Appendices
52
Contents
APPENDIX 1
DRIVER ANALYSIS
54
1.1 CAP REFORM
1.2 WTO
1.3 EU ENLARGEMENT
1.4 EXCHANGE RATES
1.5 POPULATION
1.6 CLIMATE CHANGE
1.7 NEW PRODUCTION TECHNOLOGY
ENERGY MARKETS
1.8 FOOD CHOICE/ FARM ASSURANCE
1.9 FOOD CHAIN STRUCTURE
54
58
62
67
72
78
84
90
95
101
APPENDIX 2
107
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
2.10
CONSULTATION EXERCISE
CAP REFORM
WTO
EU ENLARGEMENT
EXCHANGE RATES
POPULATION
CLIMATE CHANGE
NEW PRODUCTION TECHNOLOGY
ENERGY MARKETS
FOOD CHOICE/ FARM ASSURANCE
FOOD CHAIN STRUCTURE
107
109
109
111
111
112
114
115
115
116
APPENDIX 3
DRIVER INTERDEPENDENCIES
118
APPENDIX 4
REFERENCES
121
53
APPENDIX 1 Driver Analysis
The following sections outline the key factors driving change in farming in the next 10 to 15 years.
Many of these drivers will directly affect UK production, but they may also affect production in
other parts of the world and thus affect global commodity markets, which will in turn affect UK
agriculture. Impacts on UK farming from global commodity markets are therefore a key dimension
to change in the future, but are not identified as a single driver. Rather, they are recognised
throughout the following sections as a force that is also affected by the drivers which has the
potential to create further, knock-on impacts on UK farming.
1.1 CAP Reform
Description and key underlying trend data
On 1st January 2005, the direct support schemes directed at farmers as part of the Common
Agricultural Policy (CAP) Pillar 1 agricultural support, which included the Arable Area Payment,
Suckler Cow Premium, Beef Special Premium and Sheep Annual Premium Schemes, stopped
and were replaced by a Single Farm Payment (SFP). In England the SFP replaces most existing
crop and livestock payments. In order to receive payments farmers must maintain farmland in
Good Agricultural and Environmental Condition (GAEC) and adhere to several Statutory
Management Requirements (SMR) including environmental livestock identification and tracing,
public health, plant and animal health and welfare objectives, described in CAP legislation as
‘cross compliance’. Most of the requirements reinforce existing law which does not require
farmers to do anything new. The crucial difference will be the removal of the Over Thirty Month
Scheme, expected in October 2005. The SFP is initially to be based on a combination of a flat
rate and historical payment levels, but this will change in future years as follows:
Flat Rate
Historic Rate
2005
10%
90%
2006
15%
85%
2007
30%
70%
2008
45%
55%
2009
60%
40%
2010
75%
25%
2011
90%
10%
2012
100%
0%
In addition, the funds used to previously support those schemes are to be modulated, which
effectively means a redistribution to Pillar 2 of the CAP (rural development & agri-environment)
and in practical terms allows farms that comply with environmental management to receive a
greater proportion of support. Following 2012, although still un-negotiated, it is likely that the
degree of modulation will increase and the absolute amount of money included in the flat-rate
decoupled payment will shrink.
Former schemes paid farmers according to the number of livestock held or areas of crops grown,
whereas the SFP pays them a flat rate, irrespective of the numbers of livestock held or crops
grown in the future. In order to receive the SFP, farmers have to meet statutory environmental
and animal welfare regulations (i.e. they must not break the law) and must maintain their land in
‘good agricultural and environmental condition’. The crucial difference, however, is that farmers
now have freedom of choice over the particular farm enterprises they engage in, in order to
receive subsidy.
How farmers will react to CAP reform and what might shape future production decisions in 10 to
15 years time will be dependant on the extent to which farming is currently dependant on the
policy measures being phased out. In particular, trends relating to the proportion of farm income
derived from the direct subsidies that are being removed will be important. In the long term, we
would expect rational farmers to stop engaging in enterprises that lose them money.
In the UK as a whole, total direct subsidy payments from the schemes that are transferring to the
SFP represented 77% of Total Income from Farming (TIFF) in 2004 (Defra, 2005, a). If this
percentage was zero, it would imply that all farm income from farming would be attributable to
market sales. If this figure was 100% (or greater), then all farm income would be attributable to
54
subsidy and in the absence of that subsidy, TIFF would be zero (or negative). What this 77%
figure suggests therefore, is that the majority of farm income is derived from these direct
subsidies. To illustrate which farm types are the most dependant on direct subsidy, Table 1.1
shows the relative proportions of occupiers net income (ONI) derived from these direct subsidies
for a range of farm types over the past six years (Defra, 2005, b).
All farm types except for Dairy, Pigs and Poultry and Horticulture (the increasingly unsupported
sectors) would make a loss in the absence of direct subsidy. In particular, livestock farmers
depend crucially on direct subsidies such as Suckler Cow Premium, Sheep Annual Premium and
Beef Special Premium. However, Cereals farms are also heavily reliant as are Mixed systems
and although Dairy and General Cropping farms would still derive positive Net Farm Income
(NFIs) in the absence of direct subsidy, those incomes would be significantly lower.
A significant proportion of farms therefore engage in enterprises that will lose them money when
subsidies are decoupled. In the long term, we would expect these enterprises to cease and be
replaced by enterprises that can make a profit (which includes new/novel enterprises and
allowing land to lay fallow). This will be a certain outcome of CAP reform. Continuing to engage
in non-profitable enterprises is not sustainable nor economically rational in the long term.
Cereals
General
Cropping
Pigs &
Poultry
Mixed
Horticulture
All Types
81%
125%
85%
47%
66%
43%
74%
Cattle &
Sheep
(Lowland)
1998/9
1999/0
2000/1
2001/2
2002/3
2003/4
Average
Cattle &
Sheep (LFA)
Direct Subsidies as a proportion of ONI: average UK Farm Types 1998-2004
Dairy
Table 1.1
488%
565%
423%
357%
194%
197%
371%
n/a
2176%
n/a
1807%
283%
249%
1128%
268%
217%
283%
384%
231%
115%
250%
88%
273%
125%
144%
187%
60%
146%
n/a
n/a
15%
30%
12%
9%
16%
1240%
460%
319%
619%
306%
136%
513%
4%
4%
5%
5%
5%
4%
5%
192%
247%
182%
162%
145%
84%
169%
Key events / developments on the horizon







Removal of the Over Thirty Month Scheme – expected October 2005. Possible fire-sale of
older cattle to depress market prices by around 2% (Milk and Livestock Commission) in short
term. However, farm incomes possibly rebalanced by sales of older cows (even a depressed
food chain price is higher than the compensation farmers are currently receiving);
Dismantling of the EU sugar regime. This will have a major impact on UK sugar beet
producers, with forecasts suggesting up to 50% of EU exports in sugar will be lost (Koo &
Taylor, 2005);
Ageing farmer population - CAP reform may be an opportunity for older farmers to rent out
their land at (potentially) nominal rents, taking the SFP as pension (see Population Driver
section);
Changing consumer trends and tastes, plus retail customer demands (see Food Choice/Chain
Driver sections);
WTO negotiations – Doha Development Agenda timetable will be important, expected to be
decided at the next WTO Ministerial Conference, Hong Kong, December 2005. Longer term
Agreement on Agriculture negotiations will have most impact (see WTO Driver section);
EU Enlargement – Bulgaria & Romania 2007, Negotiations with Turkey and Croatia. Labour,
food safety issues and decreasing EAGGF (European Agricultural Guidance and Guarantee
Fund) budget per nation will be dominant issues (see EU Enlargement Driver section);
Water Framework Directive – implications for catchment management, collaborative
management, restrictions on input use (fertiliser and pesticides) etc. by 2012;
55


Other sector-specific legislation – EU Nitrates Directive, Animal By-products Regulations, EU
Broiler Welfare Directive, EU Food Hygiene Directive.
Longer term, Climate Change affecting yields, enterprise selection and technology adoption.
Broad assessment of potential impact on the farming industry - encompassing
risks and opportunities
General:
 Increasing volatility in world commodity markets;
 Further CAP reform almost certain between now and 2020;
 Impact of rural development funding streams. Possible opportunity for farmers to access
funding.
Arable (Moss et al., 2003; Renwick & Hodge, 2003, Morris, 2004):







Major reductions in sugar beet production by 2013;
Short term increased specialisation of wheat production (2005-10);
Short term replacement of second wheat by fallow (2005-10);
Longer term reduction in the area of cereal production of around 10-20%, although increasing
yields are likely to more than compensate for this reduction in land for cropping (2012-20);
Longer term maximisation of set-aside (2012-20);
Reduced demand for feed grain due to shrinking/extensifying livestock sector (2012-15).
Though there will be continued opportunity for pig and poultry feed wheat (low importance);
Increased use of contracting services/machinery sharing (2005-2020) (high importance).
Livestock (Hall & Phillips, 2003; Oglethorpe & Revell, 2003):

Motivation to sell calves earlier in upland suckler systems in marginal areas (2005 onwards);


Move out of suckler production into extensive sheep production in uplands (2005 onwards);
Intensification of localised grass-fed beef systems on lowland grass and increase in largescale, yard-based finishing (2010-15);
Some substitution of lowland beef for sheep and dairy systems (2010-15);
Reduction of full-time labour units of around 10-15% (2012-2020);
Overall reduction of around 10% of total beef numbers (though could be as much as 30%),
(2012-2020). Sheep will probably not be affected;
As beef numbers reduce, the price of meat will increase, possibly leading to an increase in
pig meat/ poultry production.




Dairy:


Continued cost squeeze on inputs (2005 onwards) (medium-high importance);
Eventual removal of quotas (2013) will provide export opportunity for processed products in
western Europe, although dairy proficiency of Eastern European new member states may
have improved by then, counteracting this opportunity.
Environment (CLA, 2003; GFA-RACE, 2003;Morris, 2004; English Nature, 2004; JNCC, 2002) :





Extensification in the uplands (2005-2020) (high importance);
Localised lowland intensification (2010-2020);
Fewer mixed systems (2005-2020);
Marginal land abandonment (2010-2020) (high importance);
Smaller workforce & ‘environmental management time’ (2012-2020).
Earliest timing of potential impact


Early adopters will already have instigated system changes.
The majority of the sector will probably start to adapt as the flat rate payment method
dominates (i.e. from 2009).
56

Longer term substantial changes expected to coincide with generational management
change.
57
1.2 WTO
Description and key underlying trend data
The World Trade Organization (WTO) was established in 1995 as the successor to the General
Agreement on Tariffs and Trade (GATT) which was set up in the wake of the Second World War.
The aim of the WTO is to enable a strong and prosperous trading system that contributes to
growth of the world’s economies, to be achieved through a series of trade negotiations, or rounds
(WTO, 2003). The first rounds of GATT dealt mainly with tariff reductions but later negotiations
included other areas such as anti-dumping and non-tariff measures. The last round of GATT, the
1986-94 Uruguay Round, fundamentally changed matters for agriculture with a specific
Agreement on Agriculture (AoA).
The AoA set out commitments which developed countries had to apply over a six-year
implementation period (1995-2000), but which will remain in force until a successor agreement is
made. These commitments are to:



reduce domestic support - a 20% reduction in domestic support for agriculture compared with
a 1986-88 average reference level;
cut export subsidies - a 21% reduction in volume and a 36% reduction in expenditure on
export subsidies compared with the average level in 1986-90;
Improve market access - a reduction on all tariffs and their equivalents by an average of 36%
(with a minimum of 15% per individual tariff) from a 1986-88 average base level.
The conclusion of the Uruguay Round also marked the replacement of the GATT by the creation
of the WTO. By 18 September 2003 there were 148 countries belonging to the WTO. Another 25
countries have applied to join. In 2000, new talks started on agriculture and services. These have
now been incorporated into a broader work programme, the Doha Development Agenda (DDA),
launched at the fourth WTO Ministerial Conference in Doha, Qatar, in November 2001. The DDA
incorporated an ambitious timetable that required rules and commitments (‘modalities’) to be
agreed by 31 March 2003 and detailed schedules of commitment in time for the next WTO
Ministerial meeting, held in Cancun, Mexico 10-14 September 2003. The deadline for the
completion of the DDA negotiations was 1 January 2005 (ODI, 2004).
Unfortunately, the political positions of the WTO member countries remained too far apart for
agreement to be reached on modalities by the 31 March 2003 deadline. As a result, there was
further failure to reach agreement in Cancun, although some progress was made in relation to
agriculture. The DDA timetable has now been rolled forward to the next meeting of the WTO
Ministerial Conference, to be held in Hong Kong in December 2005, but no specific deadline for
the Round has been set for its completion.
The Uruguay Round and the AoA paved the way for the development of the European Rural
Development Regulation (European Council Regulation 1257/1999) and the associated Agenda
2000 reforms to the Common Agricultural Policy (CAP). The Agenda 2000 reforms specifically
aimed to change the CAP so that the requirements of the WTO (reducing domestic support,
improving market access, cutting export subsidies) could be better met (Defra WTO website,
2005; DTI, 2003).
In this respect the WTO is very much a driver of CAP reform. In 2003, a mid-term review of
Agenda 2000 was conducted and further, ground-breaking reform to the CAP was agreed. This
reform included the establishment of Decoupling and Modulation, which were initiated in EU
member states (including the UK) on 1st January 2005. Specifically, Agenda 2000 and the midterm review was to deliver the requirements of the WTO’s AoA, as laid out above.
Although the WTO in itself does not enact law that directly affects UK farmers, it is the key driving
force behind much of the EU and UK policy reform that does. It is thus a high-level driver for CAP
reform (see the ‘CAP Reform Driver’ section for a more detailed impact assessment).
58
An important characteristic of the WTO (and the GATT before) in terms of its future impact within
the next 10 to 15 years is the actual length of time it takes to complete negotiations. The Doha
round is already entering its fifth year and no deadline has been set for its conclusion. As the
membership of the WTO grows, negotiation and agreement takes longer, simply due to the
greater disparity of political and economic views. Figure 1.1 illustrates the relationship between
growing membership of the GATT/WTO and the length of the negotiation rounds. Even if the
Doha round was to complete in 2007 or 2008, the next negotiations may not start until around
2015 and it would not be unrealistic to expect them to complete until well into the mid 2020s.
Figure 1.1 GATT/WTO membership and the length of negotiations
180
Geneva
Round
1947
160
Torquay
Round
1951
Annecy
Round
1949
140
Dillon
Round
1960-61
Geneva
Round
1956
Tokyo
Round
1973-79
Uruguay
Round
1986-94
Doha
Round
2001-???
Kennedy
Round
1964-67
120
100
80
Total members
60
40
20
0
1940
1950
1960
1970
1980
1990
2000
2010
Source: Adapted from data from WTO website.
Although the WTO will affect the future content and application of the CAP, it will also affect the
value of trade from the UK. This could be beneficial for commodities where the UK has a
comparative advantage or detrimental for those commodities that have a withering trade
advantage. To understand the likely impacts of this, it is useful to look at how trade in agricultural
exports and imports has changed in recent years, as shown in Figure 1.2.
Figure 1.2
Net exports in key commodities in real terms at 2002 prices (1991-2003)
600
400
Wheat, unmilled
Breakfast cereals
Milk and cream
Lamb and mutton
Eggs and egg products
Pork
Butter
Beef and veal
Poultrymeat
Cheese
Bacon and ham
£ million
200
0
-200
-400
-600
-800
02
01
00
03
20
20
20
98
97
96
95
94
93
92
99
20
19
19
19
19
19
19
19
19
19
91
-1000
Source: Defra, Agriculture in the United Kingdom 2004. Note: excludes whisky and wine trade.
59
Over the period, the UK has enjoyed average positive net exports for Wheat (unmilled), Breakfast
cereals, Milk and cream and Lamb and mutton, but average negative net exports for other main
commodities. In general, across all these commodities, the average value of trade has slipped
from an average net import of £98m to one of £217m. UK farm production is therefore already
vulnerable to international trade and given intervention price and export subsidy pressure from
the WTO, it is likely that trade in such commodities from the UK will be squeezed further.
However, several other significant factors have affected the trends above, notably, the strength of
sterling (see Exchange Rates Driver), BSE, economic difficulties in major export destinations in
the Far East and more latterly, Foot & Mouth Disease.
Key events / developments on the horizon
Completion of the Doha Development Agenda, which is expected to lead to:
 Substantial reduction in the overall level of trade-distorting domestic support, including a 20%
immediate reduction in the first year of implementation - equivalent to the entire support
reduction implemented over six years of the Uruguay Round.
As a worst case, with no special treatment, this could potentially lead to a 20% reduction in
the Single Farm Payment in the UK, followed by further cuts. Implementation would most
likely be required over a five year period following Doha agreement, so this could occur by
2013. However, a reduction in the SFP could be rebalanced by modulation to ‘green box’
schemes (rural development and agri-environment) but even if the total amount of support to
UK agriculture remained the same, it would mean a substantial redistribution of support
(away from lowland arable towards upland livestock).
“Blue Box” support - direct support that does not influence production decisions (such as
decoupled payments) - will not exceed 5% of a Member’s average total value of agricultural
production during an historical period. At present in the UK, the value of the direct subsidies
that decoupling is replacing (approximately £2.3bn) represents around 14% of gross
agricultural output (£16.9bn). The EU is currently hoping to have the SFP categorised as a
Green Box payment and unless this is contested by another WTO country, it will be
recognised as such.
 The elimination of export subsidies by the date (or dates) to be agreed as part of the DDA
negotiations. All forms of trade-distorting export subsidies are to be either eliminated or
disciplined. Again this will be subject to an implementation period, yet to be agreed, but is
again likely to follow a five year period for developed countries.
This could substantially affect sugar, dairy and processed foods where export subsidies are
still relatively high (beef and cereal export subsidies were substantially reduced in previous
CAP reform).
 Substantial improvements in market access through a single approach applying to all
countries and a tiered reduction formula, with the highest tariffs facing the deepest cuts.
Reductions will be substantial, and will be hardest felt in the sugar and processed dairy
product sectors, although there is provision for relief on certain products (including sugar).
Future WTO Rounds:

Clearly, planning for the next round of WTO negotiations cannot start until agreement is
reached on the Doha round. Until this point is reached it is difficult to foresee what the focus
of future negotiations will be. However, the environment and climate may well be a critical
issue for future WTO negotiations and talks may concentrate on the trade of environmentally
detrimental products. Global concerns over water quality and climate could be expected to
start to influence trade negotiations.
60
Broad assessment of potential impact on the farming industry - encompassing
risks and opportunities:







Increasing pressure on exports in all sectors, especially powdered milk, butter, beef. It will
also affect the milk sector, but the effect will be mitigated;
Medium importance of loss of export subsidies/increased market access for sugar and milk,
cereals and beef and sheep, will reduce prices by 5-10%, although could be as much as 20%
for certain sectors (e.g. sugar) by 2013-15. Loss of export subsidies will not cause as big a
change to dairy, as to pigs and poultry, but increased market access will be important. This
impact will be of great importance to the UK sugar sector;
Increasing shift of support to the Green Box (rural development and agri-environmental
support);
Substantial import tariff reductions combined with decoupling of CAP will have the a very
significant impact on farming;
Those sectors producing mainly for the domestic market at present (e.g. poultry, beef) will
suffer most from exposure to increased market access – e.g. Brazil, unless food choice factor
of provenance becomes a major factor;
Economic impact of China and South-East Asia provide both opportunities for exports for
growing affluence base and possible threats from imports of soya and other commodity
products;
If import tariffs are determined on the basis of aggregation of sectors, beef and Sheep would
suffer against poultry and pigs.
Earliest timing of potential impact:



Doha round impacts expected earliest 2007/8 latest 2012/3 lasting through to 2020. Though
timescale of agreement from next round perhaps beyond 15 years;
Further round impacts expected 2015-20;
It is still unclear actually how big tariff reductions will be and what peace clauses may be
accepted.
61
1.3 EU Enlargement
Description and key underlying trend data
The European Union (EU) began life as the European Economic Community in 1957 with the
agreement of the Treaty of Rome, initially signed up to by the original six members (Belgium,
France, Germany, Italy, Luxembourg and the Netherlands). Following establishment, there were
then a series of four further grouped accessions to the EU:
1973 - Denmark, Ireland and the UK;
1981 - Greece;
1986 - Portugal and Spain;
1995 - Austria, Finland and Sweden.
These fifteen member states are referred to here as the EU-15. In 2004, ten new member states
(NMSs) joined the EU, creating the EU-25: Cyprus, the Czech Republic, Estonia, Hungary,
Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. The impact of these NMSs joining the
EU is yet to be felt, but as their economies develop, the impact on the EU-15 will start to take
effect.
Further enlargement is planned with Bulgaria and Romania currently involved in negotiations
(which began in 1999) and their full accession is now planned in 2007 (CEC, 2001, 2002). In
addition, the European Council agreed to starting accession negotiations with Turkey in
December 2004 and Croatia in March 2005. Given the lead time exemplified by the Bulgarian
and Romanian negotiations, it may be 2012 or 2013 before Turkey and Croatia finally gain
accession. The Former Yugoslav Republic of Macedonia also applied in 2004, but negotiations
on their accession are yet to be timetabled. In order to gain accession to the EU, candidate
countries must meet certain political and economic criteria, which include the ability to take on the
obligations of membership, the possession of the necessary administrative structures and respect
for "liberty, democracy, respect for human rights and fundamental freedoms and the rule of law",
the principles on which the EU itself is founded.
The impacts of EU enlargement on UK agriculture may be varied and will depend upon the
competitiveness of the economies acceding to the EU. By comparison to the UK, the NMSs and
acceding countries are significantly more dependant on agriculture as part of their economy.
Table 1.2 illustrates this comparison showing the proportion of Gross Value Added (GVA)
contributed by agriculture in each NMS and the ‘Accession States’ (Bulgaria, Romania and
Turkey). In the UK, agriculture contributes 0.8% to GVA (2004).
Table 1.2
Percentage Share of Agriculture in GVA in NMSs (1999)
New Member State
Bulgaria
Cyprus
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Malta
Poland
Romania
Slovakia
Slovenia
Turkey
% of GVA
21.11
4.2
3.7
5.7
5.51
4.0
8.8
2.6
3.9
15.5
4.5
3.6
14.32
Source: Eurostat. Notes: 11998; 21997(www.europa.eu.int/comm/eurostat/)
62
The dependence on agriculture, which is particularly pronounced in Bulgaria, Romania and
Turkey (countries yet to gain accession) is a reflection of the less well developed nature of such
economies in transition and we would expect such proportions to fall as other sectors (such as
manufacturing and services) become more important to their economies.
Overall, the NMS currently have relatively weak economies and represent little competitive threat
to the UK. Table 1.3 shows the Gross Domestic Product (GDP) per capita in each NMSs
(excludes accession states) as a proportion of the average GDP/capita in the EU-15. It also
shows the level of reliance on agriculture for employment and the level of unemployment in the
NMS. This latter feature perhaps could create an impact on UK farming, since there could be a
significant migration of relatively cheap labour from East to West. The European Commission
estimates that between 70,000 and 150,000 people will move to the EU-15 every year after
enlargement.
Table 1.3
Population, GDP per capita, and agriculture dependency NMSs (2000)
Population
(million)
Bulgaria
8.2
Czech Rep.
10.3
Estonia
1.4
Hungary
10.0
Latvia
2.4
Lithuania
3.7
Poland
38.6
Romania
22.4
Slovakia
5.4
Slovenia
2.0
Source: Zuleeg (2002)
GDP/capita (as %
of EU average)
24
60
38
52
29
29
39
27
48
72
Agriculture in total
employment (%)
13.2
5.1
7.4
6.5
13.5
19.6
18.8
42.8
6.7
9.9
Unemployment rate
(%)
16.4
8.8
13.7
6.4
14.6
16.0
16.1
7.1
18.6
7.0
On average, GDP/capita represents 42% of the EU-15 average in the NMSs. Coupled with the
fact that the UK has the fourth highest GVA/agricultural worker in the EU-15, the strength of the
NMSs and acceding country agricultural economies is unlikely to pose an immediate threat.
However, the NMSs and accession countries have distinct economic potential that could create
some challenge for the UK, either as opportunities or threats. In particular, they have:







Quality land & yield potential with irrigation and a wide range of crops can be grown;
Large farm structures (especially Hungary);
High level of self-sufficiency in Dairy;
Strategic geographic position, both West & East;
Low labour costs and other costs of production plus good rail infrastructure;
Good level of graduate education and science base;
Already large scale foreign direct investment and rapidly growing retail investment.
This last point, regarding the rapidly expanding food retail sector in the NMSs (particularly Tesco),
is exemplified by the trend illustrated in Figure 1.3, for Poland, where the market share by the
hypermarket sector has grown linearly and by more than ten fold in the last ten years.
Transition and development of the markets in the NMS are likely to offer more opportunities than
threats, with NMS consumers becoming more demanding for ‘western’ style quality food products
(Defra, 2005; Beghin et al., 2005). The main threat to UK farming will arise from the continued
squeeze on the budget to fund the CAP. On joining the EU in 2004, the 10 NMSs were
immediately entitled to 25% of the CAP support that EU-15 member states currently enjoy. This
will rise to 30% in 2005, 35% in 2006, 40% in 2007 and then in 10% steps until, in 2013, they
reach the same level as the same level of support then applied in the EU-15. As illustrated in
Table 1.4, this puts some pressure on the CAP budget from rural development and direct support
payments and as a result, deficits on the CAP budget appear as early as 2008.
63
Figure 1.3 Percentage Market Share by Hypermarkets in Poland
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
1994
1996
1998
2000
2002
2004
2006
2008
Source: Leat, 2005.
Table 1.4
Financial needs and available resources in the enlarged EU-25
€ Million (1999 prices)
Market Regulation
Rural Development
Direct Payments
Demand for Payments
Enlargement funds
Additional own resources
Maximum Avail. Funds
Deficit
2006
734
1,730
1,418
3,882
3,933
2007
2,180
2,655
1,794
6,629
3,920
3,651
7,571
2008
2,771
3,004
2,570
8,345
3,920
4,130
8,050
295
2009
2795
3154
3027
8976
3920
4337
8257
719
2010
2,822
3,312
3,483
9,617
3,920
4,554
8,474
1,143
2011
2,900
3,477
4,008
10,385
3,920
4,782
8,702
1,684
2012
2,946
3,651
4,532
11,120
3,920
5,021
8,941
2,189
2013
2,992
3,834
5,057
11,883
3,920
5,272
9,192
2,691
Source: Pionelli (2002)
However, the burden on the UK arising from this budgetary pressure is not substantial. If the
€2.7bn deficit forecast for 2013 was shared equally by the EU-25 member states, it would
represent a required reduction in spend of approximately €108m (approximately £75m) for the
UK, which is only around 3% of the current total subsidy receipt by UK farmers (£2.3bn in 2003).
Key events / developments on the horizon




EU-27 (2007):Bulgaria and Romania to gain accession;
EU-29 (2012-13):Turkey and Croatia, possible accession;
EU-30, (2015-18):Further possible enlargement to Former Yugoslav Republic of Macedonia;
EU-40? (2025+) Possible future application by any of the following: Albania; Andorra;
Belarus; Bosnia & Herzegovina; Iceland; Moldova; Monaco; Norway; Serbia & Montenegro;
Ukraine.
Broad assessment of potential impact on the farming industry - encompassing
risks and opportunities(Folmer et al., 1995; Grabbe, 2003, House of Commons,
2005; NFU, 2002, 2004):
General opportunities:
 Substantial growth potential in NMS retail sectors;
 Availability of cheaper labour (highly important);
 Significant medium term (5-10 years) economic growth and increase in living standards in
NMSs will lead to increased demand for quality food products, mainly produced in existing
NMSs, including the UK. Poultry meat, beef and sheep, cheese and other luxury dairy
products stand out as areas of opportunity;
64


Lack of infrastructure and further processing in accession states may lead to opportunities for
British growers and producers overseas: In the medium term (5-10 years), NMSs more likely
to provide UK farmers with export opportunities than to pose a risk of increased imports;
Bulgaria, Romania, Croatia & Turkey mainly uncompetitive with UK on most commodities
(especially dairy & red meat) except some fresh produce.
Sector-specific opportunities:





Wheat and general cropping yields in the three biggest producing countries of Poland, the
Czech Republic and Hungary are approximately 2-3 tonnes lower than in the EU-15.
However, though their yields are lower, their prices are also lower due to low-input systems.
These countries are now selling at EU intervention prices and producing surpluses for this
purpose. This is an important risk for cereals, although the UK yields are much more stable
and of higher quality;
British exports of live poultry occupy leading positions in all of the three major NMS markets;
Enlargement could add around 20% to EU egg production levels;
Significant reductions in dairy herd size, e.g. Poland, numbers of dairy cows declined from
4.9 million in 1989 to 2.7 million in 2002. Nevertheless, there is potential for increasing yields
through genetic improvements and automation of production in Eastern Europe with
investment;
Almost half of milk production in Poland is consumed locally and not entering the larger
national market. Though if milk quotas were lifted (unlikely before 2020) Poland is likely to
become wholesale producers.
General Risks/Threats:




In general, pre-accession trade liberalization has meant that ‘shocks’ to the UK market are
not expected. Any short term/ immediate shocks that might have happened would have
happened by now. Therefore, in the short run (0-5 years), the enlargement is not expected to
lead to any significant competitive pressure for UK farmers;
Diluting of CAP budget – increasingly less support to UK agriculture. Full impact by 2013,
approximately 3-5% reduction in support due to this factor;
High significance of potential food safety issues in accession countries affecting value of UK
trade (particularly Bulgaria, Romania & Turkey);
Slower policy decision-making and uncertainty under increasingly diverse interests.
Sector-specific risks:




The Czech Republic and Croatia already devote a greater share of land to organic produce
than the UK. Organic is a value-added market where competition from the NMS will be high;
The Polish potato crop in 2001 was almost half of the entire EU’s production in the same
year. However, Poland has problems with crop disease so has capacity for production of low
quality products. However if standards in Eastern Europe increase they may offer more of a
threat to UK producers;
Milk yields are close to or above EU averages in the Czech Republic and Hungary. NMS’s
yields are increasing and the percentage sold on market (rather than local consumption) is
increasing;
High levels of investment in pig production and processing in Eastern Europe could speed
their transformation to be competitive producers.
Earliest timing of potential impact (House of Commons, 2005; NFU, 2002, 2004):


In the short run (0-5 years), the enlargement is not expected to lead to any significant
competitive pressure for UK farmers. Initial food safety issues could depress prices,
maximum 2%;
In the medium term (5-10 years), NMSs more likely to provide UK farmers with export
opportunities than to pose a risk of increased imports. CAP budget squeezed by 3-5%;
65

In the longer term (10-20 years), specialisation will become more important and the UK will
need to focus on sectors where it has a competitive advantage.
66
1.4 Exchange Rates
Description and key underlying trend data
The exchange rate is the key factor explaining the movement of UK farm incomes relative to
other EU member states. Indeed, while a whole range of factors influence the absolute level of
farm incomes e.g. international commodity prices, levels of productivity and the levels of subsidy,
the exchange rate has also probably been the dominant factor influencing the absolute level of
farm incomes over the past 10-15 years.
Much has been made of the stability brought to the overall UK macro economy over the past
decade with both levels of growth and inflation being significantly more stable than in earlier
decades. One economic variable that has not been stable over that period, however, has been
the exchange rate. This instability, combined with the close relationship between the level of farm
incomes and the exchange rate has had a major impact across the entire agricultural industry.
Impact on UK Agriculture: A number of key factors make the agricultural industry particularly
sensitive to movements in exchange rates:



By and large, most agricultural products are still of a commodity nature where the main point
of differentiation is price;
Both agricultural commodity products and processed food products are widely traded with the
EU single market being the major source and destination for UK imports and exports;
Virtually all support prices and direct payments are set in Euro.
These factors mean that most major sectors of farming are influenced by exchange rates, even
where the size of the tradable part of that sector is relatively small. A clear correlation exists
between the level of Total Income from Farming (TIFF) and the exchange rate, or more
specifically the sterling/euro exchange rate.
As Figure 1.4 shows, after the UK left the ERM in September 1992 sterling weakened up until
1995. Over that period farm incomes more than doubled in value. In the period from 1995 to
2000 sterling strengthened against the ECU/euro and the value of TIFF fell significantly. The
weakening of sterling again since 2000 has once again been mirrored by a recovery in farm
incomes.
Relationship between
between TIFF
TIFF and
of rate
sterling
Relationship
and the
the strength
exchange
19901990-2003
- 2003
Figure 1.4
0.90
7,000
0.85
6,000
5,000
0.75
4,000
0.70
3,000
0.65
2,000
0.60
£ to the Euro
0.55
1,000
TIFF (real terms, 2003 prices)
0.50
0
1990
1991
1992
1993
1994
1995
1996
Source: Defra
67
1997
1998
1999
2000
2001
2002
2003
TIFF real terms, 2003
prices
£ to the ECU/Euro
0.80
This relationship can be explained by the close correlation between the exchange rate and
agricultural output prices in the UK. Between 1995 and 2002 euro zone agricultural output prices
remained relatively flat, down just 2%, as CAP market measures such as the use of export
refunds largely offset world price movements (see Figure 1.5). Over the same period UK
agricultural output prices fell by 25%. This differing performance in output prices can almost
completely be explained by changes in exchange rates. Over this same period the sterling/euro
exchange rate fell by 24%.
Figure 1.5
rate
Comparison of ratio UK producer prices (£) to the Euro zone with exchange
Comparison of ratio of UK producer prices (£) to Euro zone with exchange
rate
1.40
0.90
0.85
1.30
0.80
1.20
0.75
1.10
0.70
0.65
1.00
0.60
Ratio of UK Producer prices (£) to Euro zone producer
prices (2000=100)
£ per Euro
0.90
0.55
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
0.50
Jan-90
0.80
Source: Defra
The prices of agricultural inputs in the UK (as compared to agricultural outputs) are less affected
by the exchange rate. This reflects that certain inputs are not tradable (vets fees or machinery
repairs) and that there may be less transparency in the markets for some inputs.
Most major agricultural commodities e.g. wheat, beef, cheese and SMP, are traded on world
markets in US dollars. Key inputs e.g. fertilisers and protein feeds like soya, are also traded in
US dollars but there are no CAP market measures in place to offset the impact of exchange rates
on inputs. As already indicated, CAP market measures such as the use of export refunds offset
the impact of world price movements on output prices within the euro zone (whether caused by
changes in the euro/dollar exchange rate or not). The impact of the sterling/dollar exchange rate
is therefore more important for inputs (compared with the sterling/euro rate) where changes feed
through more directly.
However, in 2004, for example, total UK output from agriculture was some £16.9bn and the cost
of intermediate inputs (excluding labour, rent and interest) was some £9bn. A percentage change
in the value of outputs therefore has a much larger impact on farm incomes than an equivalent
change in the value of inputs. This combined with the more direct relationship between exchange
rates and output prices (as compared to agricultural input prices) help explain the very close
correlation existing between TIFF and the euro/sterling exchange rate.
Key events / developments on the horizon
Protection and support measures: In the short to medium term, reform of the CAP will lead to
reductions in the remaining price supports (e.g. for sugar and dairy products), less use of export
refunds and reductions in the level of direct subsidy payments.
In the longer term the completion of the Doha Round of the WTO could potentially lead to the
complete abolition of export refunds.
Changing nature of food production and supply: There is likely to be increasing differentiation
within UK food and agricultural product markets and a move away from commodity production.
An example of this is the fresh produce sector where products such as tomatoes are becoming
68
increasingly differentiated e.g. on the vine, plum, cherry, beef etc. On the other hand certain food
products are becoming even more commoditised and are already traded internationally via the
internet e.g. cheddar cheese. In this latter case, competition from imports is intense.
Overall the volume of imports of agri-food products into the UK has been increasing for many
years although there is evidence of increased interest in more local sourcing of some products.
Exchange rate movements: The key factor in exchange rate markets in recent years has been the
ending of a long term period of US dollar strength and the weakening of the US dollar particularly
against the euro and the yen over the past three years, as shown in Figure 1.6.
Figure 1.6
Sterling exchange rate movements since formation of the euro
1.73
2
euro
1.9
dollar
1.63
1.8
1.58
1.7
1.53
1.6
1.48
1.5
1.43
1.4
1.38
1999
dollar/sterling
euro/sterling
1.68
1.3
2000
2001
2002
2003
2004
2005
Source: Adapted from data from Bank of England website
The US current account deficit reached 5.7 per cent of GDP in 2004 as American consumption
and investment volumes exceeded domestic production by a wide margin. The expansion in the
trade deficit since the mid-1990s has been the main factor behind the rise of the US current
account deficit – itself the major factor behind the real effective depreciation of the currency since
2002.
Baring a substantial increase in domestic savings by, for example, a tightening of fiscal policy,
many commentators believe that downward pressure on the US dollar is likely to resume as US
foreign borrowing requirements remain high, and already large amounts of external debt continue
to accumulate.
Exchange rates are, however, notoriously volatile and difficult to forecast and other factors could
influence this outcome such as political and economic developments within the EU.
Sterling has largely been caught between the two major currencies of the US dollar and euro and
has over the last three years strengthened against the former and weakened against the later.
Broad assessment of potential impact on the farming industry - encompassing
risks and opportunities
Opportunities:
 The value of sterling is likely to remain a large and quite possibly the most dominant factor
influencing the level of farm incomes for the foreseeable future. If the trend seen in recent
69
years (sterling stronger against the dollar and weaker against the euro) continues then this
should prove positive for UK farm incomes;
 Some UK agricultural sectors may become more insulated from international competition if
they become less commoditised, as agricultural and food products become more
differentiated and branding becomes more important. Where local sourcing becomes an
important issue, the impact of the exchange rate may become less important. However, this
is only relevant for certain sectors. For instance, branding will not become increasingly
important for the pig sector;
 If the weak dollar remains, there may be increased opportunities for importing soya feed.
Risks:

In many key sectors as EU trade protection is weakened and international trade grows
international competition and therefore exchange rates will become more important. This is
particularly true of commodity products such as cereals, beef, powdered milk and butter;
 The US dollar exchange rate may, however, become relatively more important (compared to
the euro) as CAP market measures insulating EU agricultural product markets from world
markets are weakened and are eventually dismantled altogether. Nevertheless, this depends
on future EU enlargement and % of UK trade conducted within the Euro zone in relation to
trade in dollar markets.
Figure 1.7
TIFF in real terms at 2004 prices per full-time person equivalent
30
25
£thousand
20
15
10
Actuals to 2004
Baseline projection
5
£ weakens by 5% against euro and dollar
£ strengthens by 10% against euro and dollar
Assuming high productivity gains
0
1973
1978
1983
1988
1993
1998
2003
2008
Source: Defra
 As the level of direct subsidies is reduced moving forward, the direct link with the Euro
(because most payments are set in Euro) will also be weakened;
 An increase risk is created by the fact that the exchange rate at which the SFP is set is to be
on one single day (30th Sept), rather than the average for a year;
 Decisions of joining the Euro will impact on farmers as a result of the rate at which the UK
enters, if at all.
Earliest timing of potential impact
Despite theoretical estimates by economists (e.g. using purchasing power parities), there is no
real way of knowing how close sterling is to a sustainable equilibrium rate. The risk of an
unexpected and sharp movement in the sterling exchange rate against either the US dollar and/or
the euro therefore remains as long as sterling is allowed to continue to float freely on currency
markets. There seems little likelihood of the UK joining the euro or any other currency system in
the foreseeable future. Short term changes in exchange rates are difficult to forecast and
70
movements away from an equilibrium level can occur over long periods of time (measured in
years not months).
The impact of the large US current account deficit is likely to remain a significant factor in
exchange rate markets for several years to come and may well therefore put downward pressure
on the US dollar for some time.
The changes to CAP protection and support measures as well as to the nature of food production
and supply, both of which may change the relationship between farm incomes and the exchange
rate, are likely to take several years to have a significant effect.
71
1.5 Population
Description and key underlying trend data
Since 2001, the population in England and Wales has grown at a rate of 0.4% per annum. This
trend is part of a long-standing pattern of natural increase (number of births exceeds the number
of deaths) in the UK throughout the 20th century, every year with the exception of 1976, though it
has been growing at a decreasing rate (ONS, 2004). Projections suggest that the population will
continue to grow into the next century, from just under 60 million in 2005 to over 62 million by
2021, before experiencing natural decline from 2030 onwards (Hicks and Allen, 1999).
In 2003, the total fertility rate (TFR) in the UK was 1.71 children per woman (Figure 1.8). TFR has
declined since the 1960s when it peaked at 2.05, during a ‘baby boom’ period. This trend can be
partly attributed to an increase in the average age of women having their first child, which rose
from 23.6 in 1971 to 26.9 in 2003 (ONS, 2004).
Life expectancy (LE) for both men and women has continued to rise throughout the 20 th century.
In 2002, LE for females was 81 years and 76 years for males. This contrasts with 49 and 45
years respectively at the turn of the last century. At present there are more older people aged
over 70 than ever before. Furthermore, projections suggest that the LE of older people (65+) will
increase by roughly 3 years by 2020 (ONS, 2004).
Figure 1.8
Total Fertility Rates in UK, 1960 to 2003
Total Fertility Rate, UK
Source: ONS, 2004.
Immigration (both legal and illegal) to the UK has emerged as a major force of changing
population size and structure. Total immigration almost doubled in the decade up to 2003, when
it contributed to approximately two-thirds of annual population growth (see Figure 1.9).
Applications for asylum rose during the 1990s, but have begun falling. In 2003 applications fell by
41% from over 80,000 in 2002 to under 50,000 applicants, of which an estimated 28% of
applicants were granted asylum (Heath et al., 2004). Annual out-migration has also increased,
but to a lesser degree. Projected migration patterns for the UK show a gradual decrease in
annual immigration to 2020 (Piracha & Vickerman, 2002).
72
Figure 1.9 Rates of natural increase and net migration between 1991 and 2003
Source: ONS, 2004
Hence, population growth is occurring in the UK because of natural increase and immigration.
However, this pattern varies geographically. By 2028 population is projected to increase in all
regions in England apart from the North-East, where it is projected to fall by 2%. The East and
South-West regions are projected to increase the most (by 16.8% and 16.5% respectively)
compared with the North-west, Yorkshire and Humber, and the West Midlands, which are
projected to increase to a lesser extent (4.4%, 7.4% and 6.6% respectively) (ONS, 2004).
Furthermore population growth varies between urban and rural areas. In rural areas, specific
processes are causing more rapid population growth than in urban areas. Between 1981 and
2002 the population in rural areas grew by 13.7%, compared with growth of just 2.9% in urban
centres (Countryside Agency, 2004).
Population age structure is also shifting as the proportion of older people in the population
increases. In 1971, the number of people aged over 65 in the population was 13%. This rose to
16% by 2003 and projections suggest that by 2020, 39% of the population will be aged over 60
(ONS, 2004). As the large ‘post-war’ generation pass the age of 65, a long period of population
decline will begin (Eurostat, 2001).
Interestingly, age structure of the population also varies between rural and urban areas. More
people over the age of 45 and fewer younger people live in rural areas. In 1998, 18% of the rural
population was over 65 years of age, compared to 15% in urban areas. In sparsely populated
rural areas, this value increases to 22% (Defra, 2004, a). In contrast, the age group 16 to 24
years is the only one in which more people migrated to urban districts than rural in 2002
(Countryside Agency, 2004).
Much of the population growth in rural areas can be attributed to a trend in in-migration, whereas
most urban regions are experiencing out-migration. Between 2000 and 2004, 352,000 more
people moved into rural areas than left them. Figure 1.10 illustrates that the majority of rural
regions had net migration between 1998 and 2002 and overall rates have increased during this
time. The largest in-migration was in the South-West, followed by the East of England and the
East-Midlands. Overall the rate of migration from urban to rural areas is currently four times the
rate of north-south migration, and therefore is arguably the most important contemporary process
of migration (Countryside Agency, 2004).
73
Figure 1.10
Net migration into rural areas (within the UK migration)
Source: State of the Countryside 2004
Implications for agriculture: Contemporary changes in population size and structure are directly
linked to several economic and social factors which have had important implications for
agriculture. Firstly, labour markets are directly affected by demographic characteristics. Growth of
an aging population affects the number of working population in relation to retirees (FAO, 2004).
As a result of this shifting age balance, estimates suggest that the labour force in the EU will
contract by 5.5% by 2020 (Piracha and Vickerman, 2002). More remote rural areas in the UK are
at particular risk of loosing young people and attracting older, economically inactive in-migrants,
while more accessible rural areas are being drawn in to larger patterns of population circulation
(Green and Owen, 2004).
Figure 1.11 demonstrates that between 1990 and 2003 the age structure of those occupying
agricultural holdings has changed significantly. The number of persons occupying agricultural
holdings below the age of 44 has decreased and particularly those under the age of 35. In
contrast, the number of people over the age of 55 has increased to become the largest proportion
of people working in the sector.
Nevertheless, whilst an aging population structure undoubtedly affects the age structure of the
agricultural workforce, other factors such as farm income, CAP reform, educational opportunities
for rural communities and better communication networks also have an impact on the number of
people exiting the industry, and the number of younger people entering the agricultural workforce.
These factors could be just as important as underlying population trends, going forward.
Figure 1.11
The number of people (thousands) occupying agricultural holdings
between 1990 and 2003, according to age group
90
Thousand Persons
80
1990
1995
2000
2003
70
60
50
40
30
20
10
0
Under 35 years 35 - 44 years
45 - 54 years
74
55 - 64 years
65 years and
over
Source: Defra (2000, 2003)
While the migration of older people to rural areas reduces the size and skills base of the rural
population, immigration from other EU countries has had a positive effect. Following EU
enlargement in 2004, there was much concern over the socio-economic effects of free movement
of workers to the UK from the accession states. Nevertheless, early evidence suggests that
macroeconomic conditions in the UK remained robust following accession. There are currently
almost 200,000 labour migrants from accession states in the UK, making up just over 0.4% of the
UK working age population. 83% of applicants in 2004 were aged 34 years or younger, the
majority of whom entered employment in the agricultural sector (Figure 1.12). As a result of the
increased availability of low cost labour, farm businesses have been able to increase employment
without a compensating fall in employment of those born in the UK (see Figure 1.13). The further
enlargement of the EU with Bulgaria, Romania, Turkey and Croatia will undoubtedly affect labour
markets and the agricultural workforce.
Figure 1.12: Worker registrations as a proportion of all employees by sector in UK
Source: Portes and French, 2005
Figure 1.13:
Employee jobs by industry (seasonally adjusted)
Source: Portes and French, 2005
75
World population is expected to reach 6.8 billion by 2010 and 8 billion by 2030, though the
majority of this growth will be experienced in developing countries. Consequently, food
consumption rates (measured as Kcal/person/day) will continue to rise during this time.
Nevertheless, based on the ability of present day technology (excluding GM), world crop and
livestock production is predicted to be sufficient to meet world food consumption demands.
Furthermore, if consumption rates were to increase dramatically due to a sharp increase in global
population size, production could be significantly increased to meet that demand by the use of
set-aside land in the EU and the US and the application of new production technologies such as
genetic modification (see ‘New Production Technologies’ driver) (FAO, 2000).
Finally, given higher rates of immigration, longer live expectancies and increase in single person
households in the future, at least 4.2 million new homes will be needed over the next 20 years, up
to 2 million of which will be built in rural areas. This may have implications for the availability of
land for food production. However, if future rural housing developments were to be located on
fallow land across England, there would be no need to develop on land used for food production
and therefore would not cause a change in production levels (Table 1.5). Nevertheless, the
location of rural housing development in the future may vary depending on the number of people
moving to particular regions and government development priorities. This scenario would reduce
the availability of land for production in certain areas (particularly in the South-East and SouthWest).
Table 1.5 Area of set-aside according to region (Ha) in relation to land requirement for
rural housing (* Assuming 2 million new houses, at 30m2, evenly distributed thought rural
regions).
Source: Census data 2004.
North East
North West
Yorkshire and Humber
East Midlands
West Midlands
Eastern
London
South East
South West
England total
ha of setaside
20625
10819
50985
85077
41019
115645
1183
86195
65110
476658
ha/new house*
0.0103125
0.0054095
0.0254925
0.0425385
0.0205095
0.0578225
0.0005915
0.0430975
0.032555
0.238329
sq m per new
house
103.125
54.095
254.925
425.385
205.095
578.225
5.915
430.975
325.55
2383.29
Key events / developments on the horizon:




Across the EU as a whole, if current demographic and labour force patterns persist, the
labour force will continue to grow until 2010, where thereafter it will decline (Eurostat, 2001);
The problems facing the development of skills of the workforce in rural areas are very
specific. There are many constraints due to isolation and high levels of out-migration of
younger people. Therefore, rural businesses are particularly at risk from a shortage of skilled
labour (Defra, 2000, a);
Without skilled labour, farmers may find it difficult to introduce new technology or
organisational changes to their businesses. Thus, while the availability of education and
training is important in this respect, so are other factors including attracting skilled, educated
people from outside the area (Defra, 2004, a);
Though current policy dictates that 60% of housing is to be built on brown-field sites, this may
not be achieved given the significant rates of counter-urbanisation. The State of the
Countryside 2020 Report predicts that by 2020, perhaps as many as two million new homes
will have been built in rural areas (Countryside Agency, 2005).
76
Broad assessment of potential impact on the farming industry - encompassing
risks and opportunities
The potential impacts of population change on the farming industry, in many cases, offer both
opportunities and risks. For example, the increasing number of people in the countryside will
provide farmers with an opportunity to sell land for housing developments increase the availability
of the rural workforce and provide leisure services such as livery stables. On the other hand, an
increase in people in the countryside will reduce the availability of land for production, increase
water utilisation and put pressure on public services, especially if those migrating to rural areas
are elderly.
Opportunities:
 Greater demand for housing in rural areas may increase land prices close to areas of
development (Countryside Agency, 2005) (med-high importance);
 Changing population structure (age, ethnic origin and wealth) will lead to new demands
regarding food, drink, plant products and services. (ONS online data);
 Aging rural population will provide various opportunities including more contributions to
household economic livelihood through labour, childcare and so on;
 Increasing agricultural workforce from labour immigration from new EU accession states
(both semi-permanent and seasonal) now and with further expansion of the EU will especially
important for meat processing and production, horticulture and general cropping sectors;
 Changing characteristics of rural population will provide new opportunities for diversified
activities and market-driven production opportunities for local produce (ranked highly
important in consultation exercise).
Risks:




Shrinking quantity and quality of labour force due to aging population in rural areas and
exacerbated by the out-migration of younger people to urban centres;
Reduced adaptability of farming workforce to change such as technological advancement;
Greater demand for rural housing may lead to loss of land to food production, increased
water utilisation;
Immigration policy and labour migration from outside Europe will affect labour availability for
horticulture in particular.
Timing of potential impact:



The slow shift in population change allows a greater response time. However, a growing and
aging rural population is already impacting on the economic and social fabric of rural areas;
Due to projected trends, the impact of these trends is likely to continue well into the 21 st
century;
The demand for rural housing is likely to increase significantly by 2010 (ONS 2004).
Significant information gaps:





The percentage of elderly (over 65 years) participating in agricultural workforce;
The ability to forecast migration with confidence is currently restricted by limitations in our
knowledge of migration flows and their determinants(Martindale, 1998);
The extent that the building of 60% new homes on brown-field sites will be sustained if the
demand for housing on green-field sites increases;
Will the increase in population in rural areas lead to problems typical in urban areas?
Balance of young people moving out of urban areas in relation to number of workforce
migrating in from new accession states.
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1.6 Climate Change
Description and key underlying trend data
The earth’s climate is inherently unstable and climate change is not a new phenomenon
(Dansgaard et al., 1993). Nevertheless, there have been significant changes to climate over the
last few hundred years, due both to natural climatic variability and an increase in human
emissions of green-house gases (GHGs). Change in temperature is the most useful way of
measuring this trend. Records show that surface temperatures have increased by 0.6º C over the
course of the 20th century, the last decade being the warmest since records began. In fact, “it is
likely that the scale and duration of warming of the twentieth century is larger than any other time
in the last 1000 years”. In addition to these changes in temperature during the 20 th century,
rainfall increased by 0.5-1% per decade in the mid and high-latitudes, but decreased in the lowlatitudes. Cloud cover also increased by 2% globally and sea level rose by up to 0.2 metres
(IPCC, 2001, a).
These trends are predicted to continue well into the 21st century, based on past patterns of
climate variability and estimated human emissions of GHGs. Despite the fact that GHG emissions
are falling, the Intergovernmental Panel on Climate Change (IPCC) projects that atmospheric
temperature is likely to increase between 1.4 to 5.8º C over the next 100 years and during that
time, change in climate may not be linear or incremental (see Figure 1.14). By 2050, the UK is
projected to be significantly warmer, with an increase in extreme weather events.
Figure 1.14
Departure of annual global-mean temperature from the 1961-1990 average
and projected global warming. The solid line is based on UK Hadley Centre
climate model. The high curve and the low curve represent the range of
uncertainty due to different scenarios of GHG emissions and climatic
sensitivity.
Source: Defra (2002), taken from Met Office Hadley Centre data, University of East Anglia.
Heavy rainfall resulting in flooding and dry summers resulting in drought will become more
common. Winter temperatures are likely to increase by 1 to 2º C and summer ones by 1.5 to 3.5º
C. Future changes in rainfall are more difficult to calculate, but levels are expected to be
relatively modest (increases or decreases of approximately 10%) (IPCC, 2001,a). Nevertheless,
the distribution and intensity of rainfall is expected to change. The effects of the drought during
78
the summer of 1995 were estimated to have cost the industry around £457 million through
reduced income and increased costs, although there was strong evidence to suggest that farmers
who implemented adaptations and management changes secured advantages over others. (e.g.
shifting crop types, investing in equipment to reduce severity of impacts).
Intense weather events during winter months and an increased probability of drought are likely to
occur (Defra, 2000, b). CO2 concentrations and other GHGs will continue to rise this century,
despite global emission reduction targets. Further, global sea level rise will increase between 1050 metres by 2050s, which could be exacerbated in the south-east of England, due to the sinking
of land (IPCC, 2001, a). Defra’s flood protection policy already protects 60% of Grade 1 land,
which is currently under sea level (Defra, 2005, c).
Therefore, since trends in climate change are central to primary production, it is important to have
knowledge on the magnitude and rates of change. Nevertheless, it is important to recognise the
high level of uncertainty surrounding future climatic predictions over the 21 st century. This is
because the sensitivity of climate to changes in GHG emissions is not fully understood and
because of the difficulty associated with establishing natural patterns in variability (carbon
emissions from the oceans, permafrost, forests and volcanic activity) in relation to human
influences. Moreover, our understanding of climate is incomplete and models need to be
improved to better predict time frames and magnitude of change.
Furthermore, much uncertainty surrounds environmental thresholds and non-linear processes
which could cause large-scale disruption to the climate system. For example, the IPCC report
finds that a warming of more than 2.7C would cause the Greenland ice sheet to contract. If the
majority of the sheet was melt, global average sea level would rise by around 7 metres (Tirpak et
al., 2005). Likewise, global warming over the next 50 years may result in a weakening of the gulf
stream, but not a complete halt to it. This would reduce temperatures in the UK by 5C, thus
offsetting the effects of global warming but possibly triggering other, currently unknown
consequences (Defra, 2005, c).
Finally, adaptive capacity is highly important for lessening the future effects of climate change
and coping with the impacts in the medium-term. The capacity to adapt is closely linked to future
demographic changes, economic development and technological change will determine the level
of vulnerability and adaptability to climate change (Stott et al., 2002).
Key events / developments on the horizon
In the UK there are likely to be several important climatic shifts that will vary both spatially and
temporally. According to the UK Climate Impacts Programme (UKCIP), projected climate
changes relevant to agriculture, under various climate modelling scenarios (UKCIP02), are as
follows:
Temperature:


UK climate will become warmer and higher summer temperatures will become more frequent,
while cold winters will become increasingly rare;
Greater summer warming in south-east than North West. Greater warming in summer and
autumn than in winter and spring.
Rainfall and snowfall:





Wetter winters by up to 30% by 2080s for some regions and some scenarios and dryer
summers by up to 50% for 2080s, but overall little change;
Decreasing soil moisture in the summer and autumn, particularly in the south-west region;
Heavy winter rainfall will become more frequent;
Decrease in snowfall across the country;
Summer cloud clover down (0-12%).
Sea level changes:

Sea level will continue to rise around more of the UK’s shoreline;
79

Extreme sea levels will be experienced more frequently.
Atmospheric CO2 levels:

The IEA World Energy Outlook predicts that CO2 emissions will increase by 63% over 2002
levels by 2030. In the absence of mitigation over the next 20 years, global temperatures will
rise between 0.5 and 2C by 2050 (Tirpak et al., 2005).
In the UK as elsewhere, changing regional patterns in climate will have implications for the
distribution and productivity of plants and animals. Shifts in climatic envelopes (the range of
temperature and precipitation which determine the distribution of many species) are likely to
migrate northwards towards the poles and higher altitudes. For example, modelled simulations
suggest that climate change would extend the area of arable crops potential in north and west of
England and Wales at higher altitudes (Accelerates, 2004).
Overall, the level of plant productivity is likely to increase due to increasing temperatures. Menzel
et al., (1999) provide a useful study, using observed data for 30 years across Europe, to illustrate
the average growing season has increased by 10.8 days since the early 1960s, although early
leaf sprouting associated with a longer growing season is at risk from late frosts.
Hume et al., (1999) model the response of wheat to climate change in Europe and find that wheat
productivity is highly sensitive to multi-decadal natural climate variability. Local changes of waterlimited yields of up to 3 t ha, according to various future climatic scenarios.
Likewise the Accelerates study (2004) models the distribution of wheat production against various
climate scenarios (see Figure 1.15). The study also demonstrates that intensive land-use is likely
to increase at higher latitudes and altitudes, due to the beneficial effects of warming. Whilst some
regions such as South-West of UK show strong decreases in intensification due to higher
temperatures and increased aridity.
Figure 1.15
Differences in the proportion of arable cropping in 2050, usually associated
with rainfall changes, under the two climate scenarios and assuming no
change in socio-economic conditions ((a) Global Circulation Models
HadCM3 A2 and (b) PCM A2).
Source: Accelerates, 2004
As with wheat production, models of grass growth suggest a potential enhancement if yields over
large parts of the west. By 2020, grass production could be 18% higher due to increase in
temperature and higher CO2 concentrations leading to a further 10-25% grass production (Defra,
2000, b).
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Various attempts have been made to model climate change impacts on the spatial changes in
distribution of farm types. Hanley et al. (2005), attempt to model the distribution of agricultural
types across Scotland to 2080. The study shows that future climate change is predicted to
increase incomes for Scottish farmers, mainly due to increased yields. This would be being
greatest in the North-East and South-West. However, not all possible changes will be positive.
Yields in the South-East were predicted to decrease due to water stress in drier summers. By
2020 regional differences in farm income in Scotland were found to vary from £1416/ha in SW
and £102/ha in NW under the “low” emissions scenario. Changes in intensity of grassland and
arable cultivation from winter to spring sown crops were also noted.
Broad assessment of potential impact on the farming industry - encompassing
risks and opportunities
Agriculture is affected by changes in temperature, rainfall and extreme weather. Impacts on the
farming industry are wide ranging and encompass both opportunities and problems. At worst,
climatic changes may result in a transformation of the UK agricultural infrastructure, but more
likely will cause a series of structural and operational changes such as increased yields or
opportunities to grow for new markets.
Not only will climatic impacts vary in scope, either globally, regionally or locally, but impacts will
vary according to agricultural sector. Therefore, potential impacts are categorised according to
sector (Defra, 2003, Defra, 2000(b), ADAS, 2005(b), IPCC, 2001(b), Bazzaz and Fajer, 1992,
Boardman, 1993, Defra, 2005):
General impacts:








High level of uncertainty over changes to climate means that anticipating timing and extent of
change will be difficult for producers across all sectors to plan for;
Longer growing seasons, earlier springs and later autumns will lead to higher productivity.
However, variation between plants and environments will depend on biological characteristics
and therefore productivity levels - over the next 10-15 years there will be little or positive
change in productivity across all sectors;
Costs will be incurred by farmers in meeting the requirements of regulations and adaptation
of climate change (shifting production, use of drought resistant crops) designed to mitigate
climate change effects;
Water availability and risk management may become increasingly important, and there may
be an potential increasing need for on-farm water storage and more efficient irrigation
systems, though a lot has already been done to mitigate the effects of water shortages;
Increased winter rainfall would cause damage to property, increase the risk of river flooding
and soil water logging, soil loss and fungal diseases and may reduce access for machinery
reduced;
Competition for water resources between agriculture, biodiversity, industry, housing could
increase;
Farmers may need to consider re-sitting farm buildings if the incidence and intensity of winter
flooding increases (rated highly important);
Faster generation time and fitness of weeds may lead to changing distribution of types
geographically.
Regional differences in England:




New relationships between light and temperature leading to changes in the distribution of
production margins (altitudinal and latitudinal). E.g. changing altitude of blackberry
production;
Increased scope for arable farming to areas currently used for grazing;
West: Higher winter temperatures ease cold-weather problems for livestock. Some land could
become unusable because of flooding as rainfall patterns change. Extension of cropping;
North-east: Increased irrigation/drainage may be required to deal with water shortages and
water-logged land. Extension of cropping;
81



Potential loss of agricultural land and need for flood/salt tolerant varieties in low lying and
coastal regions;
South-east: increased winter flooding and sea level rise increase risk of crop spoilage and
salt intrusion. Decrease production intensity. Less water availability and increased demand
for irrigation, in particular for horticultural produce such as salad and potatoes;
South-west: Potential for new crops (grapes, navy beans, sweet corn, soya and sunflowers).
Livestock and grassland:



Medium risk of warmer summers leading to increased incidence of pests and diseases;
Shifts in the pattern of consumer demand for livestock products - demand for red meat for
roasting has been shown to decrease in hot summers, whereas meat products used for
BBQs have increased;
Medium importance of warmer temperatures that will enable outdoor grazing periods to be
extended and will increased levels of biomass and therefore productivity will increase;
Increased heat stress will effect milk yields, herd fertility and general welfare, particularly
affecting intensive farming of pigs and poultry (although new markets may emerge for breeds
more suited to higher temperatures);
Forage utilisation in spring or autumn will be difficult because of increased rainfall;
Planting of shelter belts for hot summers and winter storms;
Low risk of potential for epidemic-based economic crisis in domestic agriculture and
increased pressure for new practices in meat production including size limitations on herds;
Animal nutrition may change according to species distributions of plants;

Pig systems are more adaptable than grassland systems to temperature changes;

Low risk of potential for epidemic-based economic crisis in domestic agriculture and
increased pressure for new practices in meat production including size limitations on herds.





Arable and general cropping:











Generally crop yields are likely to increase due to increased temperature and availability of
CO2. However, any benefit from increased CO 2 levels must be matched by increased water
availability in order for plant to increase uptake of CO2;
Benefits from temperature increase will depend on the level of relative warming at different
growth stages and the upper thermal limit;
Modification of soil processes including changes to soil moisture, accumulation of nutrients
and toxins, structure and level of degradation may occur. For example, on-farm erosion is
likely to increase due to increases in winter precipitation, summer storm frequency, irrigation
and the introduction of erosion susceptible crops such as maize;
Even small changes in rainfall will have huge consequences for plant production. For
example, increased winter rainfall may case water-logging of land or stimulate plant diseases
and where soil water shortages increase, crop productivity will decrease;
Irrigation needs are predicted to increase by 50% by 2021;
Rise in sea level, particularly in the south-east of England will have local but important
impacts that may not be overcome easily by new crop varieties;
The range of many native plant pests and diseases are likely to increase, but the range of
others may also decrease;
Low risk to crop varieties requiring sub-zero period to break seed dormancy;
Opportunities for crops not currently grown widely in UK, especially sunflowers, soya and
maize;
Increased storminess increases crop damage risks;
New commercial opportunities to grow energy crops such as bio-fuel (see section 8: Energy
Markets).
Horticulture:
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 Risk to species requiring sub-zero period to break seed dormancy, particularly important for
soft fruits and flowers;
 High importance of increased frequency of extreme temperatures and extreme weather
events will be important for field vegetables may be particularly affected by changes in
temperatures;
 Water availability is crucial to the production of quality fruit and vegetables Increased need for
irrigation for crops such as potatoes;
 Several species would benefit from warmer, dryer conditions, such as phaseolus bean, onion
and sweet corn;
 Glasshouse temperature controls needs to cope with higher outside temperatures, increasing
energy costs;
 Opportunities for new crop varieties not currently grown in the UK, such as grapes.
Earliest timing of potential impact
Timing of impact:



Climatic trends are already affected most sectors in terms of minor shifts in growing seasons,
altered rainfall patterns and shifting distribution of crop belts, though it is difficult to establish
whether this is due to natural variability in climate or part of longer-term changes;
Since the Kyoto Climate Change convention in 1997, much has been done to reduce greenhouse gas emissions. However, these polices will have no effect on climate change over the
next few decades that has already been determined by past and present emissions.
Therefore, over the next 10 to 15 years these impacts will become more pronounced as
climate continues to change;
In the long term, the climate change signal will become stronger and enable more certain
predictions of changes later in the 21st century.
Gaps in knowledge:




Significant uncertainties remain in our understanding of climate change, its impacts and the
most effective responses. There is need for reliable regional predictions of climate change
and the ability to quantify uncertainty of climate predication and the risk of sudden change;
The level of adaptive capacity of farmers to climate change in a free market driven industry.
Farmers in regions were profitability decreases as a result of decreasing yields could be very
vulnerable (Accelerates, 2004);
The level of socio-economic change, including technological developments, which may
mitigate the effects of climate change in the future (Stott et al., 2002).
The economic quantification of the value of biodiversity, water and agricultural land for
adaptation to climate change.
83
1.7 New Production Technology
Description and key underlying trend data
Over the course of the 20th century technological innovations have contributed to a significant
increase in productivity levels and yields of primary production in the UK. Figure 1.16 illustrates
that between 1973 and 2003, productivity grew by 47% and total yields by 22%, whilst production
related inputs fell by 18% (Defra, 2004, b).
Figure 1.6
Total factor productivity in the UK, 1973 to 2004
1973 = 100
180
160
140
120
100
80
60
1973
1978
1983
1988
1993
1998
2003
Final output (gross output less transactions within the industry)
All inputs (including fixed capital, paid and entrepreneurial labour)
Total factor productivity
Source: Defra statistics, 2004 (b).
The types of technology used in agriculture during this time have been wide-ranging and have
had impacts across all sectors. Apart from having direct impacts on the quality and productivity of
food production, they have also had indirect implications upon both agricultural energy needs and
labour requirements. For instance, research has found a strong correlation between per-capita
productivity and per-capita energy use, while mechanisation of production has dramatically
reduced the need for labour inputs on farm (Opara, 2004).
One of the most direct technological influences has been the increased mechanisation of farm
equipment and machinery (Hertz, 1993). The internal combustion engine of the industrial
revolution era led to the development of the farm tractor which has become a lasting symbol of
agricultural mechanisation. Today, the use of high-tech farm equipment has the capacity to carry
out once manual tasks, such as seedbed preparation, planting or harvesting, helping transform
productivity levels and cultivate areas of previously unproductive land (Opara, 2004). Subsequent
advances in the chemical industry led to the application of agri-chemicals for disease and pest
control, while more recently, the biotechnology, ICT and nanotechnology industries have begun to
impact upon the structure of farm production.
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The rapid growth of biotechnology use in agriculture began in the 1950s, with the development of
plant and animal genetic manipulation and bio-censoring for agricultural use. Biotechnology is
currently the world’s second largest industry and will continue growing beyond 2020, when it is
forecast to become the global leader until the end of the century (Parker, 2005). In the future, as
this technology becomes more widely available, it will provide farmers will a plethora of
mechanisms by which to reduce production costs and improve food quality and efficiency.
For instance, the development of crop varieties able to tolerate more extreme environmental
conditions such as drought, acidity, heat or flooding, will help to meet the challenges of future
climate change and provide opportunities for farmers to supply new markets with novel crops
(ITAC, 2005). Likewise, DNA-based testing for the screening of livestock and foodstuffs for
spoilage or pathogens at various stages along the food chain, will improve the quality and safety
of food (Parker, 2005). Genetic modification (GM) of crops is another form of biotechnology which
will offer huge opportunities for agriculture in the UK depending on policy developments and
public opinion. For example, crop varieties with the ability to extract nitrogen from the air could
improve the nutritional value of crops and volume of total yields, whilst decreasing adverse
environmental inputs.
Further, biotechnology has enabled the development of non-food products such as bio-fuels
which is particularly important in the context of current policies governing energy usage (20%
renewable energy usage in the UK by 2020; see Energy Markets section). In the future the
agricultural industry will be less reliant on fossil fuels for production and non-food biotech crops
will provide new production opportunities (BCPC, 2003). Other renewable sources such as wind
and solar power are also increasingly being harnessed on-farm, although their cost and
applicability for certain farm types are currently limiting factors. However, the use of renewable
energy for farm machinery may require further investment by producers.
More recently, the application of nanotechnology (miniaturisation of electro-mechanisation) to
agriculture has facilitated the development of technologies such as microscopic ‘smart cards’
inserted into plants and animals to improve productivity. These kinds of advancements will
facilitate the development of precision farming and improve aspects of production such as
product traceability and are likely to become increasingly widespread in agriculture in the 21st
century.
Finally, innovations in computing and global communication networks (ICT) have acted as
catalysts for technological development in agriculture, by allowing for the rapid exchange and
management of information. More recently, developments in ICT have allowed for automatic data
acquisition, farm productivity mapping, remote sensing of crops, the transfer of genetic
information, computerised climatic forecasting, and the development futures markets, to name but
a few. In the future this trend is likely to continue as ICT techniques develop as part of the
process of globalisation (USDA, 2002).
Nevertheless, relatively few farmers in UK currently use computers for farm business
management or production. A Defra survey of computer use in England found that 35% of
agricultural holdings had access to a computer in 2001, although only 21% of those used it for
business purposes. There are various factors that affect the diffusion of computer-based
technology into farming. Literature suggests that farmer age and education, farm income and
farm size and type all affect adoption rates. For example, beef and sheep farmers are less likely
to use computers than arable farmers who tend to be more reliant on computers for enterprise
management (Tiffin & Tiffin, 2005).
Risks and disadvantages:
It is clear that the application of technology to agriculture over the 20 th century has provided many
advantages across the industry. Nevertheless, there have also been many negative economic,
societal and environmental consequences, many of which have been unforeseen (Hertz, 1993).
For example, mechanisation of farming has contributed to soil erosion, environmental pollution
and has caused disruption to ecological systems (ADAS, 2005, a). Likewise the use of DDT for
pest control resulted in the bio-accumulation of harmful chemicals in the food chain. More
85
recently, the origin and spread of BSE was almost certainly as a result of cost-cutting techniques
in cattle feed production (UNDP, 2001).
Future technological applications will continue to raise concerns about possible adverse impacts.
The commercial use of GM crops is still a controversial issue and its use in agriculture will
depend on public opinion and policy developments (Rifkin, 1998). The use of GM plants
commercially, could harm other species or lead to the creation of new ‘super weeds’, though of
course these risks can be mitigated depending on how the technology is put to use. For instance,
constructing agricultural buffer zones around GM crops would cut the likelihood of uncontrolled
gene flow (UNDP, 2001). Nevertheless, the genetic cloning of ‘Dolly’ the sheep has shown that
GM of genetic material does have drawbacks such as premature aging and other physical defects
(BCPC, 2003).
Patenting activities in the agriculture sciences have grown rapidly over the past 20 years,
prompted by the trend of commoditisation and privatisation of knowledge in the sector. This has
led to changes in legislation regarding intellectual property rights as investors seek to ensure
financial returns on research and development. However, this trend is likely to increase costs for
farmers as biotech companies claim ownership of GM varieties of animals and plants, though the
full cost is not known (Rifkin, 1998). Up-and-coming WTO negotiations will influence and set
precedents for future trade of plants and animal material.
Finally, the cost of adopting new technologies may cause financial burden to farm businesses.
Despite technological innovations in agriculture, farm revenue has continued to fall. Therefore the
key issue in evaluating the cost of engaging in a new technology must be to assess the level of
cost reduction in relation to the profitability of the agricultural sector. This will be increasingly
important to avoid farmers becoming stuck on a treadmill of production costs induced by new
technology adoption.
Key events / developments on the horizon
Key technological developments in agriculture are likely to be as follows (Morris, 2005, Parker,
2005, ADAS, 2005 (a), ITAC, 2005, Defra, 2004 (c)):
Management of farm production:
Key technologies that will be used in farm production management within the next 10 to 15 years
include: smart sensors, precision farming, remote sensing, 3-D mapping. These technologies will
have the following impact:







Precision farming (e.g. yield mapping, spatial variation in nutrients, digital photography,
robotic sprinkler systems, precision soil drilling, electromagnetic censoring of topography,
monitoring of wheat canopy);
Automatic gathering of farm data via sensors and remote recording devices using land-based
or satellite technology will have the potential to provide farmers with real time monitoring of
crops and pasture (e.g. water stress, pest detection);
Monitoring of production over a range of spatial scales will enable producers to understand
the development of weeds, pests and diseases at local scales as well as regional
environmental changes;
Non-tangible assets such as soil nutrient content will become increasing significant to farm
sustainability and profitability;
Computerised models will be able to predict pollution from agricultural production by
combining information on soil type, climate, stocking density to ensure a more efficient use of
chemicals;
Advances in computing will improve farmers’ ability to manage production related knowledge.
All farm data will eventually he held electronically and production decisions made using ICTbased tools (e.g. on-line livestock register), although uptake will depend on farmer
characteristics and farm type;
Electronically-stored Information may eventually be made available to others in the
production chain and most farm transactions will be conducted on line.
86
Biotechnology:









Along with further developments in GM, the development of nanotechnology and bioprocessing in farming will impact on the following areas:
Future developments will deliver benefits all along the food chain, such as agronomic
advances to food processing and storage improvements;
Agriculture will be strongly influenced by developments in personalised food and preventative
healthcare. Change will occur on-farm through genetic selection and nutrient management;
Genetic screening of plants and animals will become widespread by 2010;
By 2008 there will be an estimated 750 million micro-biological food-related tests per year,
leading to increased food quality and safety;
By 2020, most genetic material related to the agricultural, food and pharmaceutical industries
will be many will be protected by patents;
Current developments in reproductive technologies and methods of gene selection will be
commonplace by 2025. However, public opinion and ethics will continue to influence crop
biotechnology;
The increased availability of GM products will provide plant species will be more
environmentally friendly and nutritious, and resistant to pests and diseases and will lead to
leading to changes in seed and animal stocks;
Many inputs for weed and pest control and animal health will be derived from natural
materials including marine organisms, fungi and insects by 2025.
Alternative energy sources:


Alternative forms of renewable energy will become more readily available and affordable use
on-farm;
Bio-fuels will be developed to be grown and used on-farm.
Farm machinery – mechanisation:


Further influences of mechanisation, bringing increased automation. Robotic equipment will
be able to conduct farm operations and control driverless machinery;
Electronics and sensing will allow machinery to operate in a wider range of conditions by
increasing speeds of operation and working hours.
Broad assessment of potential impact on the farming industry - encompassing
risks and opportunities
By harnessing new technologies, farmers will be better placed to provide nutritionally enhanced,
highly assured, environmentally accountable convenience food products which are becoming
increasingly demanded (USDA, 2002). However the availability and applicability of agricultural
technologies are both location specific and will require adaptive research to optimize any new
technology to the local agro-ecological conditions. Uptake of new technologies over the next 1015 years will depend on farm structure, capital outlay required and age and skills profile of the
farming workforce.
Along with the US, the UK has long been one of the leading centres for technological research
and development in agriculture. Nevertheless, new accession states in the EU may be able to
benefit from these technologies in the longer term, whilst developing countries such as China are
investing heavily in technological development that will increase their competitiveness in the
global market. The application of new technologies to agriculture in the UK in the future decades
will depend on the level of public and private investment in research and development.
The Lantra Land-Based Sector Skills Foresight Report (2001) finds that advances in technology,
increased productivity pressures and increased knowledge-driven working practices will be
drivers of skills change in agriculture. Relevant scientific, environmental and technological
knowledge and more precise production methods will become increasingly important. This will
demand a higher level of job specific skills and an increased use and application of ICT within the
workplace, which is likely to be exacerbated by an aging and decreasing agricultural labour force.
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There will be an incentive for farmers to adopt new technologies to improve business
management and production productivity in order to become more competitive. However, smaller
farms will also find technology adoption less cost-effective. This may increase the distinction
between larger, profitable technology rich farm units and smaller, marginal labour rich production
systems.
Opportunities:













Micro-biological testing techniques will increase customers’ confidence in food safety;
Satellite monitoring of crops will ensure producers are able to account for and justify
production methods and inputs to consumers and regulators and enable them to formulate
tailor-made management strategies specific local environmental conditions and land use;
New high yielding, disease resistant crop varieties will increase production efficiencies
without increased inputs and may provide new market opportunities (ranked highly important
in validation exercise);
For some producers, diversification into ‘wellness’ products from basic agricultural
commodities will provide new markets and add value to their produce;
Increased automation of production processes may resolve labour storages, improve
efficiencies and reduce stress on machine operators (such as in dairy sector);
Bio fuels will provide new market options for farmers, using existing and new crop types (e.g.
wheat, oil-seed rape);
Increasing affordability of solar energy should decrease seasonal patterns in plant growth;
Increasing opportunities to convert land into wind/solar energy farms;
Customise plant and animal genetic selection relative to changing market demands and
production requirements, especially for dairy, poultry, cereals and horticulture (e.g. improved
protein/ nutrient content, disease resistance, longevity);
Potential for non-food application of dairy products (protein fractions) currently being trialled
in Ireland;
GM will increase the ability to satisfy consumer demands for novelty crops (e.g. purple
carrots);
Energy conserving technology in horticulture. E.g. development of Dutch glass houses that
are energy neutral (by 2020).
Advancements in animal genetics will improve efficiencies (e.g. sexing of seaman, animal
longevity and disease resistance). This will be especially important for poultry and dairy
sectors.
Risks:
 Biotech applications such as screening of plants and animals for disease or the use of GM
varieties may increase purchasing costs for farmers;
 Commercial use of GM crops could damage ecosystems by displacing existing species,
allowing the transfer of genes leading to super-weeds or by having unintended effects on
non-target species;
 Traditional production processes may become redundant as plant genes isolation and growth
in laboratory conditions is rolled out onto farmland. Farmers will have to adapt and employ
new skills to harness new technological methods;
 Without the right policy environment in the UK, farmers will risk loosing out to other
competitors on this new wave of technological exploitation; the relationship with Europe is
also critical to the future of crop biotechnology in the UK because government and industry
may not be able to justify the current scale of activities in technological advancement to
support its own agricultural production;
 Farmers may face restriction of use of traditional intellectual property as patenting of genetic
material increases;
 Different forms of energy have significant implications for the types and servicing of farm
plant and machinery that may result in extra cost of conversion/ replacement by farmers;
 Risk of continued purchasing costs for access to new technologies such as remote sensing
technology in order to remain competitive both within the UK and against overseas
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

producers. Costs will depend on the level of uptake and the extend of investment in research
and development of various technologies;
New chilling techniques (‘almost frozen’) extending tradability of ‘chilled’ products, mainly
affecting meat products – an opportunity where we already have high export penetration, risk
where we have high import penetration;
Increasing biotechnological developments will carry associated risks of national bio security.
Earliest timing of potential impact:

The use of mechanisation, communication networks and computing, remote sensing
technology and biotechnology in agriculture will continue to grow throughout this century;

Within the next 10 to 15 years, ICT and biotechnology in particular will become increasingly
important in agriculture. A multitude of new commercial opportunities for biotech products
(food and non-food) will arise up until 2020, although some of the greatest potential will be
realised beyond that time (BCPC, 2003);

The development some of these opportunities relating to genetic modification, depend on
public opinion and legislation change to allow for commercial usage. If this is occurs, current
developments such as reproductive technologies (e.g. cloning) will become common farm
practice during this time;

In UK target is to achieve 10% use of energy from renewable sources by 2010 and up to 20%
by 2020 (Parker, 2005).
Gaps in knowledge:

Extent of uptake of new technologies in the future according to farmer age and educational
status.

Extent that developments in ICT will reduce/increase burden of regulation to farmers as farm
data is shared electronically with government bodies/ enforcers of legislation under CAP.
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Energy Markets
Description and key underlying trend data
There are essentially two key ways in which Energy Markets may affect the future of farming:

By impacting upon future cost structures through fuel costs;

By impacting upon future land use through energy crop planting, or to a lesser extent,
through wind turbine installations.
The former will depend in the main upon the market outlook for oil prices, whilst the latter will
depend more on targets set by government on renewable energy, the margin available to growers
of energy-producing crops and the technological development of novel crops.
Market outlook for oil prices
The Department of Energy in the USA provide comprehensive outlook documents on the future of
oil and energy markets. Taking into account global reserves, expected energy consumption and
trends for alternative fuel demand and price, they provide robust forward estimates of future oil
prices under different price scenarios, as shown in Figure 1.17.
Figure 1.17 Projected World Oil Prices (2003 US$ prices, per barrel)
60
50
40
High B
High A
30
Reference
Low world oil price
20
10
0
1990 1995 2000 2005 2010 2015 2020 2025
Source: US Department for Energy, International Energy Outlook, 2004
The scenarios listed are as follows:




Reference case: Prices in 2010 are projected to be about $10 per barrel lower than current
prices (2003 dollars) as both OPEC and non-OPEC producers add new production capacity
over the next 5 years. After 2010, oil prices are projected to rise by about 1.3 percent per
year, to more than $30 per barrel in 2025;
High A world oil price case: Prices are projected to remain at about $34 per barrel through
2015 and then increase on average by 1.4 percent per year, to more than $39 per barrel in
2025;
High B world oil price case: Projected prices continue to increase through 2005 to $44 per
barrel, fall to $37 in 2010, and rise to $48 per barrel in 2025;
Low world oil price case: Prices are projected to decline from their high in 2004 to $21 per
barrel in 2009 and to remain at that level out to 2025.
.
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However, as we are currently seeing, even during the preparation of this report (June 2005),
world oil prices have already gone past US$50 per barrel and by 27 June 2005 had reached
US$61 a barrel in New York due to heightened supply worries and amid an election victory for the
ultra-conservatives in OPEC heavyweight Iran (Business World, 2005). In the UK, the price of
Brent North Sea crude oil for delivery in August 2005 jumped 74 cents to US$59.10 per barrel
after earlier hitting USD59.21, which was a new historic high.
At the time of reporting, several oil market analysts presented concerns that persistent doubts
over supply could push prices up even further, particularly due to fears that refineries will struggle
to turn enough crude oil into heating fuel to meet fourth-quarter demand amid the onset of the
northern hemisphere winter.
Although this sudden rise in prices may be short-lived, it sets a precedent for future price levels
and already will create a major blip in the trends outlined above.
The trends shown in Figure 1.17 reflects a continued increase in energy prices in all cases except
the ‘low price’ case, for the ‘reference case’, the increase between 2003 and 2025 is only 9%, in
real terms, or approximately 0.4% per annum. The worst case scenario (‘high B’) would be that
prices rose by approximately 73%. Clearly, the price rises we have seen recently are in excess
of this and it may be that this scenario actually represents a ‘best case’ in the future. However, if
this reflected the real cost increase that might be passed onto fuel users, it has the propensity to
drive the costs of farm machinery-running and other energy-using processes significantly
upwards.
According to Defra Farm Accounts 2003/4, machinery running currently costs are approximately
£86 per hectare across all farm types. A 73% increase in such costs would therefore take them
to around £150 per hectare. As the analysis presented for the CAP Reform driver showed, many
farms are currently operating on very tight margins and such a real cost increase could
significantly add to the vulnerability of machinery dependant farming systems.
Energy Crops
As part of the UK Government’s commitment to reducing carbon dioxide emissions by some 60%
by about 2050 (Energy White Paper), there is a sub-target to have of 20% of electricity produced
from renewable energy sources by 2020. Renewable energy sources include Biomass crops
such as short-rotation coppice and miscanthus (tall grasses) and forestry woodfuel, which are
carbon neutral over their life cycle. Renewable energy sources also includes Biofuels, which are
liquid fuels, produced from crops such as oilseed rape, sugar beet and cereals, that are capable
of replacing mineral transportation fuels (Frost and Sullivan, 2001).
The UK’s relatively small land mass and moderate growing conditions make it less likely to be
able to compete on a large scale in the global renewable energy market, but is more likely to be
able to produce novel, added-value speciality products (BCPC, 2003).
Defra has put in place an Energy Crops Scheme, which provides establishment and maintenance
grants to help promote the growing of such crops and also provides support for the setting up of
producer groups, to help get infrastructure in place and to market the produce.
Oilseed rape is viewed as the crop most likely to provide large volumes of competitively priced oil
for biodiesel production in the UK (Turley et al., 2002). In terms of current/historical production,
the latest available figures show that in 2001, over 23,000 ha of oilseed rape was grown on UK
farms for biodiesel production, though virtually all was processed in mainland Europe.
Until recently, UK biodiesel production was limited to 200 tonnes although a reduction in duty
payable on biodiesel, introduced in April 2002, may increase this. At best practice yield levels,
Biodiesel can be produced competitively in comparison to mineral diesel, at an estimated garage
forecourt cost of 81 pence per litre (compared to an average of 79p/l for mineral diesel).
Currently, the economics of perennial energy crop production are less favourable compared with
returns from combinable crop rotations and they would not compete with rotations capable of
growing cash crops like potatoes and sugar beet. However, given the current downturn in dairy
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and extensive meat production systems, production of liquid biofuels, bioenergy crops or a
combination of the two could offer a potential alternative enterprise for farmers dependent on
such enterprises. A financial comparison of sheep and Short Rotation Coppice production in the
uplands of Wales (Heaton et al., 1999) indicated that in the absence of subsidy payments, Short
Rotation Coppice production could be more profitable than sheep farming, even assuming low
yields that should be achievable on upland sites.
The amount of oilseed rape needed to be grown for biodiesel production to meet current
renewable fuel requirements (for 2% of UK transport fuel in 2005), at average expected yields, is
estimated to be 600,000 ha (Turley et al., 2002). The amount of land that is currently in set aside
and which could be replaced by oilseed rape for biodiesel without any loss of subsidy, is 800,000
ha. The UK therefore has the production capacity to meet current renewable targets from
biodiesel without having to displace other cash crops.
Wind Turbines: As Figure 1.18 shows, the amount of energy produced from wind turbines has
grown significantly in the last twenty years across the world. This trend is expected to continue
and wind power is expected to grow 15-fold in the next twenty years (Sawin, 2003).
Figure 1.18 World Wind Energy Generating Capacity, 1980–2002
35000
Total Megawatts
30000
25000
20000
15000
10000
5000
0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Source: Sawin, 2003.
Figure 1.19 Location of wind farms in the UK
Source: BWEA, 2005
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Whilst wind turbines do not substantially preclude the use of land for agriculture, they offer
potential opportunities for revenue generation through improved rents on farm land. Wind
turbines are conventionally placed on low-value, exposed upland sites, where the majority of
current production will be sheep farming, which can continue in the presence of the turbines.
There are currently approximately 105 wind farm projects in operation in the UK (see Figure
1.19), adding up to a total of around 1350 turbines (RICS, 2004) and by the end of 2005, it is
predicted that the total installed wind energy generators will be enough to meet 1.3% of total
domestic electricity supply (just under 1 million homes).
Survey work completed by RICS (2004) amongst land valuation experts suggested that in 28% of
cases wind farms had a negative impact on the value of agricultural land, whilst a majority (63%)
suggest there is no impact. 9% indicated that wind farms enhanced agricultural land values.
Key events / developments on the horizon





Continued upward movement of world oil price to record levels;
Government commitment to reducing carbon dioxide emissions by 60% by about 2050;
Reform of the EU sugar regime is unlikely to have a big impact on the availability of crops for
biofuel use, as wheat is likely to become the most important biofuel crop in the next 10 to 15
years;
Future duty changes on biodiesel;
Technological developments making biofuel production more viable.
Broad assessment of potential impact on the farming industry - encompassing
risks and opportunities
Oil price will have a direct cost implication for farm enterprises. If we anticipate a 73% increase in
real cost by 2025, as outlined above, this could potentially increase machinery running costs in
real terms by approximately 4% per annum. Based on current machinery running costs, this
equates to the following actual average cost per hectare across farm types as shown in Table
1.6.
Table 1.6
Annual Farm level costs increases due to Oil Price across farm types
Farm Type
Dairy
LFA Cattle & Sheep
Lowland Cattle & Sheep
Cereal
General Cropping
Mixed
Current Machinery Running Cost
(£/ha)
Small
Med.
Large
All
£103
£100
£106 £104
£39
£31
£21
£29
£62
£58
£72
£65
£69
£66
£66
£65
£97
£84
£124 £113
£79
£104
£85
£85
Annual increase in costs due to Oil
Price (£/ha)
Small
Med.
Large
All
£4.12
£4.01
£4.26
£4.18
£1.55
£1.23
£0.85
£1.17
£2.47
£2.30
£2.86
£2.61
£2.77
£2.66
£2.63
£2.62
£3.88
£3.34
£4.96
£4.50
£3.15
£4.14
£3.40
£3.40
Source: Defra Farm Accounts, 2005 (b)
The uptake of energy crops and the installation of wind farms will depend crucially on the future
profitability of other land use activities. However, given that a large proportion of agricultural
activity is unprofitable in the absence of subsidy (see CAP Reform Driver analysis), energy crops
could increasingly provide a viable alternative crop.
Opportunities:


Upland systems: Short Rotation Coppice and Miscanthus for biomass energy cropping,
replacing sheep farming; Wind farm installation;
Lowland systems: Wheat and oilseed rape for biodiesel production; also sugar beet for bioethanol.
Risks:
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




Lack of Government commitment to renewable energy targets;
Loss of support from Energy Crop Scheme;
Shocks to oil markets due to political tension;
Increased fuel costs for farm machinery operations and haulage;
Increasing prices are highly important for certain sub-sectors of horticulture, such as salad
crops.
Earliest timing of potential impact
Impacts will be gradual, both in terms of impact of slowly increasing price of fuel and also due to
slow but gradual uptake of energy cropping.
Energy cropping would be expected to first utilise current set aside land and could thus potentially
expand from 23,000 ha (2001) to 800,000 ha before competing for cash crop land.
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1.8 Food Choice/ Farm Assurance
Description and key underlying trend data
As the Government moves away from managing the primary production base, the need for
farmers and growers to be more market focussed in their approach to food production becomes
more important. In the future, there will be little point in producing products which are not geared
towards meeting the demands of customers operating further down the food chain who in turn are
focussed on striving to match the changing needs and lifestyles of consumers. The route to
market as well as the functioning and changing structure of the supply chain will in itself impact
on the farming industry and this has been addresses as a separate driver.
Key consumer trends: As farmers and growers adjust to operating in the same market-focussed
industry their ability to succeed will depend on how well they are able to understand what drives
consumers to purchase certain products. Gearing production to best meet these needs will then
be the challenge which could potentially significantly alter the structure of the farming industry.
Food Safety: Food safety has risen as an issue for consumers following a number of food scares
including, salmonella in eggs the link between BSE and NvCJD, E-Coli0157, the re-use of
condemned chicken and recently Sudan 1 food dye. These scares and the weight added to them
by the media impact heavily on consumption such as an immediate 40% reduction in the
consumption of beef as well as the consequent loss of exports resulting from the BSE scare.
In response to growing concerns, the Government set up a Food Standards Agency in 2000 and
the industry has reacted by developing farm and food assurance schemes in an attempt to reassure consumers. These schemes produce independently verified production protocols covering
all stages of the food chain. The formation of Assured Food Standards (AFS II) brings the entire
food chain operating across all the different agricultural sectors under one umbrella organisation.
The Red Tractor is AFS’s food logo under the strapline of ‘food you can trust’. It now appears on
roughly £4.5 billion of food products which are predominately sold by the multiple retailers but
latterly this has been extended to some convenience stores and food service outlets.
Promoting food safety aspects of food is difficult as for consumers food safety is expected and
treated as a given. As the recent re-launch incorporating the Union Jack with the Red Tractor
suggests, probably more important to its future success is the ‘Britishness’ of the logo. Food
safety is therefore only ever likely to impact negatively on sales rather than increase them.
Price: Price or value for money on the other hand continues to be the major driver of consumer
purchasing habits and sales uplift. Retailers continue to push to be top of the cheapest
supermarket league as they are well aware that for consumers the store that offers them the best
value for money attracts the greatest footfall. The Grocer magazine, and its weekly Grocer ’33
monitors and compares the price of the most commonly purchased food items in a supermarket
and publishes the results. These are keenly watched by retailers.
Most major retailers have also announced price cuts over the last few years in an attempt to lure
more consumers, as the following press headline illustrate:
“ASDA cuts cost of healthy foods” (08/01/2005)
“Beef price war destroying value” (06/11/2004)
“Prices crash at Sainsburys” (19/6/2004)
“Apples help ASDA pip Tesco on price” (27/3/2004)
“ADSA cuts prices by £40m” (28/2/2004)
“Tesco slashes prices by £70m” (5/1/2004)
“Prices will be key says Mason (Comm. Director, Tesco)” (6/9/2003),
“Tesco denies price war in £60m cuts” (29/6/2002).
A major shift in pricing strategy has been ASDA’s “Every Day Low Pricing (EDLP)” strategy which
shifted the emphasis away from the “High-Low” pricing strategies which previously dominated the
sector by offering “Buy One Get One Free” promotions to consumers.
EDLP focuses on
95
consistently low prices which in turn translate to “Every Day Low Costs” for consumers, putting
pressure on suppliers to take cost out and supply at the lowest possible rate.
All companies in the food chain aim to deliver, ‘value for money’ as the number one factor for
consumers. This means consumers need to feel that the benefits of the purchase outweigh the
sacrifice or cost of the purchase.
Convenience: Convenience has seen huge growth and is also predicated to dominate consumer
purchasing decisions in the future. There are many factors that have contributed to this demand
such as the number of women in work who are still also preparing the family meals, long and
irregular working hours (British working hours are the longest in Europe), the increasing number
of single households and the fact that consumers are now wealthier. Factors such as these have
eaten into the time available to prepare meals from scratch.
Changing meal occasions are also driving the demand for convenience food. It has been
estimated that by 2009, there will be nearly 3 billion less main meals a year cooked and prepared
at home with breakfast being the most missed meal (Datamonitor, 2005). Consumers are moving
towards snacking or ‘eating-on-the-go’ as opposed to sitting down for meals.
A common description of the modern consumer is “time-rich cash-poor” who are seeking
convenient options so that they have more time to spend on other activities. Meal preparation
time has decreased to over 50% of consumers spending less than 30 minutes preparing the main
meal which can be compared to over 2 hrs in the 1970s.
Growth in ready meals both fulfilled the demand for convenience food and is continuing to drive it
through innovative new products such as the diverse range international meals. The market for
ready meals nearly doubled between 1999 and 2004. The future growth in the market is slowing
down from around 20% in the 1990’s to 12% in 2003 (Mintel, 2004) however this is more likely
down to the slow down in product innovation rather than demand for convenience. Most
commentators agree that the demand for convenience will continue unabated to in the future.
Figure 1.20 Forecast of the chilled ready meal market, 2004-2009
Source: Mintel, 2004
However, a slight resurgence in interest in food and cooking, as witnesses by the number of TV
celebrity chefs and cooking programmes, will likely result in convenience taking on different
forms. “Meal Kits” providing semi-prepared raw materials and sauces, ‘bagged meals’ making
the cooking process more convenient for consumers and technological advances such as the
home baking machines making home baking convenient are likely to evolve in the future.
Provenance: “Consumers are becoming sceptical and demanding some extra information of
provenance when products are marketed as an authentic taste of a region.” (IGD, 2005).
The IGD place provenance second behind value (IGD, 2004). Mintel (2003) also suggests that
almost one third of consumers complain that British produce is not always available; and more
specifically that one fifth (21%) blame supermarkets for not stocking enough British-grown fresh
fruit and vegetables. Food scares (see above) are also contributing to the increasing consumer
96
interest in provenance of food and the development of assurance schemes promoting particular
aspects of food production such as LEAF accreditation (linking environment and farming),
freedom foods which focuses on animal welfare and organics (dominated by the Soil Association
which accounts for approximately 70% of organic food sales).
The organic market on its own has shown strong growth over the last 10 to 15 years and though
some slowdown in growth has been experienced more recently. The market topped the £1 billion
milestone in 2002 which arguably moved it out of the niche category into mainstream grocery.
Similarly, organic foods are given more prominence in supermarkets with certain stores
dedicating a section of the store to it.
Ethical trade such as Fairtrade is also rising up the consumer agenda with all major retailers
stocking Fairtrade products along with the likes of Starbucks and Costa Coffee promoting
Fairtrade coffee. Similarly, local and regional foods are increasing in popularity with 70% of
British consumers wanting to buy local food and 49% wanting to buy more than they do currently
(IGD, 2005, b).
Healthy and Wellbeing: 'Healthy' meals are a key growth area in the food market. Mintel (2004)
estimate that they make up 15% of the market including meals that are relatively low in calories,
fat and, increasingly, salt. Most major retailers have a sub-brand specifically geared towards
providing healthy meals such as Sainsbury's Be Good To Yourself, Asda's Good For You, Tesco
Healthy Living, Marks & Spencer's Count On Us and Waitrose Perfectly Balanced.
A direct consequence of this trend has been the growth in the functional foods market which
promotes health as a result of eating the particular products (Figure 1.21).
Figure 1.21 The estimated and forecasted market for functional food and beverage
products.
Sales (£m)
2000
1800
1600
1400
1200
1000
800
600
400
200
0
1998 1999 1998 1999 2002 2003 2004 2005 2006 2007
Year
Source: IGD, 2005 (a)
The increasing popular number of diets are also a function of consumers desire to eat more
healthily. For example, the Atkins diet impacted hugely on foods containing high levels of
carbohydrate which was felt globally and even Unilever cited it as impacting on their sales.
The government has reacted to the poor consumption of fresh fruit and vegetables in Britain by
launching the Five a Day campaign as well as the Fruit for Schools scheme and healthy foods are
also of increasing concern in the public sector institutions such as schools and hospitals.
Food Choice: People expect to find the precise product to suit their needs. As the IGD notes:
“There is a clear trend towards individualism and greater affluence means we have the ability to
pay for tailor-made solutions, rather than the off-the-peg options.” (IGD, 2005, a)
For example, in one supermarket store, a consumer could have the choice between 24 different
lines of Tomatoes. All the major supermarkets are developing more lines or sub-brands to more
precisely suit the needs of consumers which are becoming increasingly diverse and include
97
attributes such as taste, product ‘values’ and the amount they are willing to pay. Loyalty cards
enable retailers to target consumers with products that suit their specific needs. Information from
the Tesco loyalty card, for example, is used to offer mailed promotions geared specifically to
individual consumers based on their previous purchases.
As an example, this is particularly useful to satisfy the growing ‘ethnic’ food market. As the
population becomes more ethnically diverse and more people go on holiday to increasingly
adventurous destinations, there has been a matching increase in demand for foods from different
countries as well as those that fit cultural and religious requirements.
Key events / developments on the horizon
Changing market forces will bring opportunities for producers: It looks likely that price will likely
continue to be a main driver, if not the main driver of consumer purchase in the future leading to
continued price pressure on producers. Therefore battles over what represents a sustainable
price for suppliers, such as that experience in the dairy sector over the last few years will
inevitably continue. Added to this pressure will be global trading a making it easier for customers
to source from further a field.
Such pressure along with CAP reform which exposes producers to market forces will also
necessitate a change in attitude and successful producers will either be those able to compete in
the commodity, price driven markets or those who look to differentiate or add value to their
products. For the second group, consumer trends will shape their production with Convenience,
health and provenance all becoming ‘mega-trends’ for the industry.
Consumer ‘mega’ trends:

Convenience: The traditional ready meal market will continue to offer convenience although
it will evolve into different forms as already experienced through semi-prepared ‘readywashed & chopped’ vegetables and grated cheese or different formats such as
microwaveable ‘steam fresh vegetables’ or ‘bagged meals’ which will continue to satisfy the
demand for convenience. The challenge for UK farmers will therefore be to produce varieties
or breeds that meet the needs of the new technologies such as ‘baby’ sweet corn for stir fry
packs or wheat varieties suitable for baking machines. The alternative will be to either invest
in activities or new technologies further down the food chain or align themselves closer with
the food manufacturers and processors which will mean developing new products or services
which suit the needs of the processors and manufacturers of ready meals.

Provenance. The demand for more information about the origin of food, traceable supply
chains and concern about production methods all point towards provenance being of
increasing importance to consumers in the future. UK farmers are ideally positioned satisfy
the growing demand for local and regional food and there is a lot of public support to help in
this respect. Similarly, producers could also meet the demand growth for ethically traded
products which aim to ensure that producers are treated fairly and remunerated accordingly.

Health. The current growth in healthy food market does not look likely to cease. Functional
foods, marketing positive health attributes continue to rise in numbers and the
pharmaceutical and food industries will continue to work more closely. The popularity of
Yakult and Actimel illustrates this as does the race to launch an ‘omega 3’ enhanced milk.
Manufacturers are all aware of this opportunity and continue to invest heavily in this area.
Fresh food and ingredients are also being promoted as ‘healthier’ and the popularity and
impact of programmes such as ‘Jamie’s School Dinners’ is testament to this interest.

Integrity: Targeting of individuals and offering tailor made food products offering increased
food choice will continue to grow. The number of different ranges of foods offering a wide
variety of choice (or marketed in this way) geared to meeting specific demands such as the
ethnic food market, organics, animal welfare friendly, environmentally friendly and organic be
broaden choice and satisfy individual demands. Food assurance schemes will have a crucial
role to play in building consumer confidence and will be most effective when making claims
about consumer friendly product attributes other than solely food safety.
98

Branding: Branding will be an important part of product differentiation. The ability to build
product attributes into a brand will help develop consumer recognition and loyalty which in
turn helps to create and capture value added to the products. However, brands are built over
the long term; only 10 percent of the top 100 brands were launched in the last 10 years
(Fearne et al., 2001).

New technologies: Food companies are also investing heavily in developing new
technologies which better satisfy consumer demands and New Product Development (NPD)
will continue to be a key part of any food business. In the case of UK farming, for example,
NPD could involve a shift towards farm level genetic selection and nutrition management to
obtain the desired traits needed by manufactures to create the desired product. However,
marketing of new technologies will have to be undertaken carefully as much depends on
consumer acceptance. The lessons of Genetically Modified and the consumer backlash that
resulted in the delay in planting of commercial crops should be heeded.

The decision structure: The picture facing the industry is that food safety will be treated as ‘a
given’ by consumers underpinning all other product attributes. Price or value for money will
continue to be the key driver with the ‘mega trends’ of convenience, provenance and health
issues rising up the agenda. Other issues of ‘integrity’ will then become purchasing drivers
based more on individual preferences requiring a greater range of products more directly
targeted towards the fulfilling the needs of the individual such as provenance (local), ethnicity
and organic foods.
Figure 1.22 Consumer choice structures
Consumer Agenda…
Rising up the agenda
Integrity
Pri
ce
Health
Provenance
Current focus
Convenience
A “given”
Safety
Source: EFFP, 2004
Broad assessment of potential impact on the farming industry - encompassing
risks and opportunities
The future for UK farmers and growers will depend on their ability to produce for the market.
What market they choose to supply will be down to the individual, or group but it is the factors
outlined above which are likely to provide the shape to the food industry. If farmers do not
recognise this, it is unlikely they will have a role as producers of food in the future.
UK farmers will therefore be faced with a market which on the one hand looks to provide the high
volume, low value commodity type products to the other end of the scale which offers more
specific higher value products to more closely defined consumer needs.
From this, the following opportunities and risks will likely present themselves to the UK farming
base.
Opportunities:


Invest in food processing and manufacturing or develop better relationships with these
companies;
UK farmers are well placed to supply the increased interest in food provenance and local
foods offer a good counterbalance to globalization (rated highly important in consultation
99









exercise);
Well established farm assurance schemes can boost consumer confidence about UK food
especially production methods and food safety;
Increased food choice provides an opportunity to supply a greater range of added value or
differentiated food products that meet specific needs such as producing foods to meet the
needs of the ethnic population and internationalisation of food tastes;
Development of crop varieties geared towards consumer demand (e.g. enhanced ‘healthy’
attributes, easy peelers and smaller varieties or better suited to ‘home baking machines. Or
rare breeds with ‘story’ attached or milk produced from herds with special diets, such as
Omega 3 milk.);
Demand for healthy food should increase the demand for fresh seasonal produce;
Develop supply chains to fulfil the still growing organic food market;
There is a variety of advice and assistance available to farmers and growers both nationally
and regionally directing farmers to meet market demands. For example, the Red Meat
Industry Forum has a section on its website dedicated to consumer trends and the Food
Chain Centre is currently setting a more general webpage;
Higher temperatures will lead to higher demand for BBQs meat products such as sausages
and less demand for roasting meats;
Increasing food miles issue may encourage supermarkets to source from regional producers;
Farmers will be more isolated from exchange rates as the market for value added products
increases.
Risks:

The drive for convenience could widen the gap between farmers and the consumer as the
demand for easy to prepare food or ready meals continues to grow;
 Price continues to be a major factor influencing purchasing which will increase pressure on
farmers to be lowest-cost suppliers;
 Delayed response to CAP reform and market liberalisation could allow competitors to take
advantage of market opportunities;
 Farm assurance schemes developing internationally e.g. EUREPGAP. Though farm
assurance is already the baseline norm in UK, improving international standards such as
possible eradication of FMD in Brazil may increase competition;
 Food assurance standards may lead to further revision of pesticide list, which may increase
costs for UK farmers (e.g. Berlain for cabbage root fly on white turnips).
Earliest timing of potential impact
The move towards a more market focused UK farming industry has already started and some
sectors (such as fresh produce and intensive livestock sectors) are already operating in these
markets. In other sectors, as CAP reform decouples support from production, so the need to
produce to a defined market will become more crucial. In this respect, understanding consumer
trends is key and either supplying directly or aligning themselves with others in the food chain to
supply these markets will determine their economic future.
100
1.9 Food Chain Structure
Description and key underlying trend data
Through the 1990’s, the total value of expenditure on food rose by more than 50% to over £110
billion in 2004. The main driver of this is the value as opposed to the volume of food consumed,
which translates into more prepared food being consumed both in and out of the home, which
tends to be more expensive than buying basic commodity products (Figure 1.23).
This growth in the food market, however, has not been reflected in the value of agricultural output
which has largely remained static. It has been the manufacturers, retailers and foodservice
companies that have benefited from this growth by developing and selling added-value products.
At the same time, rationalisation in the food industry has further weakened farmers’ position in the
chain as they find themselves operating in a supply chain made up of an increasingly small
number of large, often multinational businesses.
Figure 1.23 The UK Food Market
£bn
Total in 2004
= £111bn
120
100
£46bn
Total in 1990
= £62bn
80
Food Eaten Out of the
Home
£65b
n
60
£20bn
40
£42b
n
Household Food
Expenditure
20
Agriculture £14.9bn
0
Agriculture £14.6bn
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
(Source: Defra)
The structure of the Food Chain: Retailers are the dominant force in the food chain, competing to
best meet the needs of consumers. The manufacturers, processors, and ultimately farmers, to a
large degree have had to respond to the needs of consumers via the retailers. As the direct link
between the consumer and the food industry, retailers are likely to remain the main force in
setting the agenda for the food supply chain although growth in food service means that this
sector will also determine key trends for the future.
Retailers have the commercial power to force business process change further down the supply
chain. The degree of responsibility that they are prepared to take for those changes which are
one or two steps removed varies by retailer. For some food processors, 90% of their business
comes from an individual grocery retailer. For a food processor to lose such an account would be
catastrophic, both for them and their producers.
Food Chain consolidation: There is little doubt that consolidation “Is one of the key characteristics
of the UK grocery retail market” (IGD, 2004). As Figure 1.24 shows, the growth of the multiple
101
retailer has been relentless and today they continue to dominate the food and grocery industry in
the UK. The sector is currently worth £84.3 billion, and has roughly 70% of the market share.
Multiple retailers: The strategy of the multiple retailers has been to increase market share without
increasing the number of stores. The 1980’s are seen as the ‘retail revolution’ when “…retailing
shifted from a position of price taker to that of ‘gatekeeper of the modern agrifood system”.
(DFID, 2004). The recent takeover of Safeway stores by Morrisons is further evidence of the
consolidation at the retail end of the food chain and as the latest battle for the acquisition of
Sommerfield Stores suggests, it is likely that consolidation will continue in the future albeit under
the close watch of the competition authorities.
Figure 1.24
Consolidation of the UK Grocery Market
100%
90%
Market share
80%
70%
60%
50%
40%
30%
20%
10%
0%
1900
1920
1940
1960
Independents
1980
Multiples
1990
2000
Co-ops
Source: IGD, 2004.
The main driver for consolidation has been the pressure to remove cost from the chain. This in
turn has resulted in similar rationalisation in other parts of the chain which are examined later.
Two major consequences of consolidation have been:

Centralisation of distribution systems and buying structures which are currently used by most
major multiple retailers as well as resulting new supply chain technologies such as Electronic
Data Interchange (EDI) for buying, selling and exchanging information.

The development of category management, where the supplier takes on the responsibility of
managing the supply of a particular category which in turn has rationalised the number of
suppliers to such an extent that in certain categories amongst the retailers they have a single
supplier (ASDA/milk, Sainsburys/Beef).
Retailers have also made it clear that they buy commodity products on the Global market and will
continue to do so. Internet trading systems, such as the GlobalNetExchange (GNX) and
WorldWide Retail Exchange help retailers locate lowest cost suppliers. Whilst most retailers see
both political and public relations benefits from supporting British farmers, they are also aware
that price continues to be the main driver affecting consumer purchase. However, global
sourcing has also become important to retailers to satisfy the need for year round availability of
products.
Convenience stores: The IGD estimate that convenience stores will likely “…succeed in clawing
back some market share from large format retailing” (IGD, 2004). The UK convenience market is
currently worth £23.9billion, a rise of 4.9% on 2004, which gives it an overall share of 20% of the
grocery market (IGD, 2005, c). There is a growing interest in these ‘town-centre, top-up’ shops
102
and it is unsurprising that there is acquisition from the multiple retailers in this sector (see Table
1.7).
The convenience sector has also experienced additional consolidation over recent years as many
of the independent retailers join ‘symbol groups’, an affiliated group of outlets with a branded
facia and purchasing agreements with the number of stores trading as part of a symbol group up
4% year on year.
Table 1.7 Consolidation in the convenience retailing sector since 2002
Business Acquired
Budgens
Europa
T&S Stores
Local plus
Bells stores
Balfour
Alldays
Jacksons
Aberness
Acquisition by
Musgrave
Tesco
Tesco
Co-op
Sainsbury’s
Co-op
Co-op
Sainsbury’s
Somerfield
Number of stores acquired
235
45
1,215
64
54
111
603
114
36
Source: IGD, 2004
Discounters: Discounters are retailers that offer a ‘no frills’ approach with the provision of low
prices given priority above all other elements of the retail mix, such as location, customer service,
range and merchandising (IGD Factsheet, www.igd.com). European operators Aldi (278 stores,
with stated intention to open another 200 by end 2011), Lidl (330 stores) and Netto (130 stores)
all operate in the UK. Discounters by nature are driven by low cost and therefore suppliers tend
to be chosen as those that can offer the lowest cost price.
Food service: More and more people are eating food outside the home. This market has become
known as the foodservice market, represented by Figure 1.25 below:
Figure 1.25 The Food service sector
Source: IGD, 2005 (d)
The overall foodservice market is estimated to be worth around £33.2 billion in sales to
consumers and in terms of food and drink purchases by caterers it is estimated at around £11.1
billion (IGD, 2005, d). The IGD predict that the market will continue to grow at 1.4% to reach £35
billion by 2007.
Most food service companies operate in both the public and private sectors but it is the private
sector which generates the most revenue accounting for around 87% of the food and drink sales.
The implications of this are that whilst there is currently plenty of support and encouragement for
producers to supply public sector institutions, it is success in the private sector that will bring most
financial rewards.
103
Food service companies remain relatively fragmented although there are signs that consolidation
is occurring. The food service operators are now dominated by three large companies
(Compass, Sodexho and Aramark) and the Distribution wholesalers likewise (3663, Brakes and
DCB). Whilst this market is still made up of a large number of independent restaurants, restaurant
chains have developed such as those operated by Whitbread and Mitchell & Butler as well as the
quick services restaurants such as McDonalds and Burger King operating a large number of
outlets.
Centralised buying and distribution is also a growing trend, perhaps as the food service
companies take a lead from the retailer experience. The recent formation of Sevita in 2003
(centralised European buying arm of Compass) is a good example of this.
Manufacturing: There are currently around 7,000 food and drink manufacturers in the UK down
from 8,300 in 2000 and between 1997 and 2002 the number fell by 12% (Livingstone Guarantee,
2003). Consolidation has also been a factor amongst these companies which has been driven by
the need to cut cost, an attempt to match the buying power of the retailers and increase the brand
portfolio.
In response to the retailers’ drive to reduce their number of suppliers, manufacturers and
processors are also trying to reducer their producer supply base, again due to the drive to reduce
the costs associated with dealing with a large number of suppliers.
Farming: Consolidation in the farming sector remains relatively limited. Farmers find themselves
operating in supply chain made up of an increasingly small number of large, often multinational
businesses. Operating in an increasingly concentrated supply chain and with less and less
government involvement in the market, farmers find themselves in a weak strategic position.
Vertical collaboration: The highly competitive market of grocery retailing means that companies
are constantly looking for new ways of improving how they operate. An example of this has been
the move away from the traditional adversarial trading relationship towards more mutually
supportive approaches adopted by suppliers and retailers.
The Efficient Consumer Response (ECR) tool plays a crucial role in this, encouraging retailers,
food manufacturers and producers to work more closely together to maximise consumer
satisfaction and minimise cost. (Galizzi & Venturini, 1999). Similarly Collaborative Planning
Forecasting & Replenishment (CPFR) is becoming an increasingly popular tool aimed at making
inventory management more efficient and cost effective, while improving customer service.
Both these collaborative approaches are being used predominately between retailers and larger
food manufacturers but there are moves to extend them up the chain to include primary
processors and producers.
Key events / developments on the horizon
The Supermarket code of practice: The Office of Fair Trading (OFT) launched a Supermarket
Code of Practice in March 2002 in response to a number of concerns that were raised about the
level of buyer power that the major supermarket groups are able to exercise. Following its
launch, the perception was that the code had made little if no difference to trading practice which
prompted a year long review from February 2004. This confirmed that “the code is not working
effectively”. A further investigation by the OFT concluded in March 2005 that by and large,
retailers were complying with the code.
The ineffectiveness of the code has led to alternative measures being suggested as a means of
curbing the power of the supermarkets ranging from a voluntary buyers charter (NFU) to a Food
Trade Inspector (Liberal Democrats). Pressure remains for action to be taken to curb the power
of the supermarkets, such as the relatively regular protests seen outside the major multiples over
the last few years, and is unlikely to go away.
104
EU Enlargement: The impact of EU enlargement will be felt in all sectors of the food chain to
varying degrees. For retailers it could open up potential new supplies as well as expansion
opportunities in the accession countries.
Manufacturers could also be tempted by the access to cheap labour and look to develop
processing facilities in these countries “…it will become so much cheaper to manufacture
products in the east that companies could begin to shift even more of their production there, with
potentially disastrous effects on manufacturing jobs in the west.” (CEE Food Industry Newsletter,
2004).
Similarly, farmers could look to expand their businesses by taking their expertise to the EU which
in turn could help meet the increasing volume requirements of their customers not to mention
extending the availability of products.
CAP reform: The uncertainties about the impact of CAP reform on British agriculture will
undoubtedly be scrutinised by food companies wanting an assessment on what level British
supply will be available in the future. Alternative supply from different countries will therefore be
an option to help these food companies minimise the risk associated with these uncertainties.
Broad assessment of potential impact on the farming industry - encompassing
risks and opportunities
Further consolidation: It is likely that there will be further consolidation in the food supply chain as
opportunities for volume growth are limited and price competition drives down margin. This will
continue to drive smaller participants out of the market leaving surviving participants to become
more aggressive, seeking increased market share through acquisition.
Farms will continue to grow in size in the search for economies of scale but compared to other
sectors of the food chain the agricultural industry is likely to remain significantly more fragmented.
The need for land as a key production asset means that it is unlikely that there will ever be four or
five farms dominating production, as is the case amongst the multiple retailers. However,
collaboration does provide a way in which farmers, as relatively small businesses, can participate
and compete in the food chain in a way that would not be possible on their own which in itself
might encourage the development of the Farmer Controlled Business sector in the UK.
Evolution of trading relationships: Trading relationships between the companies involved in the
food chain will also evolve. Broadly, trading practices can be categorised into three areas
namely:



Integrated supply chains which the supply chain is mostly owned by one operator;
Partnership supply chains which involve long-term commercial relationships between trading
partners;
Trading supply chains which refers to immediate purchase, as and when required often
referred to buying on the ‘spot’ market.
These trading models have always existed and all retailers use all three to different extents.
However, in recent years there has been a noticeable shift towards the partnership model (see
Figure 1.26 overleaf), mainly driven by the need for consistency, predictability as well as lower
prices. For those suppliers and producers involved in such partnership arrangements they
provide a degree of certainty and reduce risk and will likely involve becoming part of ECR or
CPFR as explained above. For those outside such arrangements however, there could be
detrimental consequences to being exposed to increased volatility of the spot market as the
proportion of goods traded through partnership arrangements increases.
Sector specific: Much of the impact on agriculture will different depending on the sector. Those
sectors familiar to competing in a relatively unsupported market (fresh produce and intensive
livestock) will be aware of the pressures and market demands. These sectors as result tend to
operate in short and relatively uncomplicated supply chains. Those operating in sectors that have
105
been historically been subsidised tend to operate in more complicated supply chains and will take
some time to adjust to the new market forces in operation.
Figure 1.26
The Growth of Partnership and Collaboration
“Those who are swimming in the waters of the spot market will find
increasing volatility”
Increasing
volatility
Trading
Partnership
Now
Time
Source: EFFP, 2004
Opportunities:








New market opportunities through growth in foodservice markets;
The development of local distribution systems and hubs offering producers an effective route
to market;
Rise in interest in direct selling such as farmers markets, farm shops and the internet;
The development of local distribution systems and hubs offering producers an effective route
to market;
Partnership arrangement with successful food companies and retailers;
Globalisation of food companies could offer export potential for UK producers such as Tesco’s
global spread;
Assistance for farmers to collaborate and growth opportunities for the FCB sector;
Collaborative ventures with farmers in other countries.
Risks:






Increasing global sourcing policies from large international food companies;
Further consolidation creating larger food companies increasing the price pressure on smaller
producers;
Manufacturing migration;
Uncertainty over CAP reform resulting in companies looking elsewhere for supply;
Continuing to operate outside partnership trading arrangements and being exposed to
increasingly volatile commodity markets;
Slow adjustment to market liberalisation amongst producers operating in the historically
supported sectors competing against overseas produce with established ‘export mentality’
(rated of high importance in consultation exercise).
Earliest timing of potential impact


The food chain continues to evolve rapidly, as the current acquisition battle for Sommerfield
stores illustrates.
Some retailers are already looking elsewhere for supply due to the uncertainty of UK
production. This is particularly the case with beef where South American supply is being
developed.
106
APPENDIX 2
Consultation Exercise
This section provides a summary of comments and suggestions for alterations, omissions and
additions to the driver impacts identified in the driver analyses. Although the results from the
consultation exercise were added to Appendix 1, it was thought relevant to present these views
as evidence of the extent of the consultative input to the study. In addition, the results highlight
areas originally outlined as issues of potential impact that were later ruled out as irrelevant or
insignificant.
In total, 12 government and industry experts (with expertise across a range of sectors and
drivers) were involved in the consultation process. The first stage of the process involved
providing each participant with a written summary of the analysis across all drivers, providing an
overall description of the possible impacts that might arise across the industry as a result of each
driver. Participants were asked to use their expertise to consider whether they believed there are
any significant omissions from the issues identified, whether any of the issues identified are not
justified and should be omitted and to assess how important the issues are for the industry, by
assigning a priority of high, medium or low to each.
Whilst it is recognised that this is a subjective process, it was necessary to validate the
information in the driver analysis and to form a picture about what will happen to the distribution,
relative size, output and so forth, of different agricultural sectors in the future. This part of the
process was conducted over the telephone.
Discussions lasted for an average of 30 minutes. Participants were made aware of the project
structure and context to ensure them fully-understood the context of the driver impacts. Their
comments on the driver impacts were then discussed thoroughly. During the discussion, any
suggested additions, emissions and comments regarding potential impacts were noted, from
which the list of impacts were amended and where participants had an opinion on the importance
of specific impacts their views were noted (see text in italics below). Impact statements that
participants agreed with or had no comment were not altered.
Unfortunately, it was unrealistic to expect participants to be able to assign a high, medium or low
priority to all impacts relating to their sector or areas of expertise, because it is unlikely they will
have a high level of all drivers/sectors. For example, a specialist in general cropping may not be
equipped to comment on the future effect of population on general cropping. Nevertheless, using
a combination of driver analyses and intelligence gained from consultation process, it was
possible to assemble a list of high priority impacts for the sector analyses.
2.1 CAP reform
Agreements:











CAP ranked HIGH importance as driver overall;
Short term increased specialisation of wheat production (2005-10);
Increased use of contracting services/machinery sharing (2005-2020) (high importance);
Extensification in the uplands (2005-2020);
Localised lowland intensification (2010-2020);
Fewer mixed systems (2005-2020);
Marginal land abandonment(2010-2020) (high importance);
Smaller workforce & ‘environmental management time’ (2012-2020);
Extensification in uplands (MEDIUM-HIGH importance);
Reduction of full-time labour units of around 10-15% (2012-2020);
Reduced demand for feed-grain due to shrinking/extensifying of livestock sector (2012-2020)
(LOW significance to cereals).
107
Suggested additions/alterations:












Short term replacement of fallow to replace break crops (2005-10) Alteration: Second wheat
is more likely to be replaced by fallow;
Longer term maximisation of voluntary set-aside (2012-20) Alteration: Voluntary set-a-side is
the wrong terminology, after decoupling there will be only compulsory set-a-side will be an
option;
Overall reduction of around 10% (Conservative, perhaps up to 30%) of total beef numbers,
similar for sheep (2012-2020) Alteration: However, sheep numbers probably won’t decrease
because it will be the easiest way for farmers to achieve cross compliance (x2 respondents);
Motivation to sell calves earlier in upland suckler systems (2005 onwards). Alteration: There
will be less people finishing in marginal areas (MEDIUM importance);
Some substitution of lowland beef for sheep systems (2010-15) Alteration: This may not be
the case more likely to replace dairy systems;
Intensification of localised grass-fed beef systems on lowland grass (2010-15) Alteration:
Also increase in large-scale, yard-based finishing (MEDIUM importance);
Policy longevity uncertainty potentially leading to lower than expected uptake of environmental
schemes (2005-2010) Alteration: If anything there will be an increased uptake of AES due to
SFP;
Reduced demand for feed grain due to shrinking/extensifying livestock sector (2012-15)
Alteration: There will be continued opportunity for food wheat in pigs and poultry;
Continued cost squeeze on inputs (2005 onwards) Alteration: Changes in support and market
prices for feed will become more volatile but they will have little effect on dairy industry in UK.
It is important to factor-in the demand side of production. Others agreed this was MED HIGHLY important to farming;
Addition: Impact of rural development funding streams. Possible opportunity for farmers to
access funding;
Addition: As beef numbers reduce, the price of meat will increase, possibly leading to an
increase in pig meat/ poultry production;
Addition: Further CAP reform almost certain between now and 2020.
Suggested omissions:





Removal of over 30 month scheme - This is no longer an issue. If anything this will have a
positive not negative impact especially for suckler cows. It will cause little disruption in the
longer term;
Move out of suckler production into sheep production in uplands (2005 onwards) - This is not
the case. Fewer sheep will be kept in these areas due to uptake of agri- environment;
Continued increase in beef calf disposal (2005 onwards) -This is not the case. There may be
less cows and more efficient production post CAP reform, but increased access to EU market
will mean the sector remains viable. Others agreed with the statement;
Longer term reduction in cereal production of around 10-20% (2012-20) Cereal production in
marginal areas will reduce, but increasing yields due to improved efficiencies and productivity
(year on year 1-1.5%) will more than compensate. Therefore there will not be an overall
decline in production;
Phasing out of quotas improving competitiveness: This is not really relevant. Will not lead to
increased competitiveness. There will be further reduction on support prices with will affect
competitiveness, but quotas are not relevant. Phasing out of export refunds will be important.
Though world market values will improve with population and economic growth. The
combined effect of decoupling and fall on support prices will cause a broad reduction in the
EU as a whole, though Britain will be little affected and will have to opportunity to supply other
EU states where production falls. Increases in efficiency and natural climatic advantages will
sustain UK competitively.
108
2.2 WTO
Agreements:


Ranked MED-HIGH importance driver overall;
Loss of export subsidies/increased market access for sugar, reducing prices by 5-10% (HIGH
importance).
Suggested additions/ alterations:










Increasing pressure on exports in all sectors, especially powdered milk, butter, cheese
Alteration: less so – for these sectors because they are relatively competitive). However, also
significant for beef sector. LOW importance for pig meat. This will impact on milk, but the
effect will be mitigated. Disagreement with cheese this is a growing specialist market, both in
UK and abroad. This will affect butter;
Loss of export subsidies/increased market access for processed milk, reducing prices by 510%. Medium importance overall. Alteration: Also important for beef and cereals. Loss of
export subsidies will not cause big changes to dairy, unlike pigs and poultry. However,
increased market access will be important. ‘It is dangerous to say prices will reduce by 510%’ ‘Conservative estimate, prices could perhaps reduce by 10-20’;
Addition: Price volatility is the main governing factor for farmers and could be beneficial or
detrimental;
Addition: If import tariffs are determined on the basis of aggregation of sectors, beef and
Sheep would suffer against poultry and pigs;
Addition: Economic impact of China and South-East Asia pose possible threats from imports
of soya and other commodity markets;
Addition: Economic impact of China and South-East Asia also provide opportunities for
exports for growing affluence base;
Addition: Those sectors producing mainly for the domestic market at present (e.g. poultry,
beef) will suffer most from exposure to increased market access – e.g. Brazil, unless food
choice factor of provenance becomes a major factor;
Addition: It is still unclear actually how big tariff reductions will be and what peace clauses
may be accepted;
Addition: Timescale of agreement from next round perhaps beyond 15 years;
Addition: Substantial import tariff reductions combined with decoupling of CAP will have the
biggest impact on farming. HIGH importance.
Suggested omissions:


Increasing shift of support to the Green Box (rural development and agri-environmental
support) - It is more or less certain that SFP will be accepted as Green Box Much agreement.
This is not a WTO issue. More likely to occur from a reduction in budget at Pillar II becomes
more important;
Support being redistributed away from lowland to upland and from arable to beef & sheep This point is not really about WTO, but about CAP reform and should be removed.
2.3 EU Enlargement
Agreements:





Driver ranked as MEDUIM importance overall;
Substantial growth potential in NMS retail sectors;
Availability of cheaper labour (HIGH importance);
British exports of live poultry occupy leading positions in all of the three major NMS markets;
Slower policy decision making under increasingly diverse interests – policy uncertainty
increased;
109



Milk yields are close to or above EU averages in the Czech Republic and Hungary (Medium
importance);
Enlargement could add around 20% to EU egg production levels;
Increased demand for quality food products mainly produced in existing member states,
including UK. Especially for poultry, meat, cheese and other luxury dairy products.
Suggested additions/ alterations:
















Significant medium term (5-10 years) economic growth and increase in living standards in
NMSs will lead to increased demand for quality food products, mainly produced in existing
MSs, including the UK. Poultry meat, cheese and other luxury dairy products stand out as
areas of opportunity Alteration: Also true for beef and sheep;
Significant reductions in dairy herd size, e.g. Poland, numbers of dairy cows declined from
4.9 million in 1989 to 2.7 million in 2002 Alteration: Agreement, but massive potential there for
genetics and yield improvements;
Almost half of milk production in Poland is consumed locally and not entering the larger
national market Alteration: True, but in the future Poland are likely to become wholesale
producers if milk quota restrictions are lifted (unlikely before 2020);
Potential food safety issues in accession countries affecting value of UK trade Alteration:
particularly Bulgaria, Romania & Turkey) (HIGH importance);
Competitive advantage over member-states - Wheat yields in the three biggest producing
countries of Poland, the Czech Republic and Hungary are approximately 2-3 tonnes lower
than in the EU-15. Alteration: This may not be the case. Though their yields are lower, their
prices are also lower due to low-input systems. These countries are now selling at EU
intervention prices and producing surpluses for this purpose. Also not just restricted to wheat.
There is agreement that this is important for cereals, however our yields are much more
stable giving us a competitive advantage;
The Czech Republic already devotes a greater share of land to organic produce than the UK Alteration: Also true for Croatia;
The Polish potato crop in 2001 was almost half of the entire EU’s production in the same year
Alteration: However, low quality and disease problems (see below). Therefore, Eastern
Europe has greater capacity for production low quality products, however if standards in
Eastern Europe increase they may offer more of a threat to UK producers;
Strengthening of EU agricultural market power on world market Alteration: ‘Power’ is not the
right word. There will be more countries and a more dynamic pattern of exchange but not
necessarily increased power. Success will be more a function of individual actions;
Diluting of CAP budget – increasingly less support to UK agriculture. (Full impact by 2013,
approximately 3-5% reduction in support due to this factor Alteration: This will depend on
Financial discipline negotiations, but figures seem correct;
Addition: In general, pre-accession trade liberalization has meant that ‘shocks’ to the UK
market are not expected. Any short term/ immediate shocks that might have happened would
have happened by now;
Addition: Bulgaria, Romania, Croatia & Turkey mainly uncompetitive with UK on most
commodities (especially dairy & red meat) except some fresh produce;
Addition: In the short run (0-5 years), the enlargement is not expected to lead to any
significant competitive pressure for UK farmers;
Addition: In the medium term (5-10 years), NMSs more likely to provide UK farmers with
export opportunities than to pose a risk of increased imports;
Addition: In the longer term (10-20 years), specialisation will become more important and the
UK will need to focus on sectors where it has a competitive advantage;
Addition: Lack of infrastructure and further processing in accession states may lead to
opportunities for British growers and producers overseas;
Addition: High levels of investment in pig production and processing in Eastern Europe could
speed their transformation to be competitive producers;
110
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Addition: Most opportunities for UK will be in value added, high quality markets, Organic is a
value-added market where competition from the NMS will be high;
NMS yields increasing and % sold on market (rather than local consumption) is increasing.
Suggested omissions:

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



Strengthening of EU agricultural market power on world market - Political & not directly
relevant to UK farmers;
More customers - 450 million consumers, around 70 million more than before 1 May 2004
(larger than USA and Japan combined) - Not directly relevant to UK farmers;
Increased EU GDP by €11 bn/year & UK GDP by £1.75 bn/year - Not directly relevant to UK
farmers;
Increased importance of agriculture as contribution to EU-25 GDP, due to dominance of
agriculture in NMSs - Political and not directly relevant to UK farmers;
Higher economic growth creates inflation, which could start to undermine the initial cost
advantage of agriculture in the candidate countries - This point is highly uncertain and
depends on UK monetary policy and wage costs, etc;
Czech apple production today alone is greater than British Poland has an output of apples
more than ten times higher than in the UK - However, the apples market is very fragmented,
the UK produces specialist products.
2.4 Exchange rates
Agreements:


Driver ranked MEDUIM importance overall;
The value of sterling is likely to remain a large and quite possibly the most dominant factor
influencing the level of farm incomes for the foreseeable future. If the trend seen in recent
years (sterling stronger against the dollar and weaker against the euro) continues then this
should prove positive for UK farm incomes.
Suggested additions/ Alterations:

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

In many key sectors as EU trade protection is weakened and international trade grows
international competition and therefore exchange rates will become more important. This is
particularly true of commodity products such as cereals, beef, SMP, butter and cheese.
(HIGH importance) Alteration: Will be more exposed to change but this is already important
and may not be more so in future for cheese and other speciality dairy products;
Some UK agricultural sectors may become more insulated from international competition if
they become less commoditised as agricultural and food products become more
differentiated and branding becomes more important. Where local sourcing becomes an
important issue, again, the impact of the exchange rate may become less important.
Alteration: Branding will not become more important for pigs; HIGH importance generally;
The US dollar exchange rate may, however, become relatively more important (compared to
the euro) as CAP market measures insulating EU agricultural product markets from world
markets are weakened and are eventually dismantled altogether. Alteration: This depends on
EU enlargement - % of trade in the Euro zone in relation to trade in dollar markets;
Addition: If weak dollar remains, there may be increased opportunities for importing soya
feed;
Addition: Point/day at which rate for SFP to be set adds risk (30 Sept);
Addition: Joining Euro? Impact on farmers depends on rate we go in at, if at all.
2.5 Population
Agreements:

Driver ranked as MED-HIGH importance;
111
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Changing population structure (age, ethnic origin and wealth) will lead to new demands
regarding food, drink, plant products and services;
Aging rural population will provide contributions to household economic livelihood through
labour, childcare and so on;
Increased opportunities for diversification into leisure activity provision (HIGH importance);
Increase land prices close to areas of development (HIGH importance);
Reduced water availability in rural areas;
Shrinking quantity and quality and adaptability of labour force;
Demand for rural housing may lead to loss of land to food production, increased water
utilization;
Increasing tax burden on workforce and provide stress on public services;
Some areas such as south-east will experience higher levels of immigrant labour (legal or
illegal) (HIGH importance);
Nature of migration patterns are dependent on degree of isolation from urban settlements;
South west region will face greater impact from in-migration than rural areas in the north east
and west.
Suggested additions/alterations:



Increasing migrant labour from Eastern Europe Alteration: very HIGH importance for meat
processing and production, horticulture, general cropping;
Addition: Changing characteristics of rural population will provide new opportunities for
services;
Addition: Immigration policy and labour migration from outside Europe will affect labour
availability for horticulture.
Suggested omissions:

Demand for healthy food should increase the demand for fresh seasonal produce – These
opportunities will be marginal.
2.6 Climate change
Agreements:


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
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

Driver ranked MEDUIM importance generally, although high level of uncertainty surrounding
impacts;
Changing climatic conditions will cause spatial shifts in the suitability of production. However,
variations between plants and environments will depend on biological characteristics and
therefore productivity levels. Over the next 10 to 15 years there will be little or positive
change in productivity across all sectors;
Need for water on-farm water storage facilities;
Faster generation time and fitness of weeds, changing distribution of types geographically;
Winter flooding and increasing temperatures will require new location and type of housing
and storage (HIGH importance);
North-east: Increased irrigation/drainage may be required to deal with water shortages and
water-logged land. Extension of cropping;
Loss of agricultural land and need for flood/salt tolerant varieties in low lying and coastal
regions;
North west: Higher winter temperatures ease cold-weather problems for livestock;
Some land could become unusable because of flooding as rainfall patterns change;
West: extension of cropping;
South east: increased winter flooding and sea level rise increase risk of crop spoilage and
salt intrusion. Decrease production intensity. Less water availability and increased demand
for irrigation, in particular for horticultural produce such as salad and potatoes;
South-west: Potential for new crops (grapes, navy beans, sweet corn, soya and sunflowers);
112
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Warmer temperatures will enable outdoor grazing periods to be extended and will increased
levels of biomass and therefore productivity will increase;
Extreme temperatures may have a negative effect on plant growth and animal health towards
the end of the season;
Animal nutrition will change according to species distributions of plants;
Winter flooding and increasing temperatures will require new location and type of housing
and storage;
Shifts in the pattern of consumer demand for livestock products - demand for red meat has
been shown to decrease in hot summers;
Need for water on-farm water storage facilities;
Warmer temperatures will enable outdoor grazing periods to be extended and will increased
levels of biomass and therefore productivity will increase (MEDUIM importance);
Extreme temperatures may have a negative effect on plant growth and animal health towards
the end of the season (MEDUIM importance);
Intensive grassland is sensitive to both water deficits and excesses;
Changing level of vulnerability to animal diseases, as higher winter temperatures enables
pathogens to thrive throughout the year, as well as the emergence and re-emergence of
animal diseases;
Animal nutrition will change according to species distributions of plants (MEDUIM
importance);
Yield and productivity dependent on atmospheric temperature, CO2 levels and water
availability;
Increased soil erosion and changes in soil chemistry;
Changes to growing patterns. E.g. early season: stimulated growth and increased number of
shoots but tiller deaths increase in warmer conditions;
Timing of maturity and product quality of field vegetables affected. Some varieties will benefit
from warmer dryer conditions, such as onions, sweet corn; HIGH importance;
Changes in patterns of diseases and pests (HIGH importance);
Glasshouse temperature controls needs to cope with higher outside temperatures.
Suggested additions/alterations:

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Introduction of varieties such as maize in south and east; Alteration: actually more likely to be
soya or sunflower oil because the UK has deficit in protein production, surplus in starch;
Changing level of vulnerability to animal diseases, as higher winter temperatures enables
pathogens to thrive throughout the year, as well as the emergence and re-emergence of
animal diseases Alteration: Sensitivity overstated?
Low risk of potential for epidemic-based economic crisis in domestic agriculture and
increased pressure for new practices in meat production including size limitations on herds Alteration: Sensitivity overstated?
Some non-notifiable diseases may be exacerbated in wetter conditions e.g. Foot rot Alteration: Sensitivity overstated?
Animal welfare issues relating to heat stress are likely to be aggravated by higher summer
temperatures, particularly affecting intensive farming of pigs and poultry (although new
markets may emerge for breeds more suited to higher temperatures) Alteration: Less
important because production systems are highly adaptable providing there is infrastructure
to implement changes. May increase costs for farmers though;
Risk to species requiring sub-zero period to break seed dormancy. Alteration: Impact of
winter chill on triggering seed dormancy is particularly important for soft fruits and flowers;
Increasing need for on-farm water storage. Alteration: big issue, although a lot has already
been done in the sector to mitigate effects (MEDUIM importance);
Addition: Pig systems are more adaptable than grassland systems to temperature changes;
Addition: Increased need for irrigation particularly for potatoes because it affects skin quality;
Addition: Changes in the distribution of production margins. E.g. changing altitude of
Herefordshire blackberry production;
113

Climate change is unlikely to cause significant impacts in the time frame.
Omissions:

Extension of grain belts north and west – It is very dangerous to speculate given the
uncertainties over timing and extent of impact.
2.7 New Production Technology
Agreements:

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Driver ranked HIGH importance generally;
Micro-biological testing techniques for food assurance;
Satellite monitoring of crops able to account for and justify production methods and inputs to
consumers and regulators;
Real-time monitoring will enable formulation of management strategies specific local
environmental conditions and land use;
New high yielding, disease resistant crop varieties will increase production efficiencies without
increased inputs and may provide new market opportunities (HIGH importance);
Diversification into functional foods will provide new markets and add value;
Increased automation of production processes may resolve labour storages and reduce
stress on machine operators;
Increasing affordability of solar energy should decrease seasonal patterns in plant growth;
Increasing opportunities to convert land into wind/solar energy farms;
Customise plant and animal genetic selection (e.g. improved protein/ nutrient content,
herbicide resistance, slower ripening of soft fruits);
Biotech applications such as screening of plants and animals for disease;
Commercial use of GM crops could damage ecosystems/ human health;
Farmers will have to adapt and employ new skills to harness new technological methods
Farmers may face restriction of use of traditional intellectual property;
Different forms of energy usage for machinery may increase costs;
Risk of continued purchasing costs for access to new technologies such as remote sensing
technology in order to remain competitive both within the UK and against overseas producers;
Increasing biotechnological developments will carry associated risks of national bio security;
Bio fuels will provide new market options for farmers;
Use of biotechnology to serve new markets;
Ability to account for and justify production methods and inputs to consumers and regulators;
Without the right policy environment in the UK, farmers will risk loosing out to overseas
competitors.
Suggested additions/ alterations:

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


Bio-fuels – new production opportunities. Alteration: They are not new production
opportunities because at the moment they are using the same crops, it is new market
opportunities;
Addition: New chilling techniques (‘almost frozen’) extending tradability of ‘chilled’ products,
mainly affecting meat products – an opportunity where we already have high export
penetration, risk where we have high import penetration;
Addition: Mechanical advances for dairying;
Addition: Energy conserving technology. E.g. development of Dutch glass houses by 2020
that are energy neutral;
Addition: Ability to produce for demands e.g. potato skins and irrigation/sugar content.
Novelty crops such as purple carrots;
Addition: advancements in animal genetics will improve productivity particularly dairy and
poultry sectors.
114

Addition: Production efficiency and productivity through genetics and automation of
production. Also potential for non-food application of dairy products (protein fractions)
currently being trialled in Ireland.
2.8 Energy Markets
Agreement:

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




Driver ranked LOW-MED importance overall;
Increasing machinery running costs in real terms by approximately 0.4% per annum to 2025;
Lack of Government commitment to renewable energy targets;
Loss of support from Energy Crop Scheme;
Shocks to oil markets due to political tension;
Increased fuel costs for farm machinery operations and haulage;
Short Rotation Coppice and Miscanthus for biomass energy cropping and wind farm
installation replacing sheep farming.
Suggested additions/Alterations:



Lack of bio-diesel processing capability and effective markets. However, another view was
that: Alteration: This will not be the case in the future, there is plenty of potential for
expansion of processing plants depending on the growth of the market;
Energy crops could increasingly provide a viable alternative crop (Oilseed Rape for Bio-diesel
production; Sugar beet for bio-ethanol). Alteration: Actually wheat will be the largest crop for
bio-ethanol in the future;
Additions: Ranked highly important for certain sub-sectors of horticulture, such as salad
crops.
2.9 Food choice/ farm assurance
Agreements:
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Will become the HIGHLY important driver impacting on agriculture;
Invest in food processing and manufacturing or develop better relationships with these
companies;
UK farmers are well placed to supply the increased interest in food provenance and local
foods offer a good counterbalance to globalisation (HIGH importance);
Well established farm assurance schemes can boost consumer confidence about UK food
especially production methods and food safety;
Increased food choice provides an opportunity to supply a greater range of added value or
differentiated food products that meet specific needs such as producing foods to meet the
needs of the ethnic population and internationalisation of food tastes;
Demand for healthy food should increase the demand for fresh seasonal produce;
Develop supply chains to fulfil the still growing organic food market;
There is a variety of advice and assistance available to farmers and growers both nationally
and regionally. For example, the Red Meat Industry Forum has a section on its website
dedicated to consumer trends and the Food Chain Centre is currently setting a more general
webpage;
The drive for convenience could widen the gap between farmers and the consumer as the
demand for easy to prepare food or ready meals continue to grow;
Delayed response to CAP reform and market liberalisation could allow competitors to take
advantage of market opportunities.
115
Suggested additions/ alterations:
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Price continues to be a major factor influencing purchasing which will increase pressure on
farmers to be lowest-cost suppliers. Alteration: It is important to recognise that it is not price
alone driving purchases;
Farm assurance schemes developing internationally Alteration: Is this not already the norm
for baseline production?
Addition: Farmers will be more isolated from exchange rates as the market for value added
products increases;
Addition: Provenance a major USP to limit import demand;
Addition: Those producers who can build a brand/provenance/local food will have a better
chance of long term viability;
Addition: Convenience is overwhelming consumer trend but comes in different forms. The
opportunity is for producers to recognise this and develop new products bearing this in mind;
Addition: Liquid milk becoming decreasing component of dairy sector;
Addition: Probability of major livestock disease occurrence increasing (Salmonella, BSE,
FMD in the last 15 years);
Addition: Increasing food miles issue;
Addition: Increasing pressure from consumers to reduce intensive production systems;
Addition: Higher temperatures will lead to higher demand for BBQs (particular meat products
such as sausages, less demand for roasting meats);
Addition: Food assurance – pesticides possible revision of pesticide list (e.g. Berlain for
cabbage root fly on white turnips) May lead to sourcing overseas;
Addition: Crop varieties developed geared to consumer demand eg with enhanced ‘healthy’
attributes, easy peelers, smaller varieties or better suited to ‘home baking machines. Or Rare
breeds with ‘story’ attached or milk produced from herds with special diets (eg Omega 3
milk.);
Addition: Improving international assurance standards (E.g. possible eradication of FMD in
Brazil).
2.10 Food Chain Structure
Agreements:
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Driver ranked HIGH importance overall;
Rise in interest in direct selling such as farmers markets, farm shops and the internet;
Partnership arrangement with successful food companies and retailers;
Assistance for farmers to collaborate and growth opportunities for the FCB sector;
Collaborative ventures with farmers in other countries;
Increasing global sourcing policies from large international food companies;
Further consolidation creating larger food companies increasing the price pressure on smaller
producers;
Manufacturing migration;
Uncertainty over CAP reform resulting in companies looking elsewhere for supply;
Continuing to operate outside partnership trading arrangements and being exposed to
increasingly volatile commodity markets;
Slow Alteration to market liberalisation amongst producers operating in the historically
supported sectors (HIGH importance).
Suggested additions/ alterations:


New market opportunities through convenience retailing growth in foodservice markets.
Alteration: Foodservice is a big opportunity but convenience retailing likely to be dominated
by retailers therefore unlikely to be “new” opportunity;
Addition: The development of local distribution systems and hubs offering producers an
effective route to market;
116
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
Addition: Globalisation of food companies could offer export potential for UK producers such
as Tesco’s global spread;
Addition: Risky strategy of farmers committing to one ‘partnership’ arrangement that is not
successful.
117
APPENDIX 3 Driver interdependencies
3.1 Introduction
Since the context for change of each driver is a multi-dimensional issue, where one can consider
inter-linkages where drivers can be identified as either causing change in other drivers or being
dependant on other drivers, it is necessary to identify the interdependencies of the drivers. For
example, it may be possible to consider that climate change will provide a contextual basis upon
which WTO negotiations are driven or that determine how energy prices change. In reverse,
climate change could also occur as a response to previous energy price (and thus usage) trends.
Thus, drivers may be causal or dependent on each other in different contexts, but remain as
external casual drivers to agricultural change.
3.2 Method
All drivers were plotted on a matrix to examine the relationship between them based on driver
analysis information and probably causal/dependence relationships. Once the relationships had
been identified, those that were thought to be strongest/ most likely to have an impact were
prioritized within the matrix (see orange-coloured matrix squares). However, it is important to
recognize the level of subjective reasoning necessary to assess the importance of relationships
between impact drivers.
3.3 Impact on agriculture
Whilst these inter-relationships remain external to agriculture, the majority listed in the matrix
would nevertheless have a knock-on effect to the industry in the next 10 to 15 years should they
occur. For example, future growth in population (global and national) will lead to increased
demand for (and thus the price of) fuel for society, including agriculture. Further, the level of
impact of some interdependencies is difficult to predict in the future and these uncertainties make
it difficult to judge the potential impact on agriculture further down the causal chain.
Hence, while the impacts of these relationships are not necessarily specific to agriculture or to the
UK, they may nevertheless have important implications for the structure of the industry in the long
term future. Therefore, they are not considered major drivers of agricultural change in the sector
analysis (section 3 of report), but their impacts are nevertheless recognized as potentially
influencing change at a higher level.
118
Driver as a possible dependant
variable
CAP reform
CAP reform
WTO
Pressure from EU delegates to
retain CAP in beneficial form will
influence WTO decisions
EU enlargement
Ability for CAP structures and
budget to accommodate more
countries may create constrain
future enlargement
Exchange Rates
WTO
Doha Development Agenda
timetable and Longer term
Agreement on Agriculture
negotiations will affect future CAP
proposals
Dismantling of EU Sugar Regime
Diluting of CAP budget –
increasingly less support to UK
agriculture
Possible future opposition to
allocating decoupling to the green
box
Negotiation on policy reform
increasingly complex
Increased importance of
agriculture as contribution to EU25 GDP and increase in WTO
delegate representation will
increase EU lobbying presence
Volume of future trade and trade
deficits will impact on currency
values
Increased concentration and
movement to green box
promoting agri-environment
schemes of benefit to future
climate change
Less livestock leading to less
ammonia and methane
emissions
New technologies
Population change
Food Choice/farm assurance
Exchange Rates
Support payments set in Euros
significantly affected by Euro:£
rate which will influence UK
position on CAP
Changing regional climatic
differences will affect the future
negotiation position of different
member states and the range of
policies needed;
New technologies
Population change
Food choice/farm assurance
Food chain structure
Increase in the technological
Population size and structure
scope for monitoring CAP
will influence EU taxpayer
regulations, which may lead to contribution to CAP budget
further regulations becoming
enforced.
Increased emphasis on agrienvironmental measures.
Member countries positions on
trade are affected by their
economic competitiveness, which
is influenced by currency values
Future WTO negotiations likely to
ICT developments will facilitate World population growth drives Consumer demands for import
focus on environmental and climate increasing world trade
trade demands
availability and reduced import
obligations and aligning with trade
costs affecting future tariff
setting and trade barriers.
Membership of the Euro by
Price of oil significant factor in
NMSs will affect future Euro:£
influencing currency value
values
Increases in transportation
Oil price affected by value of £ and
through increased intra-EU trade UK demand for fuel
may lead to increase fuel
demand and price
Trade of agricultural commodities
liberalizing and the resultant
increase in food transport may lead
to increased GHG emissions
Influence patenting and tading of
genetic material by biotech firms.
Emergence of intellectual property
rights on the trade agenda (TRIPs
clause)
Agricultural land abandonment
freeing up green-field sites for
rural housing leading to
increased urban to rural migration
Potential food safety issues in
accession countries affecting
value of UK trade
Increased access to foreign
markets improving food choice
Increased retail opportunities
affecting retail development
strategies
Increased availability and
affordability of renewable
energy will reduce reliance on
fossil fuels
Renewable energy technology
will help meet renewable
energy targets
Increased mechanisation of
production will increase
demand for energy, therefore
increasing fuel prices
Increasing mechanisation and
automation makes production
more energy dependant and
increases potential for
atmospheric pollution
New renewable energy
technology & crop sources will
alleviate climate change
patterns
Cost of importing new technology
and scientific innovation
dependant on exchange rate
which may affect adoption
Efficiency of new
mechanization dependant on
fuel efficiency and hence fuel
price
Government investment in EU
R&D activity affected by Euro:£
rate
Future development of
1) New crop technologies (biofuels,
renewable energy sources
biotech, remote sensing etc.);
(biofuels) will govern
technological developments of
engines etc
2) New renewable energy generation
technologies (e.g. wind/hydro
power);
3) Water retention technologies on
farms.
Increasingly hot summers will cause Increased automation of
more heat-related deaths
production will reduce labour
force requirements and may
alter age structure of rural
population
Increased flood events and sea level
rise affecting the location of rural
housing
transport costs affecting food Raised temperatures affecting
Improvements in ability to meet
price and availability of imports product demand (e.g. decreased red farm assurance standards
meat, increased salads)
Farm assurance requirements
Improved ICT leading to better
relating to animal health and welfare traceability systems and
due to heat stress
increased online choice
Increase in rural labour migration
from Eastern Europe
Increased access to foreign
markets improving food choice
Provides the motivation and policy
agenda for development of
technologies for renewable energy
sources
Affects levels of duty on fuel
Strong £ could lead to increased Increases in fuel use and GHG
tourist air travel, in turn increasing emissions driven by oil price
GHG emissions
Relative cost of food imports
Expansion of ethnic markets
Food chain structure
Driver as a possible causal variable
Energy markets
Climate change
Uniformity of trade practices and
reduction of trade barriers will make
potential accession countries more
closely aligned to EU and speed
accession process up
Energy markets
Climate change
EU enlargement
Competitiveness of UK produce
overseas will affect Retail
dependency on UK farmers and
processors
Will motivate the development of:
Continued changes in climate will
increase consumer demand for
environmentally friendly products
Warmer summer temperatures may
expand food service sector demand
for eating outside
Haulage costs affecting
Changes in climate will affect the
location/proximity of processors suitability of particular regions to
and retailers
particular products, e.g. wine
growing in south of England
119
Directly affects consumption of
fuels
Increased fuel consumption
leading to increased GHG
emissions
Increased sourcing from overseas
will increase emissions from fossil
fuels in transportation of goods
Less red meat demand
leading to less livestock
leading to lower
ammonia/methane emissions
Greater demand for
environmentally beneficial
products
Ageing rural workforce more
focused on traditional
production methods leading to
low uptake/demand for new
technology
Growing importance of food
miles issue reducing
emissions
Changing demand patterns
will drive product innovation
and motivate the
adoption/invention of new
food technologies
New efficient sourcing technologies
will be required by retailers
(advances in ICT and
communication networks).
Healthier foods and diets may
extend life expectancy
Ageing population may affect
demand for 'traditional' products
Availability and location of retail
outlets
Migration from abroad
influencing the development of
ethnic markets and increasing
ethnic food choice
Increased need for farm assurance
in retail decisions
New/novel crops extending
product range
Improved product shelf-life
Advanced online technologies
will depress need to expand
physical stores and physical
retail consolidation
Relocation of processing to
Eastern Europe potentially
improving UKs ability to achieve
climate change
targets/commitments
Demand patterns and
increasing product
differentiation will affect the
type and location of
processing and retail activity.
120
APPENDIX 4 References
Accelerates (2004) Assessing climate change effects on land use and ecosystems: from regional
analysis to the European scale.
ADAS (2005, a) Impact of impending Regulations on Dairy and Grazing Livestock Farms in
England, March 2005.
ADAS website (2005, b) Blue Sky 35 – The world in 2040, www.adas.co.uk/bluesky35/index.html.
Anderson, P. (2005) ‘Retailer Code Not Good Enough’, Farmers Weekly Interactive, Article.
www.fwi.co.uk.
Bank of England Website: http://www.bankofengland.co.uk/statistics/index.htm.
Bazzaz, F. and Fajer, E. (1992) ‘Plant life in a CO2 rich world’, Scientific American, volume 266
(1) pp. 18-25.
Beghin, J. et al. (2005) ‘The Impact of the European Enlargement and Common Agricultural
Policy Reforms on Agricultural Markets: Much Ado about Nothing?’. Working Paper 05-WP
382, Center for Agricultural and Rural Development Iowa State University Ames, Iowa.
BCPC (2003) Biotech 2020: Crop Technology in the World of 2020, Forum Report, BCPC
Commentary, June 2003.
Business World (2005) World oil prices hit fresh record levels. Business World, Monday, June 27
2005, http://www.businessworld.ie/livenews.htm?a=1200977;s=rollingnews.htm
Boardman, J. and Favis-Mortlock, D. (1993) ‘Climate change and soil erosion in Britain’. The
Geographical Journal, volume 159, (2), pp. 179-183.
BWEA (2005) British Wind Energy Association website: http://www.bwea.com/map/
CEE Food Industry Newsletter (viewed 05/04/2004) ‘EU Enlargement – Threat or Opportunity?’
http://www.cee-foodindustry.com.
CLA (2003) The potential environmental effects of transferability of Payment Entitlements under
the Commission’s proposals for a Long Term Perspective for Sustainable Agriculture.
Country Landowners Association, 2003.
Commission of the European Communities (2001) ‘Making a success of enlargement’, Strategy
Paper and Report of the European Commission on the progress towards accession by
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