Who will lead correcting the imbalance after TIFF?
DEFRA has just released its first estimate of what it calls the UK’s “Total Income from Farming” (TIFF) for 2015. The TIFF figures effectively represent the profit produced by farmers and it is not surprising that 2015 witnessed the most dramatic year on year fall since the turn of the century when farming was in the depths of an agricultural recession.
The report explains that in real terms the TIFF fell by 29% from 2014 to 2015 which in monetary terms means a fall of more than £1.5bn to just under £3.8bn. This is clearly a significant fall which is similarly reflected in the TIFF for an individual farmer which fell to just under £19,500 per annum.
The primary driver behind these figures is the slump in world commodity prices. This has been well reported and it is probably no surprise that the dairy sector has fared worst, with the value of milk produced falling by £940m despite a 2.6% increase in production. However other sectors also suffered, with the value of wheat, for example, dropping by £432m.
Further as the overall economy strengthened, so too did the value of Sterling which had a detrimental impact on exchange rate for the conversion of agricultural support payments from euros in to pounds. This resulted in a fall in value of EU support payments by £150m.
On a brighter note, some of these losses were offset to a degree by the fall in value of energy costs and livestock feed which are estimated to have dropped by £215m and £201m respectively while the value of fertilisers fell by £114m.
The weather was also good, resulting in excellent growing conditions which yielded a bumper harvest in 2015 with huge quantities of grass and other fodder crops also grown. But this is in part why commodity prices have fallen because such good growing conditions have contributed to increasing world stocks of food and therefore depressed prices.
So, although from an individual farmer’s perspective it is great to see one’s own crops yielding well and cows producing more milk, this exacerbates the imbalance in supply and demand and it seems that until the supply side of this equation falls, there is unlikely to be a significant increase in commodity prices any time soon.
Therefore, the big question is how long it will be before enough farmers, both home and abroad, either reduce or cease production so as to rebalance the commodity markets. This will surely happen at some stage but understandably most are hoping it will be their neighbour and not themselves who will take that radical step to give up first.
James is a partner who heads up Carter Jonas’ South West rural operation, managing the teams in the four offices of Marlborough, Bath, Taunton and Truro. He primarily works out of the Taun...