A Brexit-driven reconfiguration of the UK’s food and agricultural sector suggests that a period of significant 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, 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 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. The New Zealand experience indicates that an agenda focused on long-term goals can deliver significant economic and social benefits, but may come with considerable short-term costs. The battle about to commence in the UK 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 removal and substantial reduction of various agricultural subsidies were a hallmark of the 1984-1989 Lange Administration. The robust programme dubbed “Rogernomics” after his Minister of Finance, Roger Douglas, led to greater international competition, the loss of thousands of manufacturing jobs and to a number of farmers losing their farms. The abolition list included price support, income support, fertiliser subsidies, irrigation, transport, and land development. In addition, farmers and Producer Boards lost tax concessions, free government services and concessionary funding.
The economic upshot, however, contained plenty of positives. Fewer than 800 farms – 1% of the total number of farms in New Zealand – went out of business. Even that proved temporary and the number of small farms increased over the 1990s. Diversification into higher-value foodstuffs such as horticulture became a consistent theme and rural tourism took off. Productivity gains became the norm to the extent that multifactor productivity in the agricultural sector improved at a faster rate than before the reforms and also faster than in other parts of the economy since 1984.
But was there an environmental and social price to be paid for all these output and productivity gains? The evidence suggests not. The removal of subsidies meant that farmers have applied fertiliser more efficiently. In employment terms, average annual employment growth in accommodation and food services registered an annual growth of 2% between 1989 and 2012, despite these sub-sectors’ reliance on a low-wage workforce. Direct agriculture employment fell but rose across the wider sub-sector indicating a positive impact on the overall food value chain and associated industries such as tourism.
Crucially, New Zealand offered various transition relief measures to offset the initial shock of eliminating subsidies. This included a one-off grant of NZ$45,000 to abandon farming as well as debt restructuring. Some 7% of farms in New Zealand benefitted from these transitional relief measures. Farmers were also provided with better access to social-security schemes that catered to the unemployed and to low-income families.
A further set of reforms, implemented between 1999 and 2001, saw the removal of the export monopoly enjoyed by most producer boards. This included the Dairy Board and allowed free competition between the boards and other exporters. To continue research and development in the decentralised market environment, DairyNZ was formed and was funded by a levy on dairy farmers, which was subject to a vote every six years. DairyNZ focuses on research, training programmes, bio-security and advocating on behalf of dairy farmers. Similarly, Beef + Lamb New Zealand Ltd, is a farmer-owned, levy-funded organisation, which undertakes research, training, and advocacy.
More recently in 2009, the government initiated the Primary Growth Partnership (PGP) programme to foster innovation across the value chain in the agriculture and food sectors. The programme envisaged a partnership between government and private sector. To encourage exports, the government plays a key role in maintaining the reputation of the “New Zealand” brand. This involves ensuring that exporters maintain high standards for food safety, bio-security and animal welfare. Some examples of current PGP projects are to:
- Spread best practices through knowledge sharing across the avocado industry, the objective being to triple yields to 12 tonnes per hectare and quadruple industry returns to NZ$280 million by 2023
- Encourage the use of prototype harvesting systems that can target specific species and sizes of fish, and ensure they are in better condition than those caught using traditional trawls
- Promote demand-driven value chain for the red-meat industry, bringing farmers closer to processors and consumers
- Develop tools and software to improve fertiliser-use efficiency and reduce loss of nutrients into waterways and pastures
- Improve precision application of fertiliser after remote sensing of nutrient status in hill-country farms
The New Zealand experience indicates, above all, that a subsidy-free agricultural landscape not only can deliver economic and financial gains, it can also deliver wider social and environmental benefits. The future of British agriculture beyond 2020 when the CAP is likely to be reformed could prove more sustainable and better for our environment than we might currently think.
Richard Ferguson is Managing Director of Ferguson Cardo
The views expressed in this article are those of the author, not necessarily those of Bright Blue