Cranfield University – Embed Project
Transcript of Audio Interview
Sean Rickard on Farming Post Reform
SM
Hello this is a Cranfield University Podcast. I am Steve Macaulay and I
am interviewing Sean Rickard about his article Farming Post Reform:
The Key Marketing Challenges, that he co-wrote with Deborah Roberts.
Now, as soon as you mention agriculture Sean, and the EU, you are
bound to get sound and fury, so it is very fortunate that you are here
today to help put some light on the situation. Everybody has heard of
the Common Agricultural Policy, but my understanding is that since
2005 things have changed a lot and one of the things that has been
particularly noticeable is the intended shift towards a marketing focus
that came in with the Fischler Reforms. My understanding was that
there are three areas that the new arrangements of support were
intended to do – one of them was to enhance competitiveness of the EU
agriculture, the second was to promote a market orientated sustainable
agriculture and the last was to strengthen rural development. Now the
focus we are going to look at is this marketing area. Perhaps you could
give me some background first about what the intention is and where
we have actually got to and then we will have a look at some aspects of
your article, which focus in on a critique of some of these things.
SR
Well essentially the Common Agricultural Policy has fallen victim to its
own success. In the Post-War period it boosted food production in
Europe to such a level that we had huge surpluses of basic foodstuffs in
Europe and the system could only keep itself going by building a large
protective barrier around Europe and secondly, governments being
prepared to put a great deal of money into disposing of these surpluses.
Once the World Trade Organisation came along in 1995, Europe was
forced to start dismantling its external barriers, therefore farmers and
food industries across Europe began to face heightened levels of
competition and that meant that the government here had to find a new
way of supporting agriculture, otherwise it was going to end up
subsidising even larger surpluses because as farmers and food
companies in Europe and Britain lost competitiveness, they wouldn’t be
able to sell their produce onto the market and the government in theory
stood ready to buy it off the market. So essentially, since 1992 there
have been three attempts to reform the Common Agriculture Policy and
all of them have been designed to really force farmers to stand on their
own two feet vis a vie the market. The authorities still hand over large
sums of money to farmers, but they are now handed over as payments
for being farmers, they are not given them in terms of what they
produce, or in terms of higher prices for what they produce. They have
to live by the market now in terms of what they produce, and of course
that means operating at much lower prices and it means adopting the
sort of marketing practices – and indeed other business practices – that
other businesses have long been familiar with.
SM
Now there were a number of recommendations that came out of the
Curry Report that were designed to try and move in this direction more
clearly – what are they?
SR
Essentially Don Curry and his report came out of the Foot and Mouth
back in 2001 because that was seen as a real crisis for British
agriculture and farmers were able to say, look you are putting all this
reform on us and we are having to put up with these huge issues such
as disease – how on earth can we cope? And essentially Don Curry
said two things – he said you have got to be much more market
orientated for the future and people are going to value your outputs in
terms of the natural environment, in terms of sustainability. So really
the Curry Report was trying to do two things at once, and some people
would say that was a weakness. The first half of the report, very good
indeed, points out that subsidies had more or less prevented farmers
from thinking in terms of the market, had really caused them not to have
to bother with their customers. The government was their customer,
that is who they turned to when they were in difficulties and there was a
lot of recommendations in the Curry Report saying what they would
have to do in order to adopt a market orientation. The second half of
the Report is really leaning almost back to the old days and saying that
of course, you do something other than produce food and we the
government will stand behind you and help you on that. It was a mixed
message really, on the one hand you are trying to say you are going to
have to stand on your own two feet, get more efficient, on the other
hand we will continue to support you. Then there is a third element
behind all of this, the Report was of course, political and lots of things
are said in reports which aren’t necessarily carried out, particularly when
the bills start to arrive. And we have reached a position where we are
under reform, there have been big changes, but it is very questionable
as to whether the mindset of the industry – if I can put it like that – the
basic attitude of individual farmers, has actually changed in the way
intended by the authorities, by Don Curry and his Report, and indeed by
most industry observers.
SM
Now you put quite a lot of store by farmer controlled businesses. Can
you say a bit more about that?
SR
Yes – let’s just take a step back. One of the biggest problems for
agriculture, for farming business, is that it is an atomistic industry.
Even the largest farms are very small in terms of today’s business and
more to the point, the companies, the businesses they are selling to are
much bigger than themselves. Therefore, they are always, always at a
disadvantage in terms of bargaining power, in terms of capturing the
value that they create. And of course farmers also generally produce
commodities, so if there is an oversupplied market, which is the legacy
of the Common Agricultural Policy, if it is an atomistic industry where
farmers have relatively little power dealing with large companies with
great bargaining power, it is not surprising that their prices get forced
down to rock bottom levels. Now, how do we get out of this? In the
old days of course they didn’t need to, the government came along and
the government said this is the price you will be paid, they forced
companies to pay the higher price. That has gone of course with the
reform. It is a fact that over the last twenty years the value of output
from UK agriculture has remained more or less constant at sixteen
billion pounds a year, at the same time the value of food purchased by
households has gone from sixty billion to a hundred and twenty billion –
beyond the farm gate enormous value has been added and farmers
have not shared in that creation of value. What is the solution? One
solution is that farmers should group together, by groping together they
create a certain amount of muscle, a certain amount of market power,
they create the ability to raise capital to invest and they also therefore
become capable of reaching down that food chain beyond the farm gate
and they themselves – or indeed this grouping – beginning to process
the raw materials that they produce and where the added value is
created. Now unfortunately the terminology that is used is Farmer
Controlled Businesses – that is completely wrong really, it’s a
misnomer. We should say farmer owned businesses because the
essential difference between these new vehicles – if I can call them that
– is that they are owned by farmers, but not run by farmers. Farmers
become the shareholders, they sell their produce to these companies
that they own, but they are managed by professional managers in much
the same way as food processing companies that are normally plcs are
managed.
SM
Now, Curry seemed to be suggesting that consumers were likely to pay
more for food if there are higher environmental standards. It said we
believe that the numbers are steadily growing – now you question that.
SR
I sure do, and I think the evidence is with me. We had this terrible
disease BSE in the mid 1990s and of course that was very clearly
associated with the application of science to farming. Whatever the
cause of BSE, it did leave a lot of people back at that time to question
whether modern farming techniques were necessarily good. And since
that date there has been a great deal of interest, officially and rather
reluctantly officially I have to say, and certainly by if you like all your
celebrity cooks on television who tell you they always cook with organic
food, but if you actually look at the statistics, of that 120 billion pounds
that is spent by households on food, less than 1.5 billion goes on
organic produce. In round figures about one percent what we consume
is actually organic, and although that is increasing even a twenty per
cent increase from a very small figure, still ends up with a very small
figure. I think a fundamental error was made. I think Don Curry and
others tended to go with the political mood at that time, but I think the
confusion was that people muddled up an interest in organic food, in the
much the same way as people who are becoming more affluent were
experimenting with a much wider range of foodstuffs, a wider range of
food experiences and organic was just seen as part of that. There
appears to be very, very few people who are prepared to devote all the
money they spend on food to organic produce.
SM
One of the things that you talk about is the way the nature of demand
for food has changed in that we are getting lots of micro segments now
and a rapidly fragmenting food market. Is this working in favour or
against the industry?
SR
I think this works in favour of the industry and it certainly works in favour
of anyone who is attempting to capture more value from the market and
thereby I would say that it works in favour of these farmer controlled
businesses. Whereas, if one goes back twenty or thirty years where
people ate a much more basic diet – you know, meat and two veg – a
meal every day, etc., now of course they eat a much greater variety of
foods, they eat out a great deal. We spend almost as much on eating
out as we now spend on eating in the home and because we are more
affluent, because we no longer fear food shortages, we do seek, as I
say, new food experiences and tastes and I think that what has been
happening is that this has been recognised by traditional processes,
producers in the food chain and they are going all out to try to create
brands. So yes there is thing called cheddar cheese now, but the real
success stories are the branded cheddar cheeses – the Cathedrals etc
– who seem to be able to command a much higher price than the basic
product.
SM
So, if we use this word market orientation, one of things that you say in
your articles is that sixty years of being spoon fed on a supplier based
approach, can you actually change that?
SR
Well, I really think this is the most difficult issue for the government, or
indeed any authority that tries to change the agricultural industry. After
two generations have been told that they were actually vital to the
country and more or less whatever they did they would be paid for and
after that period of time you didn’t really have to think about what you
were doing, someone said produce that milk and I will pay you this for it
and it was only in very recent years that anyone even checked the
quality of it. So it was really a very different market for these people,
but I think that if we are going to have a world class agricultural industry,
and we do have a very efficient agricultural industry compared to the
rest of the world – we have some of the best farmers in the world here –
but if they are going to be able to compete with low cost producers
around the rest of the world, they can’t do it just on the agricultural
produce that they produce. They have got to be able to reach down
that chain in the way I have said, basically through farmer controlled
businesses, but those farmer controlled businesses cannot make
money, cannot begin to capture additional values for farmer controlled
businesses unless they themselves understand the market, understand
where these micro sections are, which ones are developing, which ones
they can profitably begin to exploit. So, I see this question of a market
orientation, which is usually used rather loosely by the authorities –
when they are using the word market orientation I think they are just
saying that you have got to get in touch with the market – when I use
the word market orientation I am talking much more in terms of a
forensic approach. I am able to dissect the market, understand where
the trends are, understand where the value is going to be captured and
to what extent the produce that I am responsible for can move into that
particular segment.
SM
So, if we project ahead say five to ten years, how do you see things
developing if they are to go the way you think they should?
SR
Well let me answer that by pointing you towards Europe. In Europe
which is way ahead of us in this development, the farmer controlled
business – if I can call them that, they give them different names over
there – account for 65 billion euros of value of output. By comparison
in this country our farmer controlled businesses account for just 6. I
would like to think that over the next ten, fifteen, twenty years there will
be an explosion in terms of farmer controlled businesses. We have
seen it, it is happening at the moment in the dairy sector in this country,
I would like to see that spread into other sectors and I would like us to
get to a position in ten or fifteen years time where we have a model
here, a bit more like the continental model, where a very large amount
of the value of what we consume in our households or eating out under
our food expenditure is going to be provided for us by farmer controlled
businesses. In other words they will have control over a much larger
proportion of the food supply chain than they currently do.
SM
So what are the areas that you would like to explore further in future
research?
SR
Well I think you raised it. I think the most important thing, or
sequentially the most important thing, is really to start with changing that
mindset of farmers. The government have spent some millions of
pounds trying to investigate the advantages of greater integration in the
food chain, of people getting together. I think it is beginning to dawn on
the government and recent actions would support this, that a lot of
money has been wasted because it did not bring with it the mindset, the
commitment, the belief of the farmers and as we have already said, if
you have had sixty odd years of not bothering, then you have really got
to begin to think very differently if you are going to approach this thing in
a new way – basically taking a new mindset. And there is another
problem at the moment. It is no surprise that the dairy sector was the
first one to really begin to embrace this new idea of farmer controlled
businesses because over the last ten years the dairy sector has been
under enormous economic pressure. Things have suddenly started to
change for British farming in the last year, prices have begun to rise
quite sharply. Cereal prices are up more than 100% - in part because
of interest in bio fuels, droughts in Australia and rising demand from
places like China and India. The biggest enemy of farmers changing
their mindset, beginning to adopt these new techniques is increased
profitability at farm level – they will begin to say I don’t need to change, I
can carry on as I am, but of course history tells us that in a few years
time those high prices will be coming down again and now what farmers
should be doing is taking the extra profits they have at the moment and
thinking very carefully how they might invest those in forming structures
such as farmer controlled businesses which will, when times get tougher
again, ensure that they capture a great deal more value.
SM
Well, let’s hope that that is so. Thank you very much indeed, Sean
Rickard.
SR
Thank you.
© Cranfield University 2008