The case for more cash
FARMING LORD WALSTON
The 1969 farm price review is to be presented to Parliament on Wednesday.
The Government wants farmers to increase their output; but it wants neither to increase deficiency payments nor to raise the cost of food. Farmers want to increase their output, too; but, especially after last year's disastrous harvest, say that they cannot do so without an injection of fresh capital.
Last year the Agricultural Development Council put forward a detailed plan showing that British farms could reduce net imports by £220 million a year by 1972, but that in order to do so fresh capital of the order of /230 million spread over five years was needed. In the House of Commons on 12 Novem- ber, the Minister of Agriculture said that, sub- ject to certain reservations, 'we welcome and endorse in broad terms the Economic Develop- ment Council's assessment . . . Although, for the reasons I have set out, the full import saving envisaged by the committee would not be reached by 1972-73, nevertheless, by that time, we should achieve a net saving of about /160 million a year.'
Over the past ten years the output from British farms has risen steadily. Some prices have also risen, but some have in fact fallen. For instance, in 1958 the farmer's price for wheat was 28s Id per cwt: in 1968 it was 27s 5d. For barley it was 29s in 1958 and 25s 2d in 1968. During the same period wages have risen from 150s for a forty-seven-hour week to 231s for a forty-four-hour week : fer- tilisers by 13 per cent; feeding stuffs by 9 per cent. Rents, too, have risen on an average by more than 100 per cent. On top of this, the Bank rate has double.
There are few farmers who do not run a substantial overdraft for at least part of the year. In fact, if they do not, most experts would accuse them of under-utilisation of their resources. At the peak periods this may rise to /20 or even £30 per acre. Averaged through- out the year it may well be £10 per acre. The 1958 Bank rate was 4 per cent: now it is 8 per cent. This increase of 4 per cent means an increased cost of £200 a year on a 500-acre farm; and, unlike labour, fertilisers or machinery, this expenditure contributes nothing to higher yields.
Over the ten-year period it has been agreed between the Ministry of Agriculture and the NFU that there has been under-recoupment in the price reviews of £105 million. This sum has come from increased efficiency, and from lower profits: and it is from these profits that the extra capital that is needed not only for
expansion, but also for the maintenance of existing efficiency and for meeting the rising costs of working capital, has to come. It is not always realised that if the price of feed or fer- tilisers rises, even though the price of the finished product rises too, the amount of work- ing capital required goes up correspondingly. Thus a pig-fattening unit turning out 500 pigs every three months needs 125 tons of feeding stuffs to fatten these pigs. If the price rises from £30 to £33 per ton the working capital needed for the enterprise goes up by £375: this working • capital has to be found from somewhere—if not from profits, then from borrowing—today at 10 per cent or more.
Over the ten-year period farmers, on the whole, have been able to maintain their efficiency without undue borrowing from the banks. But this year the weather has hit them hard. It is the arable farmers who have suffered most. Farming differs from most industries in that the cost of production is based not on the number of units produced, but on the area cul- tivated. Thus it costs, for the sake of argument, £35 to grow and harvest an acre of wheat. If the yield is two tons per acre, the cost per ton is £17 10s, which means a good profit at the present price of £27 lOs per ton : but if the yield drops to one ton per acre (and this is just what happened to some unlucky farmers this year), the cost per acre will not drop and the cost per ton is £35, showing a loss of £7 lOs per acre cultivated, instead of a profit of £10.
These hazards of weather are an intrinsic part of farming. Part of the profits from the good years must be set aside to meet tbe losses from the bad : no farmer should complain about that. But the non-farming population, including the Government, must realise that substantial expansion cannot come from an industry whose costs have been steadily rising, whose profit margins have been squeezed, which has had to incur increased indebtedness at high interest rates in order to finance a part of its greater requirements for working capital, and many of whose members have, during the past twelve months, found them- selves faced with a substantial loss.
This year extra costs caused by wage and other increases are estimated at /38 million. Normally some of this would reasonably be expected to come from increased efficiency. This year none of it can. The Government appears to have accepted two thirds of the Agricultural De- velopment Council's import-saving proposals. This would imply a need of fresh capital of £30 million per year. It would not follow from this that every year a similar injection should be made. After a good year some, or perhaps even all, could come from the industry itself. But this year, if the Government really wants farm- ing to play its part in import saving, it should invest a further £30 million in the industry. It should not be beyond the wit of the experts to devise means by which such money would in truth be used for investments to bring about the desired expansion, rather than helping the Barley Barons of East Anglia (if indeed such characters still exist) to buy their second Bentley.
Above all, it is the working capital needed for expansion that farmers do not have, and that they cannot afford to borrow at today's high interest rates. Government money should be directed, so far as possible, to fill this gall Thus, if beef production is to be increased the
farmer must forgo the sale of his young calves, and keep them for two years or more, spending money on food and labour every week, before he receives any return. If he were to enter into an agreement with, for instance, the Fat- stock Commission, to sell these animals when fit for the butcher, he could, through the com- mission, receive monthly payments to cover all his production costs, and even anticipate some of his profit. If the expansion required expendi- ture on new machinery or buildings, he could receive not, as at present, a grant which still leaves him to find the capital (at 10 per cent) for 75 per cent of the cost, but rather a loan for the entire amount at, say, 3 per cent, the capital to be repaid, after a grace period of one or two years, over five to ten years. In ways such as this farmers would be given both the financial and the psychological incentive to expand, while the inflationary risks of merely raising prices would be avoided.
To sum up, this year's price review should be divided into two parts. The first should cover normal recoupment on the basis of higher costs and average yields. The second should be devoted solely to the expansion programme. For the latter the Government should be pre- pared to earmark £30 million a year, though it is unlikely that all of this would be needed in the coming twelve months. This sum should be expended, so far as possible, in ways which directly implement the expansion programme.
Previous page
