How can hill farmers survive Brexit?

Today, I’m delighted to host the second of this week’s guest blogs reflecting on what Brexit might mean for hill farmers, following the publication of an RSPB commissioned report to understand the potential impacts. Chris Clark is a hill farmer and business consultant from the Yorkshire Dales.

Alongside his wife Fiona, Chris runs a 170 hectare beef and sheep farm in Langstrothdale in the Yorkshire Dales National Park. As well as producing and marketing rare-breed sheep and cattle, Chris and Fiona have diversified their farm business to include self-catering accommodation, an education centre and two observational hides, and a biomass boiler backed up by solar panels to provide sustainable heating and hot water. Their farm is also home to a whole host of wildlife including curlew, black grouse, short-eared owls, crossbills, red squirrels, otters, and brown trout.

How can hill farmers survive Brexit?

The importance of the role that farmers play within the upland landscape is well understood by most within the agricultural and environmental sectors. But there are justifiable concerns about the impact Brexit will have on the future of hill farming, not least the looming reduction of farm support payments. 

The big worry of course is the fundamental issue of farm profitability. What if there is no area support and not enough environmental payments for uplands in say, 10 years’ time? How will farms and the upland landscape change?  Will farm businesses stop, amalgamate, collaborate or do something else?  How should government, agricultural and environmental leaders help farmers survive?

The uncertainty is exacerbated by the already marginal viability of hill farms. According to DEFRA, in 2014/15 half of all UK farmers failed to cover their costs of production.  And even with support payments, almost 20% of farms failed to achieve a farm business income.  This will almost certainly be higher on hill farms. 

The stock in trade for most hill farmers is sheep but the truth is that the UK demand for lamb as a commodity is in long-term decline. And the age demographic of lamb consumption shows it’s being dominated by older people.

Demographics also plays a part in the entrepreneurial inertia of an ageing farming population - many farmers are set in their ways and maintain the unprofitable status quo.

However, change they will have to.

Of course, every farmer’s situation is different. Geology, soil type, altitude and weather all have an influence as well as the needs and wants of the farming family managing the business. But all hill farmers need to examine the intersection between productivity and profitability.  Depending on the business, a better model might be achieved by, amongst other things, a combination of: reducing variable costs, reducing fixed costs, finding income from outside the farm, collaboration; taking control of the downstream food supply chain, diversification (but only when the core business is sound).

Look at beef production for example. It could be three or four years before any return might accrue, very hard for a marginal hill farm to manage, particularly when the unenviable capital required is added to the equation. Public policy will have a role to play here, such as through environmental land management payments and potentially capital investment in cattle handling facilities and housing, but hill farmers also need to find more certain routes to making a profit. 

The primary answer relies on businesses that are strategically better budgeted and better planned and that trust business models with the appropriate interaction of profitability and productivity.  However, understanding the secondary flaws in a hill farming business also helps to understand where to find a solution.

At the moment, typically, a hill farmer will sell the product, say lamb, through a wholesaler to a meat processor who then sells to a merchant.  That merchant will set prices and sell to a retailer, who markets to the end user.This route gives the hill farmer 15% of the final price to consumer, while the retailer takes 35%. The meat processors and merchants can take a staggering 50% 

So, what if hill farmers did the job of the processors and merchants as well as taking a slice of the retail trade?

Some hill farmers, perhaps working with their regional National Park or Area of Outstanding Natural Beauty, could form regionally-based producer groups. They can then offer products which are unique to their region. The merchant is cut out and the farms take a far greater share of the profits.

And then taking a slice of the retail trade might well take the form of denying the supermarkets access to the group’s brands, except at a premium.

The bottom line is hill farmers and its’ leaders need to urgently plan and budget in these uncertain times. They need to radically reassess the way hill farms work if they are to survive and for our uplands to remain intact.

In particular hill farming leaders should be working to ensure the survival of the existing structure of hill farm holdings, particularly the smaller family farm, tenanted, managed and owned, by firstly, promoting planning and budgeting for the future and encouraging farmers to expeditiously adapt accordingly.  Secondly, assisting farm businesses move from a primarily production based business model to one motivated by margin, preferably margin derived from a value-added driven producer group.  This will inevitably mean a move from commodities to branded produce where the branding articulates a differentiation, an implied guarantee of quality and a consistency in the product. 

Focusing on profitability and added value produce can also align strongly with environmental outcomes in the uplands, as well as improving financial resilience. In this way, hill farmers can position themselves to benefit from a future policy centred around public goods and the Secretary of State’s ‘Green Brexit’, whilst putting environmental credentials at the heart of a brand that will really resonate with consumers.