Public Goods: How are you going to future proof your farming business?
We have all now had an opportunity to read and process Michael Gove’s proposal for the future of agricultural support payments, public money for public goods… James Thompson, Graduate Surveyor at George F. White, discusses what it all actually means and the decisions that farmers must make to maintain profitability.
Firstly, what are public goods?
By definition, a public good is a ‘non-excludable and non-competitive’ good. A common example, used outside of agriculture, is street lighting. Having street lighting is not competitive nor is it excludable to a single consumer; when I consume that good, it doesn’t stop anyone else from consuming it at the same time.
DEFRA will be looking to fund the public goods under the following categories:
- Enhancing the environment
- Farming in remote areas and rural resilience
- Public access to countryside
- Improving the productivity and competitiveness of farming
- Animal and plant health and animal welfare
The proposed Agricultural Bill, which will shape the UK’s future Agricultural Policy, indicates that, the current Basic Payment Scheme (BPS) will be phased out and replaced by the above funding streams. It is therefore imperative that, individual businesses establish how exposed they are to the loss of the farm subsidies. As an example, according to The Farm Business Survey, the average farming business in the North East makes £71/ac profit. This is includes £97/ac support from BPS and Ag Environmental Schemes. Farming business need to build business resilience over the transition period, reducing their reliance on support payments and understanding how best to access “public money for public goods”.
Exploring the options
Based on the five categories of funding for public goods, there is a decision to me made; a focus on delivering actual public goods (categories one to three) or in improving efficiency and competitiveness of agri-products (categories three and four).
Firstly, let’s focus delivering actual public goods. We state that these are ‘actual’ public goods as they are truly non excludable or competitive; we all enjoy the British countryside, whether that be breathing in the fresh air or enjoying family walks and activities in the outdoors.
It is likely that the replacement of current environmental schemes could be highly geared towards protecting soil, improving water quality or even the management of carbon; this could result in more productive land being withdrawn from food production enterprises. It is also entirely possible that funding for open access to the countryside (unavailable in previous environmental schemes) could be reinstated into the new Environmental Land Management schemes (ELM’s) and could be lucrative.
Secondly, you may choose to focus on improving efficiency and competitiveness, for example, improving animal health and welfare or reducing nitrogen and chemical use. In addition to this, with an aim to increase competitiveness of farm businesses, the government has already committed £30 million to the Countryside Productivity Small Grants scheme with emphasis to increase opportunities that high tech and precision farming equipment can deliver. We expect the next round of this scheme to be launched next spring and it is suggested a number of new options will be available to farmers.
There are crucial decisions to be made, but that will be entirely dependent on your business health and its financial exposure to current support payment, resulting in the magnitude of change required to provide a resilient future income to you and your family. That being said, and having conducted research on this topic, many farm businesses in the North East and Yorkshire believe that the best way to safeguard against a decrease in subsidy payments is to improve business efficiency, learn from top performing farms and explore new income streams including diversification.
I will leave you with a question to ponder: Having defined and discussed public goods – does food security constitute as a public good? Consequently, should food production be supported by government funding?
If you would like to understand in more detail how exposed your farming business is to the ceasing of direct subsidy’s payments, then contact your local Farm Consultanct:
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