Government Assistance to Farmers in the United Kingdom

New Zealand Journal of Agriculture, Volume 95, Issue 2, 15 August 1957, Page 147

Government Assistance to Farmers in the United Kingdom

By

J. B. QUIGG,

Investigating Officer, Department of Agriculture, Wellington NEW ZEALAND is vitally interested in agricultural production trends in the United Kingdom because of their effects on the market for New Zealand produce in Britain. Today British farming is being encouraged by very large subsidies, which must be viewed here with concern, because they tend to produce increasing quantities of commodities which compete directly with New Zealand's main exports. Just how extensive is the British Government assistance to United Kingdom farmers is shown in this article.

MOST people in this country are aware that the United Kingdom is one .of the foremost industrialised countries of the world and, at the same time, is the principal outlet for New Zealand’s large export surplus of meat and dairy produce. What is not generally realised is that agriculture itself is one of the largest and most important industries in the United Kingdom.

In the middle of the 19th century Britain was largely self-sufficient in agricultural production. Then wool, grain, and later meat were increasingly imported and there was greater concentration on the production of milk, eggs, pigs, and horticultural produce. Except during the First World War, the arable area in Britain declined continuously from 1872 to 1939

and the meat, dairy, and poultry industries became increasingly dependent on imported feeding stuffs. The shortage of shipping space for imports during the Second World War made increased agricultural production in Britain imperative and required more emphasis on the production of crops for direct human consumption, such as wheat and potatoes, at the expense of livestock and livestock products other than milk. Before the Second World War Britain produced about 31 per cent, of its food supplies (in terms of calories for human consumption). By 1953 this had risen to nearly 50 per cent. The comparable figures in values are 36 per cent, and 51 per cent, respectively.

Imports of food and feeding stuffs accounted for 45 per cent, of the total value of all imports before the war and about 40 per cent, in 1953. The increasing dependence on home production for food supplies is well illustrated in Table 1.

TABLE I—U.K. PRODUCTION OF CERTAIN FOODSTUFFS AS PERCENTAGE OF TOTAL SUPPLIES Pre-war 1955 Wheat and flour .. ..12 24 Sugar (refined) .. ..18 23 Carcass meat and offal .. 51 61 Bacon and ham .. .. 29 45 Butter .. .. 9 7 Cheese .. .. .. 24 33 Shell eggs .. .. . . 71 91 In addition the United Kingdom produces all her requirements of fresh

milk and of barley for brewing and 95 per cent, of her requirements of potatoes.

Perhaps the best way of indicating the size and importance of agriculture in the United Kingdom is to compare a few of the more important- statistics of the. industry with similar statistics for New Zealand. This is done in Tables 2 and 3.

Government Assistance The development of agriculture in the United Kingdom during the past quarter century has been due in no small measure to a policy of direct encouragement by the State. The

TABLE 2— LABOUR, LAND, AND LIVESTOCK USED IN AGRICULTURE IN UNITED KING- ; DOM AND NEW ZEALAND United New Kingdom Zealand Labour force .. .. 1,007,000 137,000 Land occupied for agricultural and pastoral purposes (acres): Sown pasture .. *13,500,000 17,500,000 Tussock and native grasses .. .. 416,900,000 13,400,000 Arable .. .. 17,600,000 1,500,000 Fern, scrub, native • bush, etc. . . .. —• ' 10,900,000 Totals .. .. 48,000,000 43,300,000 Crop acreages: Wheat .. ' . . 2,283,000 65,000 Barley . . . . 2,336,000 61,000 Oats 2,575,000 125,000 Potatoes . . . . 945,000 $21,000 Livestock numbers: Cattle . . . . ' 10,600,000 5,900,000 Sheep .. .. 23,600,000 40,200,000 Pigs .. .. 5,500,000 700,000

TABLE 3—PRODUCTION OF CROPS AND LIVESTOCK PRODUCTS IN UNITED KINGDOM AND NEW ZEALAND United New Kingdom Zealand tons tons Crops: Wheat 2,830,000 72,000 Barley .. .. .. 2,813,000 56,000 Oats 2,496,000 39,000 Potatoes 7,325,000 *144,000 Livestock products: Milk (all purposes) < gallons gallons 2,207,000,000 1,120,000,000 tons tons Butter 15,800 204,500 Cheese 63,500 96,300 Beef and veal ~ ' .. 687,000 250,000 Mutton and lamb . . 191,000 352,000 Pig meat .. .. . . 660,000 40,000 Wool, 'greasy .. .. 48,000 203,000

severe agricultural depression which followed the fall in general prices, after 1920 resulted in 1931 in the beginning of a programme of financial assistance, including tariffs, subsidies, and quotas. Commodity commissions were set up for certain products, and, to enable producers to regulate their marketing, the .Agricultural Marketing Acts of 1931, 1933, and 1949 provided for the establishment of agricultural marketing boards. During the Second World War the functions of the commodity commissions, marketing boards, and the like were largely suspended and the State exercised direct control over the level of production, prices, and imports. . ■ In 1947 the Agricultural Act was passed. This provided the main basis

of post-war agricultural policy in England and Wales and the controls to implement it. Similar Acts for Scotland and Northern Ireland were passed in 1948 and 1949 respectively. The underlying principle of the 1947 Act was that the Government would provide the industry with a system of guarantees which would ensure “a stable and efficient agricultural ... industry'capable of . producing such part of the nation’s food as in the national interest it is desired to produce”. ’ In return for this the Act gave the Government power to insist on. a minimum level of efficiency. In implementing the system of guarantees the. Ministry of Agriculture, Fisheries and Food, the Department of Agriculture for Scotland, and the Ministry of Agriculture for Northern Ireland in conjunction with the farmers’ representatives hold an annual' review of the economic condition and prospects of the industry. In the light of the review, price guarantees are determined for livestock, livestock products, and crops, which in total represent about 80 per cent, of the value of the produce sold off farms in the United Kingdom. Special reviews may also 4 be held at any time if there has been a substantial change in costs or in other conditions. In 1956 the Government, recognising that an annual review by its nature could afford assurance to the industry for only a comparatively short time ahead, considered whether any practicable methods of providing long-term assurances could be’ devised. The

general conclusion was that there was no satisfactory alternative to annual reviews, which will take account of the many changing factors, and that the provision of long-term assurances must be sought through minimum guarantees rather than by an attempt to determine guaranteed prices for a period ahead. It was decided, therefore, that the total value of the guarantees (includ-

ing production grants, which are referred rto later) will be maintained each year at not less than 97| per cent, of the total in the preceding year, after allowing for cost changes that have occurred on review commodities since the last annual review. It was further decided that the guaranteed price for each commodity should not be less than 96 per cent, of the guaranteed price determined at the previous

annual review. In addition the guaranteed prices for livestock and livestock products may not be reduced more than 9 per cent, in any 3 years. The methods of implementing price guarantees are varied from time to time and differ for each commodity. Some of them are extremely complicated. Table 4 gives the prices established at annual' and special reviews in recent years.

Price Guarantees The methods adopted in implementing the guarantees are briefly as follows:

Grains For the 1954 and subsequent harvests a deficiency payments scheme was introduced. Under this scheme growers sell , their produce for what it will bring on the open market. A record of all transactions is maintained by the merchants, and the difference between the average, at-farm price and the guarantee is met by the Exchequer. There are variations in the manner of calculating and the methods of paying the deficiency payments for the various types of grains.

Potatoes Up to and including the 1954 harvest the entire potato crop was purchased by the Ministry of Food at prices fixed annually. However, it was agreed at the 1954 annual review that the guarantee for the 1955-56 crop would be implemented by a support-price system operated through the Potato Marketing Board in Great Britain and the Ministry of Agriculture in Northern Ireland. Under this arrangement the Potato Marketing Board will as. a last resort make purchases at the guaranteed price (which is broken down into four regional and seasonal scales) if producers are unable to obtain this price on the open market. The Government makes up to the board 95 per cent, of the loss incurred by buying potatoes at the support price, leaving the other 5 per cent, to be made good by the board itself out of a levy on producers. Fat Stock From July 1954 the Government introduced a twofold guarantee system for livestock. This combined a guaranteed individual price on each transaction with a collective guarantee of a standard price for the industry as a whole. A single guarantee payment was introduced on 26 March 1956 for each of the three groups of livestock (cattle, sheep, and pigs). The amount payable in each case was calculated by deducting from the guaranteed price the average price realised over 52 weeks, ended 2 weeks before the beginning of each 4-week guarantee period, and was subject to a “stabilising adjustment”. This adjustment was an addition to or substraction from the payment which would

otherwise have been made, to ensure that the average return to producers in any week did not differ from the guaranteed prices by the following amounts: Cattle, 235. per live hundredweight; sheep, 4d. per pound dressed carcass weight; pigs, ss. per score deadweight. The following examples illustrate how the guarantee worked in practice: —• Guaranteed price .. .. .. .. . . Price actually received Average price realised over 52 weeks .. Maximum or minimum price .. .. . Deficiency payment .. ... .. ■.. In each of these the difference between the moving average price (1405.) and the guaranteed price (1515.) is Ils. In Example 1. the' actual price received is 1195., which is 9s. less than the minimum (1285.), but the farmer receives the full deficiency payment of Ils. In Example 2 the actual price received is only 110 s.; hence as the addition of Ils. would not bring him up to the minimum (1285.), he received 18s., making the price up to this level. In Example 3 the addition of Ils. would bring his return to 1765., which would exceed the maximum; therefore the deficiency payment in this case is scaled down to 9s.

It is interesting to compare the prices guaranteed the United Kingdom producer of livestock in 1956-57 with the prices received by the New Zealand producer in the same period: —

U.K. PRODUCER N.Z. PRODUCER Fat Cattle 151 s. per live cwt. North Island schedule gross weight, plus price ruling in Jan. or minus 235. 2s. 6.3 d. plus or beef 680/U, 9.6 d. minus 4.6 d. per per lb. lb. dressed weight. Fat Sheep and Lambs 3s. 2d.', plus or minus Weighted average of 4d. per lb. esti- North Island mated dressed schedule prices rulcarcass weight. ing in Jan. 1957 for prime lambs 20/28, prime wethers 49/56, and prime ewes 49/56, Is. lOd. per lb.

A new method of calculating guarantee payments for fat stock came into

operation on 25 March 1957. For cattle and sheep the standard prices shown in the last column of Table 4 will be broken down into weekly seasonal standard prices, which will be specified later. The rate of guarantee payment in each case will be the amount by which the average of the last 4 weeks’ actual market prices and the estimated market prices for the following 4 weeks falls short of the average of the seasonal standard prices for the same 8 weeks. For pigs there will be no seasonal scale and the rate of guarantee payment will be the amount by which the standard price shown in Table 4 ex-

ceeds the average of the last 4 weeks’ actual market prices and the estimated market prices for the following 4 weeks, including quality premiums. As in previous years the rate of guarantee for pigs will be subject to adjustment in accordance with the operation of a feeding stuff formula. The rate of guarantee payment for each group of stock will be calculated weekly and announced before the beginning of the week to which it relates. It will be subject to a stabilising adjustment in any week in which this is necessary to ensure that the average return to producers does not differ from the respective standard price for cattle and sheep the standard price for the week in question— by more than 7s. per live hundredweight for cattle; 2d. per pound dressed carcass weight for sheep; and 4s. per score deadweight for pigs. Milk Before the Second World War the milk marketing boards in the United Kingdom were third parties to all contracts between producers and distributors of milk. At the beginning of the war the Ministry of Food assumed . control over marketing and use of milk, the marketing boards acting as its agents for the purchase of milk from producers and the sale of milk to distributors and manufacturers. The average price to the producer was fixed annually, the seasonal scale of prices being agreed to by the Government, the milk marketing boards,

and the national farmers’ unions. This procedure was confirmed by the Agriculture Act 1947. Up to March 1954 no limit was placed on the quantity of milk to which the guaranteed price applied. The producer received a fixed price for each gallon of milk irrespective of its ultimate use. Marketing powers were restored to the milk marketing boards from 1 April 1954 and at the same time a somewhat different method of implementing the guaranteed price came into operation. The guaranteed average price for the United Kingdom, determined during the annual price review at 3s. 1.2 d. per gallon for 195455, was broken down into a guaranteed price for a standard quantity of milk for each of the five milk marketing board areas.

If milk production in any area in 1954-55 exceeded the standard quantity, which was fixed at the level of total sales in the previous 12 months, the effective rate per gallon of the guaranteed price would be reduced. For 1954-55, 1955-56, and 1956-57 the

standard quantities were not altered, but guaranteed prices were raised fd. a gallon in 1955-56 and a further id. in 1956-57. The standard quantities and guaranteed prices for each area for the 3 years are shown in Table 5.

TABLE S—STANDARD QUANTITIES AND GUARANTEED PRICES FOR MILK

*Standard Guaranteed price (pence per gal.) Area quantities 1954-55 1955-56 1956-57 (mil. gals.) England and Wales .. .. .. 1,651 37.25 38.00 38.50 Main Scottish area .. .. .. 183 37.26 38.01 38.51 Aberdeen and district .. .. .. 19.5 37.90 38.65 39.15 North of Scotland .. .. .. 9 38.99 39.74 .. 40.24 Northern Ireland .. .. .. 95 35.91 36.66 37.16 United Kingdom .. .. .. 1,957.5 37.20 37.95 38.45

In each area the guaranteed price is further broken down into a higher price for a primary proportion (which corresponds to the quantity sold for liquid consumption) and a lower price for the remainder of the milk. The higher price, which is a firm guarantee, applies to 81 per cent, of. the standard quantity or to 81 per cent, of total sales if they are less than the standard quantity.

The lower price applicable to the rest of the milk represents what each board and the Government agree to be the likely average manufacturing price for the whole year; the higher price for the primary proportion is then calculated at such a level as would bring the return on the standard quantity to the over-all guaranteed price. In England and Wales and in the main Scottish area the lower and

higher guaranteed prices in 1954-55 and 1955-56 were as follows: Lower Higher d. per d. per gal. gal. England and Wales: 1954- ... .. 17.25 41.94 1955- .. .. 16.25 43.10 Main Scottish area: 1954- .. .. 17.25 42.35 1955- .. .. 16.25 43.45 .

If the actual realisation on milk sold for manufacture differs from the forecast lower guaranteed price, each board is guaranteed the forecast price plus half any excess or minus half any deficiency, this arrangement being applicable to all milk outside the primary proportion, even' if in excess of the standard quantity. Finally, at the end of the year the Government makes up any deficiency between the net revenue from total sales received by each board and the amount to which the board is entitled : under the over-all price guaranteed for the standard quantity. Payments are also made to cover any consumer subsidy on liquid milk and the cost of the provision of cheap or free milk under welfare schemes. Egg's Before 14 May 1957 producers were required to send all eggs, except those sold directly to consumers, to licensed packing stations for testing, weight

grading, and stamping. Market prices were determined by normal supply and demand, but the Government, through its company, NED AL (1954) Ltd., was prepared to purchase packed and graded eggs from packing stations at guaranteed prices plus an approved charge to cover cost of collection, grading, and packing. Alternatively, packing stations were granted a direct cash allowance to enable them to pay the prescribed minimum prices while selling at current market prices. The egg price announced after each annual review was converted to a seasonal scale of guarantees which was related to changes in market prices. The scale was also linked to changes in feeding stuff prices. As from 14 May 1957 practically all sales of eggs came under the control of the newly established Egg Marketing Board. This board now administers the subsidy scheme. The Government will endeavour to ensure that the board receives a price equivalent to the guaranteed producer price plus an allowance for administrative costs and marketing expenses. This year the total will be 4s. 6.2 d. per dozen. It is officially estimated that the average realisation will be 2s. lOd. per

dozen, so the Government will pay a flat rate of subsidy to the board of Is. 8.2 d. per dozen on all eggs handled. Should the average return differ materially from 2s. lOd. per dozen, the Treasury will share the difference (less 2d. a dozen) with the board, meeting 90 per cent, of any loss, but receiving 50 per cent, of any surplus. Wool All wool produced in the United Kingdom is marketed through the British Wool Marketing Board, which pays growers scheduled prices and employs agents to sell the wool on . its behalf by public auction. For the clips of the wool years 1951-52 to 1954-55 the price guaranteed by the Government comprised a grower return and a fixed marketing allowance. For clips from 1955-56 onward a consolidated guarantee has been announced annually. The board deducts from this guarantee a sum to cover its expected marketing costs, and the balance is paid to growers. The board’s buying schedule is adjusted to ensure that the over-all average price for the season will be, as nearly as practicable, equal to the price element of the guarantee. - When the board’s realised price on any year’s wool clip exceeds the combined guarantee 90 per cent, of the surplus is paid into a reserve fund and 10 per cent, is retained by the board. If, however, any debt is outstanding to the Government in respect of past deficiencies, the entire surplus goes to pay off this debt. If the board’s realised price is less than the combined guarantee, this deficiency is met by withdrawal from the reserve fund or, if the reserve fund is inadequate, by a deficiency payment from the Government. These payments are carried forward as a debt to be paid from future surpluses. There are, however, special provisions to prevent the excessive accumulation of debts or credits. Sugar Beet Sugar beet is also subject to a price guarantee. However, as this commodity is not of particular interest to New Zealand, the arrangement will not be described. Direct Production Grants In addition to the price guarantee arrangements agriculture in the United Kingdom is assisted by a number of direct production grants. The more important of these will be described briefly. Calf Subsidy , , The calf subsidy is payable under the Agriculture (Miscellaneous Provi-

sions) Act 1949 and the Agriculture (Calf Subsidies) Act 1952. In 1952 the subsidy was fixed at £5 per head for any steer or heifer beeftype calf born between 1 October 1951 and 29 October 1955. At the 1955 review of agricultural prices the subsidy was raised to £7 10s. for calves born after 1 April 1955. The subsidy was subsequently extended for a further 3 years to October 1958, and at the 1956 review the rate was increased to £8 10s. for steer calves born on or after 1 April 1956. The subsidy on heifer calves remained at £7 10s. The Civil Estimates for 1956-57 provided for an expenditure on calf subsidy of £11.3 million. The corresponding figure for the previous year was £8 million. Hill Cattle and Hill Sheep Subsidies and Improvements Grants r The hill sheep subsidy was introduced in 1940 and applied to breeding ewes. The subsidy on breeding cows and other cattle on hill grazing was introduced in Scotland in 1941 and extended to the rest of the United Kingdom in 1943. These subsidies have continued in the post-war years under the authority of the Hill Farming Act (1946) and the Livestock Rearing Act (1951). The former Act in addition to continuing the payment of the subsidies made provision for the payment of an improvement grant equal to half the cost of any approved work to assist in the development of existing hill farming land and the reclamation of land which could be made suitable for hill farming. . The Livestock Rearing Act extended the Hill Farming Act in several ways; grants equal to half the cost of the work done were extended to upland areas as well as hill farming land, the funds available for grants were increased, and the subsidies were extended to 1956. A further Hill Farming Act passed toward the end of 1956 extended these provisions until 1963. The hill cattle subsidy rate has been varied from time to time as between the rate payable for breeding stock and other eligible cattle. For the years 1954 to 1956 there was to be a single rate of subsidy of £2 per head. However, at the end of June 1953 a new hill cow subsidy was introduced for England and Wales covering 1953 to 1956 under which £lO a head was to be paid on breeding cows and in-calf heifers in regular breeding herds kept on hill and upland farms throughout the year. . Cows kept solely for milk production were not eligible, but herds kept for breeding store cattle qualified as long as all calves were reared, even though small quantities of surplus milk might be sold in summer. In such cases the

subsidy would be reduced in proportion to the quantity of milk sold. The original hill cattle subsidy continued in England, Wales, and Northern Ireland until the end of 1956, but not more than £lO was paid on any animal that qualified under both schemes. The hill cow subsidy continues at the rates mentioned until 1963 under the provisions of the 1956 Act. In Scotland the subsidy paid for breeding cows and in-calf heifers kept on hill land has been £lO per head since 1953. The hill sheep subsidy is payable at a standard rate for self-maintained flocks of eligible ewes and shearling ewes of hardy hill breeds kept on hill farms. A reduced rate (one- half of the standard rate) is payable for flocks of eligible ewes maintained by the purchase of ewes, shearlings, and ewe lambs. The standard rate, which has varied, was 2s. 6d. per head in 1952. No payment was made in 1952-53, 1953-54, and 1954-55. As part of the annual price review settlement in 1955 a special non-recurring payment was authorised for ewes and shearling ewes of hardy hill breeds kept on hill land on 3 December 1954; a standard rate of ss. per head was fixed for self-main-tained flocks and a reduced rate of 2s. 6d. per head was agreed for other flocks. This payment was continued at the same rates in 1956. The 1956-57 Civil Estimates made the following provision for expenditure

under the headings discussed above (the figures shown in brackets being the estimates for 1955-56): — £ Grants for improvement of livestock rearing land 1,529,000 (2,159,000) Hill sheep subsidy .. 1,180,000 (2,122,000) Hill cattle subsidy .. 2,745,000 (2,725,000) General Fertiliser Subsidy The Agriculture (Fertilisers) Act 1952 provides for Government assistance to occupiers of agricultural land for expenditure on fertilisers. The maximum contribution under the Act is 50 per cent, of the expenditure which occupiers would have incurred if there had been no provision for contributions, and there is provision for varying amounts of contributions for different fertilisers. At 1 May 1955 15 per cent, was granted toward the cost of nitrogenous fertilisers and 30 per cent, toward phosphatic. The 1956 annual review provided for increased rates of subsidy for nitrogenous and phosphatic fertilisers as from 1 July 1956. This involved additional payments of about £3 million. It has been estimated that a further £3 million additional expenditure will result from the determination made at the 1957 review to fix increased rates of subsidy for nitrogen as from 1 July. The total amount provided in the 1956-57 Civil Estimates for the General Fertilisers Subsidy was £16.5 million. Lime Subsidy The Agriculture Act 1937 provided for contributions by Government to-

TABLE 4— FARM PRICE GUARANTEES IN UNITED KINGDOM*

3 1953-54 1954-55 1955-56 1956-57 1957-58 ■Wheat (cwt.) s. d. s. d. s. d. 30 d. 28 d. Wheat (cwt.) 30 9 30 9 30 0 30 0 28 7 (29 9) (29 9) Rye (cwt.) 25 0 25 0 23 3 23 3 22 1 (23 0) (23 0) Barley (cwt.) .. .. .. 25 0 25 6 24 8 20 2 29 0 (24 6) (26 0) 'Oats (cwt.) '.. .. .. .. 22 2 24 0 23 3 25 0 27 5 (23 0) (24 9) Potatoes (ton) 244 0 249 0 215 10 221 3 225 0 (212 6) (217 0) Sugar beet (ton; 16.5 per cent. sugar content) .. .. .. 122 3 125 7 127 7 - 130 6 .130 6 (125 7) (128 1) Fat cattle (live cwt. gross weight) 133 2 133 2 138 8 151 0 156 0 Fat sheep and lambs (lb. estimated - dressed carcass weight) .. .. 210 J 210 J 3 0 3 2 3 3J > Fat pigs (score deadweight) .. 54 3 51 3 51 4 49 7 51 11 Milk (gallon) .. .. ..3 2.2 3 1.2 3 1.95. 3 2.45 3 2.70 Eggs, hen (dozen) .. .. .. 4 0 4 0 4 1J ' 4 1J 4 1J Eggs, duck (dozen) .. .. .. 3 3J 2 9 2 9J 2 4J 2 5 Wool (lb. greasy) .. .. ..+4 6 +4 6 4 10.25 4 8.25 4 8.25

Example I Example Example 3 s. s. s. .. 151 151 151 .. 119 110 165 .. 140 140 140 .. 128 128 174 .. 11 .18 9

N.Z.-U.K. TRADE TALKS

New Zealand Trade Mission to Great Britain, 1957. Signing of Trade Agreement by, left, Mr. K. J. Holyoake, Deputy Prime Minister and Minister of Agriculture and leader of the New Zealand delegation, and Sir David Eccles, President of the U.K. Board of Trade. Left to right at back: Sir Clifton Webb, New Zealand High Commissioner in Great Britain, Mr. S. D. Reeves, President, Federated Farmers of New Zealand, Mr. E. J. Fawcett, Director-General of Agriculture, and Mr. J. D. Ormond; Chairman, New Zealand Meat Producers Board.

♦ Permanent pasture. t Bough grazing. . t Commercial production only. Note: The statistics are for the most recent comparable year. . , ‘ /

* Commercial production only. Note: The statistics are for the most recent comparable year.

* Prices in sterling; where two prices are shown against a year the one in brackets is that determined after a regular review and the other, which is the effective one, is the guarantee announced after a special review. ■ t Pius marketing costs of 4|d. per pound in 1953-54 and 4|d. per pound in 1954-55.

♦ Standard quantities for 1957-58 are the same except that for England and Wales, which is Si million gallons higher.