PROPOSAL 2

The support of farm profitability through a minimum profitable price (MPP) guarantee.

Knowing how to best financially protect farming from the negative consequences of market turbulence is key to the understanding of flexible protectionism.

A method which robustly protects the farmer from the worst-case scenario of selling produce at or below costs of production is most certainly required. However, it must be fast, adaptive and proportionate, in other words quick enough to respond when commodity prices drop, flexible enough to deliver variable protection as markets move and sufficient to financially stabilise our agricultural sector whilst not causing shocks to the wider economy. Furthermore, it must maintain the incentive for farmers to produce food, offer maximum cost efficiency for the tax payer and support food price stability for the consumer.

Flexible protectionism will in certain circumstances mean slightly higher food prices but this could be countered by other policy aimed at tackling the current domestic cost of living crisis for example the raising of wages/reduction of taxation through better economic management or even the imposition of higher tax structures on supermarket profits. A plethora of options are in fact available to help alleviate our present economic woes, redirecting budget away from foreign aid, withdrawing green energy subsidies or cancelling capture and storage CO2 sequestration projects, all that is required is the political will.

The minimum profitable price (MPP) guarantee is one proposal of how to tackle the profitability crisis within British agriculture and it would set a minimum farm gate sale price figure of a 10% gross profit before tax for all UK grown produce.

Real time tracking of inputs costs would be combined with all other fixed costs of production to determine the MPP figure for all types of crop grown in the UK and the calculations would be arrived at by averaging data from a wide range of farms operating on different economies of scale within all areas of the country.

If we take the example of a commodity whose price is controlled by international markets such as milling wheat, then as global prices fell below the MPP threshold due to extremes in supply and demand the guarantee would be triggered and our farmers would receive compensation payments to make up the difference between the sales price they received and the MPP figure. The more global prices crash, the more compensation our farmers would receive and vice versa, it’s flexible, effective and efficient.

This offers a vital financial viability safeguard for British farming. It does of course involve a cost to the taxpayer by use of public money to provide the MPP guarantee payments but protectionism at the point of farm gate sale in this way offers the most direct solution for farmers, it offers the least disruption to domestic food pricing and a minimum of bureaucratic burden for the state. UK commodity sales prices would remain referenced to global commodity prices, less financial tariffs on imports would be required, food security is unhindered and consumers would retain freedom of choice.

Food prices of UK produce would become a little more expensive against cheaper imports if global commodity prices remained low for prolonged periods of time but I believe consumers would remain loyal to the ‘Brand of Britain’ especially if improvements to labelling and marketing of British produce are undertaken as per our policy proposals in those areas. In any event the benefit of support to our food system security outweighs the customer cost savings under the ‘level playing field’ theory of non-protectionist import price matching.

Pricing structures for the consumer will remain largely as they are now with basic brand UK conventional produce closely competing with equivalent imports while price premiums remain for quality brands and organic produce, thus large price shocks to the consumer market would be avoided.

For an idea on costs if we take the example of 2023 UK wheat production of 14 million tons and assume that throughout the year global prices dropped below the MPP threshold of £165/ton enough to create an average subsidy payment for the year of £20 a ton. The total annual subsidy would have cost £280 million. The value to the farmer not having to sell at break-even values of £150/ton or less is huge yet the cost to the tax payer is small especially when considered against the billions spent annually on green subsidies and other net zero schemes .

The MPP guarantee alone is not sufficient to resolve the profitability crisis in agriculture but combined with other Farmers Movement Cornwall proposals such as an increase to the annual agricultural budget and a low interest loan scheme for farming it will deliver a comprehensive package capable of turning the situation around.

The financial security offered to farmers by this scheme would be vital for the industry, even the boost to morale knowing that they have protection from below profit or barely profitable sales prices would deliver growth through renewed confidence in the sector. The message to our farmers from this scheme is loud and clear …. the British people will not turn our backs and see you go under when times are tough, your vital role is acknowledged and protectionism is justified on the basis of national best interest. We therefore propose:

i) The creation of a minimum profitable price (MPP) guarantee scheme for British Farming.

ii) The scheme to be applied to all produce grown in the UK and the MPP figure to be no less in value than a 10% gross profit before tax for each commodity type.

iii) The MPP figure for each category of agricultural produce to be calculated by three groups submitting their 10% gross profit calculation figures to an independent adjudicator who would then verify the data and set the price accordingly. The three organisations to submit costings would be the NFU (or some other farming representative body), the government and an independent third party.

Notes

Real time ‘granular’ tracking of input costs and profitability forecasting is used in many other industries and is inherent in agricultural commodity futures trading so it’s nothing new, would be technically easy to implement and would have a minim of civil service burden and hence cost to the taxpayer.