Agricultural economist Dr Jeremy Franks, of Newcastle University, has compared UK farming’s current financial structure with the downturn in farming in the 1980s.
In his paper, Dr Franks identifies a range of emerging risks, including increased protectionism among G20 countries - echoing the 1930s Great Depression - a trend towards family members withdrawing their equity share in the family farm when it is passed down from one generation to another, and the shrinkage in cheap labour available within the family when times are difficult.
Dr Franks said that after enjoying a boom over the past couple of years linked to rising commodity prices, the farming industry must consider its vulnerability to government spending cuts and to the introduction of new taxes.
“The industry is now more dependent on subsidy payments and the new Single Farm Payment has made this financial dependence more visible,” explains Dr Franks, based in the Centre for Rural Economy at Newcastle University.
“Many farmers had to borrow during the first year of the Single Farm Payment to tide them over when there were problems with the payment system. If that kind of situation arose again, borrowing would be much more difficult because of the credit crunch and some would undoubtedly go under.”
Dr Franks said any subsidy cuts wouldn’t help as farmers may also be hit by loss of tax benefits and new taxes which could push up the cost of energy and other inputs, raising food costs.
He added: “It’s not all bad news – farmers have been benefitting from healthy returns on their produce which has enabled them to replace worn out machinery and so on, so they are better positioned than they might be to weather future storms. It is certainly better placed than in the 1980s and early 1990s”
“Farming is an industry that often has to take major decisions on incomplete information and is subject to many uncertainties, including weather, pests and disease, as well as global prices, so even in good times farmers are not unfamiliar with the spectre of financial problems.
“We have already seen the failure of Dairy Farmers of Britain, which cost farmer members some £92 million. The evidence suggests that there could be more casualties to come.”
published on: 15th December 2009