural capital” delivered by farmers in rural areas. This includes value created from pure production of food and fibre, renewable energy, wildlife, air pollution removal, waste water cleaning, flood protection and education. The value of day trips alone to the natural environment is estimated to be £6.5bn – not far below the entire GVA of agriculture. Many of these visits are to experience an environment delivered by farmers. Maybe we’ll get paid for it?

Disrupter number 4:

Environmental awareness and society’s wishes:

Agriculture dominates land use in the UK. Farmers, foresters and land managers have the ability to shape – positively and negatively – the environmental costs and benefits resulting from their management and make a huge difference to the value and quality of this country’s natural capital.

According to the OECD, three variables determine the impact that agriculture has on the environment:

  • The quantity of agricultural production
  • The incentives and disincentives facing farming
  • The types of management practices that farmers adopt

The challenge is to decouple agricultural production from environmental degradation, so that agriculture can continue to meet increasing demand for food without putting undue pressure on natural resources.

Agriculture’s contribution of 0.55% of UK Gross Value Added, contrasts with its generation of 10% of total greenhouse gas emissions. The main environmental impacts of agriculture in the UK are associated with water pollution, air pollution, soil degradation and the impact on biodiversity. Last year, agriculture became England’s number one polluter of water.

[N in rivers – 60%

Phosphorous in rivers – 28%

Sediments polluting water bodies – 75%

Methane – 53%

NO – 80%

Ammonia – 83%]

The costs to society of cleaning up these damaging impacts are huge and are paid for by tax payers e.g. an extra £100m on water bills. Government is focussing on reducing these impacts and looking to use a reformed, post-Brexit agricultural policy to pursue this aim. Soil degradation is already in the spot light – it is estimated that 2.2 million tonnes of soil is eroded each year in UK catchments (damage costed at £1bn/year).

At Clinton Devon, we are working with the Local Catchment Partnership show-casing the good and bad – installing sediment traps, monitoring outcomes and hosting farm visits. The other area is biodiversity, where it is widely argued that there has been a decline in farm biodiversity as a result of increasingly homogenous farming landscapes. Whilst entering Mid-Tier Stewardship, Clinton Devon Farms are using the options to compliment and support our own nature improvement strategy to optimise outcomes for wildlife.

Our recent management contract with Velcourt, to run the in-hand organic dairy, is novel in that, as well as agreeing financial performance targets, we have included development of targets for biodiversity / environment, animal health and employee satisfaction.

We have just let a farm, not for the highest rent, but on a balanced scorecard of financial return and alignment of objectives for delivery of Cirl Buntings, improved soil quality and education. We have invested in a comprehensive soil survey, bird and butterfly survey to benchmark agreed targets over the course of our partnership with the tenant. This is our model for all new tenancies and we are also undertaking soil surveys on some existing tenanted land to focus improvement actions on our greatest asset.

In order to be recognised for our contribution we need to be understanding what we are stewards of today – commissioning audits and working on a landscape / catchment scale across farm boundaries, to be ready to deliver what society wants. In 2016, at Clinton Devon, we undertook a comprehensive audit of 3,108 species across the Pebblebed Heaths SSSI. We now have baseline evidence to improve future conservation management.

Last month we published our Wildlife Prospectus – Space for Nature, which identified all the important areas for biodiversity across the Estate, along with our key partnership projects. From this we have developed 13 Priorities for Action which we will be discussing with our farm tenants, commercial partners and stakeholders with a view to implementing joined up landscape scale conservation improvement schemes.

The opportunity for Devon’s farmers

Where there is uncertainty there is opportunity. The biggest risk is waiting to see what happens. Devon’s agriculture is misunderstood and under-valued. Many of these trends we can see coming and we should be turning to our advantage; the advantage of our ultimate consumers, society and our natural environment.

Devon farming businesses are family businesses – research confirms that family businesses out-perform other business types. Patient capital and next generation thinking sets them apart.

Collectively, the four areas of disruption I have identified present a once in a generation opportunity to reform and place agriculture and land-based industries back into the heart of the rural economy where it belongs. Many feel it is our collective role to challenge the policy makers and politicians to own the problem on behalf of farmers, by ensuring continuity and stability. But isn’t it our role to question our own business models and shape and transform them to be fit for the future? In doing so becoming the fifth and perhaps most important disrupter of them all?

The breakpoint of a new agricultural policy and new trading arrangements should not pose a threat for those farming enterprises prepared to transform their business operations, innovate, own and manage risk. The breakpoint gives us the opportunity to test new ways of doing business and take risks – certainly our ambitious Secretary of State, Michael Gove, is seeking a transformation beyond any espoused by any previous Minister in living memory.

Devon agriculture has some of the greatest potential to deliver what society wants. However, research in 2017 by Indepen indicates that farmers’ business confidence remains low with high debt and declining capital investment. Indepen also felt that post Brexit, a new agricultural regime: “would have differential effects on land prices and rents: the effects could vary between areas focussing predominantly on food production and those where the outcomes include a wider range of public goods”.

Across Devon with our natural capital, quality soils, grass and climate we should be able to do the double – produce food and enhance the nation’s natural capital – confidence needs to rise though and investment increase, to capture this ground. We should be working with, amongst others, producers, water companies, LEPS, universities, colleges and influential local politicians, in making the Brexit breakpoint a success for Devon agriculture.

As leaders of farming enterprises, Devon farmers should now be seen as an important part of the solution for this county’s economic and social health – an industry which is best in class globally, valued for its underpinning of Devon’s unique environmental economy and an industry attracting the best talent, skills, technology and investment. In a county which is one of the UK’s richest in terms of bio diversity and natural capital.

Handing over something more valuable than we have today,

– Estates ethos

But our power for good or evil in this world’s affairs in a countryside is enormous

– Robert Lipscomb, Steward 1865 – 1892

…and the Lord Clinton was, by the whole Council, brought to the King’s presence, who after like thanks was given, was pleased that he should be made High Admiral of England and one of his Privy Council…

– Official record of appointment of 9th Baron Clinton as Lord High Admiral for life on 4th May 1550

to set out against the Scots, the King’s enemies and rebels

– Instructions given by Edward 1 to John de Clinton on 8th April 1298, prior to him leading the Royal army to victory at the Battle of Falkirk. As a direct result the Clinton Barony was formed on 22nd July 1299

Do what you can to elevate your profession. It is an honourable one

– Robert Lipscomb, Steward 1865 – 1892