Farming – On Life Support

Farming – on life support 

(The Gosling Report)

Introduction

The financial crisis in farming has persisted for many years. This has a severe negative impact on rural life, which is increasingly becoming marginalised despite the slow improvement in Northern Ireland’s wider economy. It is essential that Northern Ireland does more to support its rural life and social infrastructure. There has already been a reduction of 36% in locally owned working farms since 1981 – the sector needs greater protection.

Agriculture is at the forefront of a range of political challenges – rising input costs, the need to ensure food security and climate change, which itself is creating new and serious risks to food security. As in the past, there is a need for political action to protect food security, alongside protection of our environment.

This report – produced for FFA (Farmers For Action) on behalf of NI Farm Groups – examines the economic impact of current policies, in particular the absence of protection for farmgate prices and farming incomes. It concludes by arguing for legislative intervention from Stormont to protect farmers and the fair pricing of agricultural produce, noting that similar protective action is being taken elsewhere. Doing so would have a significant positive impact on the wider NI economy and potentially create thousands of jobs.

Farmgate prices squeezed

Farmgate prices collapsed after the Great Recession of 2008/9. Dairy prices paid by supermarkets and food processors fell heavily and wholesale milk prices moved substantially below the cost of production – in some cases, farmers received only around two thirds of their costs. This, it should be stressed, did not provide any margin to allow for investment. In Germany, the European Milk Board reported, milk producers were paid only 66% of their costs. The situation was similar in relation to other food items.

The fact that prices paid have partially, and inconsistently, recovered demonstrates the inequalities of market power within the supply chains – the supermarkets and food processors largely and unilaterally control the prices paid to farmers. That higher returns were paid to farmers was the result of choices belatedly (and likely temporarily) made by supermarkets and food processors. This is not a free market, but one based on buying power and market strength. There is volatility in prices paid to farmers, which farmers themselves have little ability to control, or even influence.

This volatility and the partial recovery of farmgate prices demonstrates that fair prices could have been paid to farmers over the recent years in which they were repeatedly paid less than the cost of production. Instead, there needs to be protection to ensure that farmers are paid sufficiently to meet the costs of production, linked to inflation, plus a reasonable margin of 10% or so. That this did not happen for so many years was the result of market dominance by the major supermarkets and food processors.

Supermarkets and food processors return large profits year after year, which are achieved through consumer loyalty and what is sometimes little more than manipulation of farming businesses that are unable to consistently cover their costs of production. Tesco and Sainsbury’s, for example, have each returned large profits in recent years – Tesco reported an operating profit on UK and RoI activities of £1.2bn in 2023; £2,1bn in 2022; £1.9bn in 2021; £1.9bn in 2020 and £1.9bn in 2019.[i] Associated British Foods is the largest UK-based food processor, which grew revenue in 2023 by 16%, with pre-tax profits rising by 9% to £1.5bn.[ii] Premier Foods is another large UK food processor: its turnover grew by 11.8% in the 2022/3 year, and pre-tax profits rose 9.6% to £112m.[iii]

The farming crisis has severe impacts for the whole of Northern Ireland’s economy. Farming profits are small and in many cases non-existent, leading to a serious problem of poverty within farming families. Farms that do not generate profits are unable to employ farm workers, reducing the number of people in work and creating unemployment. As a result farming families and redundant farm workers have less cash to spend in the wider economy, which is felt in the retail, farm supply and hospitality sectors.

These are issues facing the whole of the UK farming sector, though felt more profoundly in NI. The Sustain charity observes: “Unfairness in the food supply chain is putting unsustainable pressure on the UK’s farmers and producers. A fairer, sustainable future necessitates immediate action to support family farms, preserve rural communities, and secure access to quality British food for generations to come.”[iv]

Research conducted for Sustain by the University of Portsmouth and University of London[v] found that farmers obtain a return of less than 1%. Separate Sustain research[vi] found that half (49%) of farmers fear they will go out of business in the very near future. Three quarters blame the behaviour of supermarkets for their crisis. Some 69% of farmers believe they need protection from supermarkets’ use of market power.[vii]

Sustain explains: “Intense retail competition, heightened by the entry of discount supermarkets, has triggered a race-to the-bottom in the hyper-competitive commercial landscape. Aggressive commercial strategies are squeezing farmers’ incomes. The aftermath of global shocks like the pandemic and the war in Ukraine has led to substantial increases in input costs, exacerbating the financial strain on farmers.

“Described as ‘warfare’ by the Groceries Code Adjudicator, the relationship between supermarkets and suppliers has reached critical levels. In one reported instance, a farmer lost 60 tonnes of perfect potatoes after the supermarket decided they were no longer interested in that specific variety. Production costs for British fruit growers surged by 23% in 2022, while returns from supermarkets remained ‘practically static’.

“The recent Environmental Audit Committee report on food security emphasizes the urgent need to shield farmers from these challenges, as their continued struggle could jeopardize the resilience of the food supply chain and pose a threat to national food security.”[viii]

Sustain has urged the UK government to intervene in the market to protect food security and ensure fairness in the supply chain. In evidence to Parliament, the charity said: “UK food supply is reliant on international trade, and therefore vulnerable to the impacts of global climate, economic, and geopolitical shocks. We import 50% of vegetables and 85% of fruit: 32% of that comes from climate vulnerable countries. Our research shows this complex supply chain is inefficient, with massive amounts of money extracted as costs post farmgate leaving little room for fair distribution of profit.”[ix]

The Ulster Farmers Union has warned that farmers in NI can be paid less for production than their costs. Last Autumn, UFU dairy chair Kenny Hawkes said “the largest proportion of our dairy farmers are not receiving enough to cover the cost of production let alone have any profit left over to support a home and family. It’s simply not sustainable, especially when input prices remain higher than average…. Our food producers are getting shafted while others in the dairy chain are clearly making money. If this continues, dairy farmers will be put out of business which will have serious implications for the agri-food industry and our consumers.”

Analysis conducted in 2017 by the Andersons Centre for the Prince’s Countryside Fund concluded that the average UK farm made a loss of £20,000 a year from farming activities, which were instead subsidised by other income streams, such as direct payments, tourism and renewable energy generation.[x] [xi]

As the respected agriculture commentator Richard Wright has observed, it is essential that farmers are not forced to return to selling items at below the cost of production.[xii]

Food security

According to the Global Food Security research team, financed by the UK government, “The UK is not self-sufficient in food production; it imports 48% of the total food consumed and the proportion is rising. Therefore, as a food-trading nation, the UK relies on both imports and a thriving agricultural sector to feed itself and drive economic growth. Behind the always full-looking supermarket shelves lies a supply chain that is sensitive to economic and environmental events. Too much or too little rain can reduce harvests. Emerging exotic diseases such as bluetongue and African swine fever threaten to devastate livestock industries. The UK is also exposed to volatile global markets….”[xiii]

Independent analysis reports that no single external country provides more than 11% of UK food, but that the EU is collectively a major source, supplying over 80% of imports[xiv]. The Ukraine war illustrated how quickly the global commodities market can change. Recent trade deals, particularly with New Zealand and Australia, are potentially damaging to UK farming interests[xv], while also increasing the UK’s dependence on global markets. Issues around food security and global inter-dependence have become more concerning as a result of climate change and major climate-related incidents, such as fires and floods.

Global Food Security added: “Pressures on the UK’s food security are here to stay. Increasing global population and changing consumption patterns are increasing demand for foodstuffs and contributing to upwards price trends. However, the threat to UK food security could be more serious should increasing global demand combine with other potential problems.”[xvi] Serious risk factors include new viruses and increased resistance to anti-viral drugs, in part resulting from expanded globalised supply chains and connectedness.

Vulnerabilities within global food supply chains have been dramatically illustrated by the impact of Russia’s invasion of Ukraine. The war led to a 29% reduction in Ukrainian grain production in 2022/23 and consequently global grain shortages. “Due to the war, Ukraine, a leading grain exporter, has seen a dramatic drop in its exports. This has resulted in major food security concerns for millions of people around the world.”[xvii] Along with grain shortages, there has been substantial price volatility feeding into food price inflation and the cost of living crisis.

Food security was already a serious concern prior to the Ukraine war, because of the pandemic and other factors. As an academic study explained, “the war came at a bad time for global food markets because food prices were already high due to disruptions in the supply chain caused by the COVID-19 pandemic, strong global demand, and poor harvests in some countries…. the consequences of the war on food security are being exacerbated by a variety of underlying rigidities, vulnerabilities, and inefficiencies in global food systems. Accordingly, the transition toward healthy, equitable, and ecologically sustainable food systems must be strengthened by adopting urgent and long-term reforms and policies.”[xviii]

As McKinsey’s unit specialising in food security has explained, broader economic management policies can also have significant impacts on global food supply chains. “These immediate concerns [related to the Ukraine war] converge with longer-term complications that began in early 2020 when the COVID-19 pandemic began, convulsing global supply chains. Next, monetary and fiscal policies aimed at alleviating the pandemic’s impact pushed up commodity prices starting in mid-2020.

“Even before the invasion, price levels for wheat and corn were 40 to 50 percent higher than the average price over the past decade. Fast-forward to 2022: the blockade of Black Sea ports caused by the war in Ukraine severely restricted supply access. This situation has provoked numerous countries to try to protect their food access by curbing grain exports. Add to this picture the recent heat waves in India and the current dry summer in Western Europe that together could limit supply to world markets by more than ten million tons of grain—vivid demonstrations of the higher risk for food commodities posed by climate change. Lastly, while the price of grain has come down, fertilizer prices remain high, causing some farmers to use them sparingly as grain commodity prices show signs of contraction.”[xix]

McKinsey added that the complexity of the global food supply markets meant knock-on impacts from the shock of the Russian invasion of Ukraine. “Supply has been tightened further by countries that have attempted to shield domestic markets with trade restrictions….. Hybrid seeds, plant protection products, and, to a lesser extent, machinery and software might be subject to import bans, primarily impacting wheat output. Fertilizer shortages and higher prices for fertilizers are also expected to reduce yields in countries that depend heavily on fertilizer imports, such as Brazil. This will likely further decrease the volume of grain on the world market.”[xx]

Prior to the pandemic there were already serious anxieties about the risks to global food security related to climate change. McKinsey explains: “A combination of factors makes the global food system more vulnerable to climate change. These include: dependence on a handful of grains. The human diet is highly dependent on just four grains: rice, wheat, corn, and soy. They make up almost half of the calories of an average global diet, with rice and wheat contributing 19 percent and 18 percent, respectively. Geographic concentration of production: sixty percent of global food production occurs in just five countries: China, the United States, India, Brazil, and Argentina. Even within these countries, food production is highly concentrated in a few regions. For example, 88 per cent of Indian wheat production comes from five states in the northern part of the country and in the United States, five Midwestern states account for 61 per cent of corn production, according to the [US] Department of Agriculture. This means extreme weather events in those regions could affect a large portion of global production.”[xxi]

The importance of farming for NI

While agriculture is often marginalised amongst policy and political priorities, it is a foundation of the Northern Ireland economy in terms of the proportion of economic activity it is directly and indirectly responsible for. Agriculture is much more important to the NI economy than it is to the GB economy.

Farming represents 1.6% of the NI economy, compared to 0.5% of the UK economy.[xxii] It is also structurally different to that in the rest of the UK – average farm sizes are half those of the UK as a whole.[xxiii] In 2021, there were 26,077 farms in NI, down from 29,818 in 2001[xxiv]  and 40,700 in 1981[xxv], representing a reduction of 36% of locally owned working farms that were intimately connected to their local rural communities. There has also been a reduction in UK agricultural production in recent years, as measured by tonnage of production.[xxvi]

In 2021, 52,195 people worked in agriculture, either employed or self-employed. Of these, 11,828 were employees. Nearly 25,000 people worked full time on farms.[xxvii] Farming activities are very important for the UK as a whole – NI produces 16.9% of all UK dairy output; 14.8% of all cattle; 14.5% of pigs; 12.1% of poultry and eggs; and 6.2% of sheep and wool.[xxviii] Agriculture generated £716m for the NI economy in 2021.[xxix]

While farming employment remains very important and significant for NI, there has been a long-term reduction in agricultural jobs. In 1994 there were 63,135 people engaged in agriculture in NI (comprising 24,643 full time farmers and partners; 16,464 part time farmers and partners; 6,208 spouses; 3,681 full time workers; 3,177 part time workers; and 8,962 casuals). By 2021 this had fallen to 52,195 (comprising 20,294 full time farmers and partners; 20,073 part time farmers and partners; 2,902 full time workers; 4,018 part time workers; and 4,908 casuals/seasonals)[xxx]. This represents a total reduction of 10,940, or 17%.

Agriculture is an even more important sector for the Republic of Ireland, with more than 300,000 people working in the farming and agri-food sectors[xxxi], of which 170,000 were engaged directly in farming[xxxii]. There were more than 135,000 farms in the Republic in 2021.[xxxiii]

Farming has had a series of tough years in terms of income, especially following the financial crash of 2008/9. In 2014, for example, farming incomes in NI fell by 17% (compared to 4% in GB). Some 23% of farms in NI operated at a loss in 2012/13. Across the UK, 1 in 5 farms made a loss, or merely broke even, in the 2016/17 year[xxxiv]. Recent research into rural poverty found that 25% of UK farmers live in poverty because their farms generate too little income.[xxxv]

Farming incomes have partially recovered since the worst years, but returns are still very low in objective terms. In the 2021/22 year, average farm business income in NI was £43,100[xxxvi], which represents a very low return on the labour and capital inputs. Meanwhile, farming subsidies have been cut significantly, while increasingly tied into environmental outputs. The value of all direct payments to farmers in NI fell by 5 .8% in 2022[xxxvii]. For large parts of the NI farming sector, direct payments are the difference between a marginal positive return and a significant trading loss.[xxxviii]

In many years, farms generate significantly below these income levels – with significant volatility in earnings year to year. According to official statistics, 33% of Northern Ireland farms reported a Farm Business Income of less than £10,000 in the 2013/14 year.[xxxix] Some 14% of farms reported a trading loss in 2013/14. This followed a series of years in which up to 29% of NI farms reported a loss.[xl]

Farming incomes in Northern Ireland fell substantially during the 1990s and have never fully recovered. As a result, few farms have been generating sufficient profit for their owners to achieve a living wage. If farm owners were subject to minimum wage legislation (which they are not, as they are self-employed), many would be in breach of the law by paying themselves too little. This is not a choice: farm incomes do not provide enough money for farmers to pay themselves properly. The full national minimum wage is £11.44 per hour[xli]. As farmers work on average 65 hours per week[xlii], pay should be at least £744 a week, or £38,667 a year. That is substantially more than a large number of self-employed farmers are currently able to pay themselves. (It also fails to take into account investment and overheads that must be met from the farming income.)

Farming families have inconsistent earnings and in some years low incomes put them into poverty. In 2010 one in four farming families was living below the poverty line.[xliii] More recent official figures are not available as the UK Government abolished the body – the Commission for Rural Communities – that had monitored the extent of poverty in farming and rural environments.

Low and inconsistent incomes for farmers have undermined mental health in the sector. A submission to a Parliamentary committee stated: “Surveys among farmers indicate that most believe that mental ill-health is the biggest problem in agriculture…. Farm incomes can change greatly each year as they are subject to market fluctuations. This uncertainty can cause sustained anxiety…. Rural poverty is a driver of stress and one UK study in 1997 found that 79% of farmers worried about money.”[xliv]

Farming also provides the foundations for the broader food and drinks sector, which generates £4.9bn to £6.4bn of economic activity per year in NI[xlv] – 3.5% of all NI GVA[xlvi] – and supports around 113,000 jobs, 6% of total employment[xlvii]. Further damage to the NI farming sector would potentially place much of NI’s food and drinks industry at risk.

The calculated employment multiplier of the sector is that for every ten jobs in meat production, another six and a half jobs are created indirectly, or through induced spending, while the figure for dairy production is that for every ten jobs an additional ten jobs are generated in the wider economy. In addition, according to the Growing for Growth strategy, every job in food processing generates another two jobs in the rest of the economy.[xlviii]

Why agriculture prices fell

It would be entirely wrong to assume – as some have argued – that falls in wholesale and retail agricultural prices can be explained by better production systems, more effective fertilisers/pesticides and improved working methods. These are marginal factors that raised productivity (sometimes at a cost to the environment). If they were the reasons for lower prices, margins and profits for farmers would have remained steady. Instead, they fell substantially from the mid-1990s[xlix].

In the late 1990s, a revolution in trading relations within the agriculture industry, along with lower world commodity prices and a strong pound, destroyed farming profits in the UK. A 2001 report by Deloitte and Touche found that a 500 acre farm in the UK would have suffered a loss of profit from £80,000 in a year to just £2,500 in five years.[l] This was despite cutting overheads by 10% in the preceding years, which also saw a sharp rise in inflation affecting input costs. Many farmers have never recovered from the impact of this period.

“The recession [post 2008] dealt a body blow to the food industry, and its after-effects are still being felt,” concluded Strategy&Co, part of PwC[li]. While farming incomes fell globally, including in the EU, they have fallen particularly badly in the UK, even prior to Brexit. In the UK they fell 19.3% in 2015, according to Eurostat[lii].

Marginal subsequent recovery in prices has not replaced the years of losses and low incomes.

Market consolidation

Market consolidation in the wholesale and food processing sectors through mergers and acquisitions has been a major factor in the farming crisis. Farmers are in unequal trading relationships with supermarkets, wholesalers and food processors. While NI farms are mostly small businesses, their produce is bought by large organisations. A few large wholesale outlets control the wholesale prices, with individual farms unable to negotiate sustainable terms.

“Farming is a sector like no other,” wrote Michael S. Carolan in the book ‘Reclaiming Food Security’. “Treating it otherwise has proven disastrous for producers – an ill-advised outcome for any nation looking to enhance its food security. Market concentration in the heart of the agrifood chain has been allowed to occur under the guise of ‘economies of scale’ and ‘market efficiencies’ (diseconomies of scale and market inefficiencies are more apt descriptors). These structural changes have locked producers into an unequal relationship with their suppliers and buyers. For example, farm-gate prices for cereals, after making adjustments for inflation, have either remained steady or declined over the last eighty years. Meanwhile the price of inputs has increased, on average, more than sevenfold….. The power of processors lies largely in their ability to manipulate prices as buyers.” (Emphasis in the original text.)[liii]

With retailers subject to heightened competition, the pressure is on supermarkets, wholesale suppliers and food processors to cut prices, achieve efficiencies and strengthen their bargaining position with their suppliers (including farmers). It is a similar trend for supplies to food processors and restaurants. There have been a number of mergers and acquisitions in recent years, further boosting power for corporate buyers to drive down prices. “In 2022, the food industry experienced a flurry of Mergers and Acquisitions (M&A) activities, reshaping the competitive landscape and fostering new opportunities for growth and innovation.”[liv] After a spell of a few years when mergers were less frequent, BDO reports that a quarter (24%) of food and drink companies are now seeking acquisitions.[lv]

The most devastating impact of mergers in the food processing sector has been to put enormous downward price pressure on farmers, driving prices in far too many instances below the cost of production.

Going for growth

The Northern Ireland Executive’s strategic action plan for the farming and food sector was ‘Going for Growth’[lvi]. “Agri-food is one of our most successful industries. It has a proven track record for growth with sales of over £4bn per year and accounts for around 10 per cent of our private sector employment,” said the former Department for Agriculture and Rural Development, when publishing the report in 2013. It aimed to reverse the decline of the sector and had ambitions for significant expansion.

An action plan was agreed by the Executive. In its introduction, the plan stated: “Central to the success of Going for Growth will be delivering on its Strategic Vision to ‘grow a sustainable, profitable and integrated Agri-Food supply chain, focused on delivering the needs of the market. Realising this Vision will be essential if our agri-food sector is to achieve the [Agri-Food Strategy Board’s] challenging targets to grow sales by 60% to over £7bn, create 15,000 new jobs, grow sales outside Northern Ireland by 75% to £4.5bn and to increase value added to £1 billion by 2020.’ ”

The ambitions set by Going for Growth have not been achieved, with most farms struggling to break-even. Worse still, attempts at increased crop production led to a much increased use of nitrogen-based fertilisers – which have been blamed as a major contributing factor to algae blooming in Lough Neagh, an environmental catastrophe for NI.

Friends of the Earth has claimed that full implementation of the Going for Growth strategy would have largely eliminated the small farming sector, with small farms replaced by agricultural industrial corporations. “There are around 25,000 farms in Northern Ireland. Most of them are small family farms run by one or two farmers. If followed through, Going for Growth would leave just 6,000 large automated factory farms.”[lvii]

It is clear with the benefit of hindsight that instead of enabling greater environmental destruction through the Going for Growth strategy, the NI Executive should have agreed policy and legislation to protect farming industry incomes by tackling market exploitation by major corporations.

The potential impact of protection for farmgate prices

Over the last 20 years, there has been a loss of over 4,000 jobs in the agriculture sector in NI[lviii]. Some of this will reflect the use of more modern technologies and practices – but it is also the result of the agriculture sector moving from profitability into economic marginalisation.

By contrast, Farmers For Action have consulted a large cross-section of full-time farmers, the vast majority of whom responded that with increased profitability they would take on additional labour. With over 20,000 full time farmers and partners in Northern Ireland, that might potentially create as many as 10,000 jobs argues FFA. Many farmers – also more than 20,000 – now work part-time and many of these would prefer to return to the farm full time. This would potentially increase their income, while releasing their current second employment for other people to gain work and incomes. In addition, the multiplier effect (see above) means that every thousand people employed in agriculture in Northern Ireland generates between 650 and 1,000 additional people employed elsewhere in the economy. In total, therefore, an extra 10,000 to 20,000 people could gain employment through the direct and indirect impact of farmgate price protection.

There are difficulties in calculating the exact amount of income that would be generated by creating an additional 10,000 to 20,000 jobs in Northern Ireland. The economic impact would depend on the hours worked and the rate paid. If, for example, many of the jobs were taken by young adults, the pay rate is likely to be less. Specifically, the minimum wage for a young apprentice is £6.40 per hour; also £6.40 for a worker under 18; £8.60 for an adult between 18 and 20; and is £11.44 from age 21.[lix] If we assume a mix of ages and an average of 30 hours worked per week (to allow for some positions to be part time), we have 10,000 or 20,000 people, times £9 an hour, times 30 hours, times 52 weeks a year. That would potentially generate £140m to £280m a year into the Northern Ireland economy. In addition, it would generate income tax and VAT revenues for the UK government and reduce the cost of unemployment-related benefits. A study conducted for the Federation of Small Businesses by the CEBR[lx] used as assessment that 57,000 jobs in small firms supported tax revenues of around £900m a year – ie £16m for every thousand additional jobs. On that basis, the fiscal impact on government would be about £160m to £320m annually, taking into consideration tax revenues, reduced benefits and multiplier effects.

The creation of such a large number of additional jobs would have a variety of knock-on effects. It would create additional spend in the retail sector and thereby protect shops and jobs in rural communities. Other local facilities such as pubs are more likely to stay open. The overall impact is likely to be an important stimulus to local rural economies.

There are various other potential positive benefits. Northern Ireland’s banks have loaned substantial sums to farmers, with many of those loans in jeopardy. Profitable farming businesses are in a much stronger position to repay loans and thereby improve the financial situation of banks operating in Northern Ireland. Trade creditors to farmers – including vets, feed suppliers and equipment providers, some of which will be farmer-owned co-operatives – will benefit from faster payment of debts and the settlement of some debts that are currently distressed.

It is also possible to anticipate a variety of changes to farming practices, which would be good for the countryside and rural communities. It would be likely to lead to a reduction in available conacre as owners decide farming is now a profitable option and farm it themselves. Farmers would be in a better position to invest in their farms: they could invest in new technology; cutting and spraying would become optimised; lime would be applied; hedges would be brought under control and fences mended and replaced; drainage improvements would be carried out.

The case for Stormont intervention

There is nothing new about the principle of government intervening in markets that are not functioning in the national interest, including protecting food security and the sustainability and viability of the farming sector. After the Second World War, food security was regarded as such a political priority that strong measures were put in place to protect farmers and the financial sustainability and viability of their operations. Indeed, the immediate cause of concern around aspects of food security is directly related to ongoing war within Europe.

Parliament’s website reports: “The Agriculture Act of 1947 was drafted with the close involvement of farmers and their representatives. It proved to be a far reaching measure and set the trend for British farming for the next 50 years. In encouraging increased production, the Act protected farmers and their workers against the fluctuations of the market by guaranteeing minimum prices for key agricultural products. This was achieved through annual price reviews in which farmers were directly consulted by the Ministry of Agriculture. Pricing was therefore maintained at sufficient levels to provide farmers and their workers with adequate pay and living conditions, and to enable them to invest in equipment.”[lxi]

Given the political insecurity of the world today, including warfare and the often tense relationships between major trading nations and trading blocs, it would be helpful to re-establish those principles of protecting food security. Globalisation has had a negative impact on national food security, requiring new policies and interventions from government.

One of the intended consequences of globalisation was to cut the price of food, by opening up the international trade in food. Indeed, one of the claims of Brexit[lxii] was that the UK would be better able to buy food cheaply on the international markets, with less need to grow food at home. This lack of attention to the need for food security was shown to be misguided by the Ukraine war and its impact on food supplies.

While the policy was mistaken in terms of food security, it also had a severe and negative impact on the farming sector. Agriculture is a sector that is subject to unfair market distortions, with supermarkets and food processors able to use their dominant market positions to unfairly manipulate prices paid to suppliers – who are often small operations, without market power. This happened as supermarkets responded to input inflation and the cost of living crisis by punishing farmers, often unilaterally cutting prices paid to suppliers.

Farmers have therefore been subject to unfair price pressure from corporations buying from them, while having little or no influence over their input costs. As a result of the Ukraine war, fertiliser costs have risen substantially, while farmers believe they have had to bear a disproportionate burden on the move to reduce carbon emissions as part of climate change policy. Sanctions on Russia as a result of the Ukraine invasion have had their own negative impact, by closing off the country as an export market. Meanwhile, imports from countries with lower input costs, weak environmental protections, subsidised energy prices and without minimum pay rates have undermined producers in the UK.

It has become increasingly difficult and often impossible for farmers to obtain prices that are above the cost of production. This crisis was discussed in a Westminster Hall debate in the UK Parliament in early 2024, after a petition was submitted that was signed by over a hundred thousand people. It sought UK government action to protect farmers from unfair behaviour by retailers. The petition called for government to amend the Groceries Supply Code of Practice. There was also a call for the Competition and Markets Authority to investigate the impact of the market power held by large supermarkets and food processors.

Food minister Mark Spencer said the UK government intends to take action to assist farmers to obtain a fair price for their produce. He said: “The Government want all farmers to receive a fair price for their products, and we are committed to tackling contractual unfairnesses in the agrifood supply chain. We recognise that some poor practices affect producers across several agricultural sectors.”[lxiii]

Among the actions initiated by the UK government in 2023 was the introduction of new regulations intended to ensure all dairy farmers[lxiv] are treated fairly, through reliance on reasonable and transparent contracts[lxv]. Once these measures of protection are adopted for the dairy sector, similar regulations are to be drawn up for the pig and egg sectors. However, the government has declined to accept that new primary legislation is required to address these unfairnesses and power imbalances. Nor is it meeting the full demands for farmgate price protection.

Elsewhere, governments are taking stronger legal action to tackle market unfairnesses. French President Emmanuel Macron responded to large scale farmer protests by promising support through its national Egalim law, which regulates relations between supermarkets and food producers.[lxvi] Egalim (États généraux de l’alimentation) laws were adopted between 2018 and 2023 to safeguard farmers’ income in supply chain contracts. Egalim also requires supermarkets and processors to recognise rising production costs in contract renewal. The French government indicated its intention to police existing regulations more strictly to support farming incomes.[lxvii]

The EU adopted its own directive on unfair trade practices (UTP) in the food supply chain in 2019 (after Brexit) to create minimum standards to protect farming incomes, though these were less strong than those established in French national law. EU law establishes requirements for payment on time and bans unilateral changes in the terms of trade by the buyer. EU countries are required by the directive to protect smaller farming enterprises – those with turnover below €360m. European Internal Market Commissioner Thierry Breton has indicated his support for stronger EU rules, bringing them closer to those adopted in France.[lxviii]

Germany is also examining measures designed to provide greater protection for its farmers, with consideration being given to an investigation by its Monopolies Commission. As with the French government and the EU, Germany is concerned at the much greater power of supermarkets and food processors compared to that of farmers, with buyers able to set prices rather than negotiate them with trading partners that hold comparable power. Germany also indicated support for stronger laws being approved at EU level. Spain, the Netherlands and Italy all have national laws, stipulating that supermarkets and food processors must pay farming suppliers prices that are set at above the cost of production.[lxix] (However, there are concerns that food producers in many instances have by-passed national protective legislation by providing contracts that are registered in external jurisdictions.)

While these measures go much further than any adopted in Northern Ireland or the rest of the UK, they are in themselves inadequate in the view of farmers and their representative bodies. Confédération paysanne, representing French farming interests, insists that the selling price of the products must coverall production costs, including those affected by high inflation rates. Its spokesperson Florence Marandola said: “We want to lay the foundations for a different economic system if we want farmers to stay in France and Europe, rather than relocating our food. How can we face the future? How can we guarantee the generational change on our farms? We live a very deep malaise [which is] the result of a series of policies and decisions handing over agriculture to free trade mechanisms that pit us against each other, even if we have different territories and ways of producing.”[lxx]

As this report makes crystal clear, there is a disparity in the power relationships between the farmers and those buying their produce. While the buyers are getting themselves into ever stronger bargaining positions, farmers are left with the simple choice of selling at the price determined by the buyers, or else not selling at all. It is a dysfunctional market. Without intervention, the market will lead to further destruction of the farming industry. More farmers will go bust; more banks will lose money loaned to farmers; more farm workers will lose their jobs; more farming families will lose their incomes and sink into worse poverty; and more rural communities will lose their hearts and their economies.

In this very negative context, it is difficult to see a way forward that safeguards farmers and farming communities – other than the protection of farmgate prices. One of the roles of government is to protect the vulnerable from exploitation by the powerful. In Northern Ireland today, farmers are some of the most vulnerable and exploited citizens.

In the United States, there has been a long tradition of protecting the farming sector, dating back to the New Deal. It was the New Deal that inspired Farmers For Action and NI Farm Groups to propose their own draft legislation, the Northern Ireland Farm Welfare Bill[lxxi].

The Great Depression hit American farmers and farm workers severely, with crop prices collapsing. The initial measures adopted by Roosevelt’s New Deal focused more on banking than on agriculture. But in 1933 Congress passed the Agricultural Adjustment Act (AAA) to provide economic relief to farmers. Subsequently, farmers’ incomes rose by more than half. Further legislation refined support measures, to create more stable and sustainable incomes for farmers.

Legislation on NI farmgate prices

It has been established that the NI Assembly has the powers to legislate on this. (See correspondence between FFA with the Secretary of State, late 2013 and early 2014.) Legal advice to FFA is that the legislation should withstand a challenge of being anti-competitive, as the obligation for retailers to pay more than the cost of production would apply to whoever was the supplier and from whichever was the country of origin.

Intervention by the Northern Ireland Assembly to protect farmgate prices by requiring wholesalers, retailers and food processors to pay at least the cost of production plus an inflation-linked margin is both a practical and effective way of supporting farmers and the rural economy.

The Livestock and Meat Commission engaged McKinsey’s International Consultants to calculate the cost of production for beef and lamb production in Northern Ireland, allowing for a margin for reinvestment. McKinsey obtained relevant information from the top 10% of farmers across NI. Sources were independent of processors and retailers and the report was free of influence from the farming sector. A similar approach could be adopted across agricultural production to objectively determine the costs of production.

These proposals are in lines with those submitted by Fairness for Farmers in Europe as a stakeholder to the 2010/11 CAP review.[lxxiv] This would be the basis for Northern Ireland legislation requiring farmers to be paid a minimum of the true cost of production, inflation linked, plus a margin, to allow for investment.

PG/April 2024

[i] https://www.tescoplc.com/investors/reports-results-and-presentations/financial-performance/five-year-record

[ii] https://www.abf.co.uk/content/dam/abf/corporate/oar-and-rr-2023/investors/results-reports-presentations/abf-annual-results-announcement-2023.pdf.downloadasset.pdf

[iii] https://www.premierfoods.co.uk/CorporateSite/media/documents/investors/results/2022-23/Premier-Foods-2022_23-Preliminary-results-RNS-18-May-2023-FINAL.pdf

[iv] Fairness in the Food Supply Chain Debate, Sustain, 22 January 2024

[v] https://www.sustainweb.org/reports/dec22-unpicking-food-prices/

[vi] https://www.sustainweb.org/news/sep23-get-fair-about-farming/ / Riverford

[vii] Fairness in the Food Supply Chain Debate, Sustain, 22 January 2024

[viii] Fairness in the Food Supply Chain Debate, Sustain, 22 January 2024

[ix] https://committees.parliament.uk/writtenevidence/121936/pdf/

[x] https://www.royalcountrysidefund.org.uk/wp-content/uploads/2021/06/is-there-a-future-for-the-small-family-farm-in-the-uk-report.pdf

[xi] https://www.farming.co.uk/news/family-farms-under-threat-of-extinction

[xii] https://www.farminglife.com/business/farmers-cannot-go-back-to-selling-food-below-the-cost-of-production-4114016

[xiii] https://www.foodsecurity.ac.uk/challenge/uk-threat/

[xiv] The Andersons Centre

[xv] https://www.nfuonline.com/updates-and-information/australia-and-new-zealand-trade-deals-come-into-force/

[xvi] https://www.foodsecurity.ac.uk/challenge/uk-threat/

[xvii] https://www.consilium.europa.eu/en/infographics/how-the-russian-invasion-of-ukraine-has-further-aggravated-the-global-food-crisis/

[xviii] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9368568/

[xix] https://www.mckinsey.com/industries/agriculture/our-insights/a-reflection-on-global-food-security-challenges-amid-the-war-in-ukraine-and-the-early-impact-of-climate-change

[xx] https://www.mckinsey.com/industries/agriculture/our-insights/a-reflection-on-global-food-security-challenges-amid-the-war-in-ukraine-and-the-early-impact-of-climate-change

[xxi] https://www.mckinsey.com/capabilities/sustainability/our-insights/will-the-worlds-breadbaskets-become-less-reliable

[xxii] https://www.daera-ni.gov.uk/sites/default/files/publications/daera/AE1%2023%20197830%20%2022.23.175%20Agrifood%20Key%20Statistics%202022%20-%20Final_1.pdf

[xxiii] https://www.daera-ni.gov.uk/sites/default/files/publications/daera/AE1%2023%20197830%20%2022.23.175%20Agrifood%20Key%20Statistics%202022%20-%20Final_1.pdf

[xxiv] https://www.daera-ni.gov.uk/sites/default/files/publications/daera/AE1%2023%20197830%20%2022.23.175%20Agrifood%20Key%20Statistics%202022%20-%20Final_1.pdf

[xxv] https://www.nisra.gov.uk/sites/nisra.gov.uk/files/publications/NI-In-Profile-November-2022.pdf

[xxvi] https://www.gov.uk/government/statistics/latest-horticulture-statistics/horticulture-statistics-2022

[xxvii] https://www.daera-ni.gov.uk/sites/default/files/publications/daera/AE1%2023%20197830%20%2022.23.175%20Agrifood%20Key%20Statistics%202022%20-%20Final_1.pdf

[xxviii] https://www.daera-ni.gov.uk/sites/default/files/publications/daera/AE1%2023%20197830%20%2022.23.175%20Agrifood%20Key%20Statistics%202022%20-%20Final_1.pdf

[xxix] https://www.daera-ni.gov.uk/sites/default/files/publications/daera/AE1%2023%20197830%20%2022.23.175%20Agrifood%20Key%20Statistics%202022%20-%20Final_1.pdf

[xxx] https://www.daera-ni.gov.uk/sites/default/files/publications/daera/AE1%2023%20197830%20%2022.23.175%20Agrifood%20Key%20Statistics%202022%20-%20Final_1.pdf

[xxxi] https://www.ucd.ie/t4cms/EddieDowney.pdf

[xxxii] file:///C:/Users/user/Downloads/238928_75008324-6f05-4f30-a9d3-6a9259371771%20(2).pdf

[xxxiii] file:///C:/Users/user/Downloads/238928_75008324-6f05-4f30-a9d3-6a9259371771%20(2).pdf

[xxxiv] https://assets.publishing.service.gov.uk/media/5b9f7e05ed915d2bb2f56296/AUK-2017-18sep18.pdf

[xxxv] https://www.fwi.co.uk/news/opinion-no-room-for-error-with-new-food-and-farming-policies

[xxxvi] https://www.daera-ni.gov.uk/sites/default/files/publications/daera/Stats%20Review%20Internal%20for%202022%20ONLINE.pdf

[xxxvii] https://www.daera-ni.gov.uk/sites/default/files/publications/daera/Stats%20Review%20Internal%20for%202022%20ONLINE.pdf

[xxxviii] Analysis by Andersons

[xxxix] www.dardni.gov.uk/sites/default/files/publications/dard/ni-agricultural-income-2014.pdf

[xl] Farm Incomes in Northern Ireland, DARD’s Policy and Economics Division

[xli] https://assets.publishing.service.gov.uk/media/66043e0991a320001a82b0e7/The_National_Minimum_Wage_in_2024.pdf

[xlii] https://www.agrirs.co.uk/blog/2022/07/are-long-working-hours-the-cause-of-increasing-farm-accidents?source=google.com

[xliii] Commission for Rural Communities

[xliv] https://committees.parliament.uk/writtenevidence/43055/pdf/#:~:text=Research%20suggests%20that%20uncontrollable%20factors,most%20hazardous%20to%20mental%20health25.&text=Farm%20incomes%20can%20change%20greatly,from%202019%20to%20202026.

[xlv] https://www.daera-ni.gov.uk/news/report-northern-ireland-food-and-drinks-processing-sector-2021

[xlvi] http://www.nifda.co.uk/fs/doc/publications/agri-food-sector-role-in-ni-economy.pdf

[xlvii] http://www.nifda.co.uk/fs/doc/publications/agri-food-sector-role-in-ni-economy.pdf

[xlviii] https://www.daera-ni.gov.uk/sites/default/files/publications/dard/going-for-growth.pdf

[xlix] https://researchbriefings.files.parliament.uk/documents/SN03339/SN03339.pdf

[l] http://www.telegraph.co.uk/news/uknews/1359210/Family-farm-profits-are-down-to-50-a-week.html

[li] http://www.pwc.com/us/en/increasing-it-effectiveness/publications/assets/food-industry.pdf

[lii] https://ec.europa.eu/eurostat/documents/2995521/7107262/5-15122015-BP-EN.pdf/ed3d0366-88e8-4187-ab6d-0a33d14b2d0f

[liii] https://www.routledge.com/Reclaiming-Food-Security/Carolan/p/book/9780415816960

[liv] https://kemiex.com/news/2022-mergers-and-acquisitions-m-and-a-in-the-food-industry

[lv] https://www.bdo.co.uk/en-gb/insights/advisory/mergers-and-acquisitions/what%E2%80%99s-behind-the-rising-appetite-for-food-and-drink-m-a-in-the-coming-year

[lvi] https://www.daera-ni.gov.uk/sites/default/files/publications/dard/going-for-growth.pdf

[lvii] https://friendsoftheearth.uk/latest/food-and-farming-northern-ireland

[lviii] https://www.daera-ni.gov.uk/sites/default/files/publications/daera/AE1%2023%20197830%20%2022.23.175%20Agrifood%20Key%20Statistics%202022%20-%20Final_1.pdf

[lix] https://www.gov.uk/national-minimum-wage-rates

[lx] FSB

[lxi] https://www.parliament.uk/about/living-heritage/transformingsociety/towncountry/landscape/overview/modernfarming/

[lxii] https://www.express.co.uk/news/politics/831450/Jacob-Rees-Mogg-Brexit-food-wine-clothes-shoes-lower-20-per-cent

[lxiii] https://hansard.parliament.uk/commons/2024-01-22/debates/F4E6009C-23CF-4160-8575-AC2A6ED0F9CD/GroceriesSupplyCodeOfPractice

[lxiv] https://www.gov.uk/government/news/government-underlines-commitment-to-british-farmers

[lxv] https://www.gov.uk/government/news/new-regulations-to-promote-fairness-and-transparency-for-dairy-sector

[lxvi] https://www.euractiv.com/section/agriculture-food/news/france-calls-for-stronger-farmer-protections-in-supply-chain-negotiations/

[lxvii] https://www.bloomberg.com/news/articles/2024-01-20/france-pledges-to-ensure-food-retailers-pay-farmers-fairly?embedded-checkout=true

[lxviii] https://www.eunews.it/en/2024/02/05/why-to-protect-farmers-incomes-macron-wants-a-european-egalim-law-modeled-after-the-french-one/

[lxix] https://www.euractiv.com/section/agriculture-food/news/france-calls-for-stronger-farmer-protections-in-supply-chain-negotiations/

[lxx] https://www.euractiv.com/section/agriculture-food/news/france-calls-for-stronger-farmer-protections-in-supply-chain-negotiations/

[lxxi] http://www.niassembly.gov.uk/globalassets/committee-blocks/agriculture-environment-and-rural-affairs/2017—2022/new-folder/farm-welfare-bill/nifg-briefing-papers-25-february-2021.pdf

[lxxii] https://fdr4freedoms.org/wp-content/themes/fdf4fdr/DownloadablePDFs/II_HopeRecoveryReform/03_ANewDealforFarmers.pdf

[lxxiii] https://obamawhitehouse.archives.gov/administration/eop/cea/factsheets-reports/strengthening-the-rural-economy/improving-americas-support-of-agriculture

[lxxiv] https://www.europarl.europa.eu/doceo/document/A-7-2010-0225_EN.html