The October release of Defra’s Farm Business Income figures highlights a decline in profitability across almost all farming sectors, writes NFU economist Rohit Kaushish.
As the price of agricultural products continue their downward trend, the ability to produce more with fewer inputs is critical for increasing the efficiency, resilience and competitiveness of British agriculture.
Indeed over the previous two decades the primary driver of global agricultural growth has shifted from inputs-based (increasing land area as well as intensifying labour, capital and materials use) to total factor productivity based (increasing outputs from existing or fewer inputs). For the UK however, recent figures released by the USDA economic research service highlight the increasing gap in agricultural productivity growth rates between the UK and other developed nations.
During the 2001-2012 period, the UK has achieved an average annual growth in total factor productivity of 0.8%. This falls far below the average annual growth of 2% observed across all developed countries where the United States achieved growth of 2%, France 1.7% and Germany 1.8% over the same period.
The UK’s total factor productivity growth rate has plateaued since the early 1990’s.
During this time levels of productivity have accelerated in Australia, New Zealand, France, Germany and the United States all of whom continue to realise increasing efficiencies within their industries. As a result, agricultural output in the UK has stagnated over the last decade whilst the US and New Zealand have continued to achieve productivity powered growth.
As EU talks on free trade agreements with New Zealand and the US progress, UK agriculture must review our investment agenda and as such, our ability to compete in the long term. A detailed study by Defra links the UK slowdown to substantial cuts in public funding for agricultural research and the privatisation of farm advice in England.
This view is mirrored by the USDA economic research service which attributes the success of global and more specifically US productivity growth to the increasing levels of private research and development funding which has picked up in the face of reducing public investment.
As British farmers operate within increasingly open global markets, it is critical that Defra’s comprehensive spending review considers the importance of safeguarding investment in front line delivery services. The NFU also welcomes the introduction of the permanent Annual Investment Allowance of £200,000 which will help to encourage the uptake of new technologies to support on-farm efficiencies.
Looking forward however, in order to ensure that British farmers benefit from any free trade agreements and to address our declining self-sufficiency, the UK must formulate a policy environment which encourages greater investment and innovation within British Agriculture.