Farmers putting the brakes on potential investment

Survey shows farmers twice as likely to decrease investment than to spend any more

Growers: wondering whether it is worth investing in new production if produce is only worth pennies on the shelf - image: HW
Growers: wondering whether it is worth investing in new production if produce is only worth pennies on the shelf - image: HW

A new survey by the NFU on farmers' investment intentions, just before last month's general election (8 June), has given a downbeat assessment that has been echoed by fresh-produce representatives.

The survey found that farmers are nearly twice as likely to be decreasing (20.1%) than increasing investment (10.7%) over the next 12 months.

NFU president Meurig Raymond says: "With just 10% willing to increase investment in their business, it does not paint a pretty picture for the progressive industry that we are striving to be. But this is exactly why we'll be working closely with the newly elected team at Defra, to ensure that investment is a key part of a new domestic agricultural policy."

He adds: "The Government will need to take firm action to maximise on the future potential of British food and farming. We need a competent and reliable workforce, a fit-for-purpose domestic agricultural policy and the right trade deals. To address this debilitating uncertainty they need to give the industry as many assurances as possible."

British Growers Association chief executive Jack Ward tells Horticulture Week he is "not hugely surprised" by the survey's findings. "There has been a temporary uplift from the exchange rate and that has boosted farm subsidies but, of course, fresh produce benefits little from that," he says.

"The impact of a trade deal could see a flood of cheap imports, though the issue of trade and tariffs isn't quite as big as for red meat, say, or cereals. The big wrinkle for fresh produce is access to labour - that's probably the biggest break on potential investment right now.

"But the exchange rate also has a negative effect. Mushroom growers, for example, import a lot of compost from Ireland and the Netherlands, while a lot of seed and rootstock is also imported into the UK, as well as equipment, all of which have become more expensive. Yet for complicated reasons there hasn't so far been a lift in retail prices."

Period of uncertainty

For the sector to invest in more and improved production, Ward says: "You want certainty and we are in for a period of uncertainty, since no one knows the answers, including how the EU will react to whatever policies we pursue. But this has the potential to have a massive impact, not least if we end up with a more complicated system for moving product around.

He warns: "We are only at the start of this process and I'm not sure a new Government is going to provide a great deal more certainty - we will be no clearer tomorrow what the landscape in 2020 will look like - and until then growers will be nervous about committing to large-scale investments that they don't absolutely have to make."

John Cappalonga, a member of the NFU horticulture and potatoes board who also owns and runs Lea Valley sweet pepper producer Netherhall Nursery, bears this out. "As a grower of fresh produce it's the decreasing rate at retail each year, due to the price wars and one-upmanship between the supermarkets, which feeds down to suppliers," he says.

"That leaves a lot of growers wondering whether it's really worth investing in new production if their produce is only worth pennies on the shelves. We also have the climate of wage increases and while fuel prices have been low the only way they're going now is up. I would love to expand. Twenty years ago you could expect that if you doubled your area, you'd double your turnover, but now it's not that straightforward."

While on the face of it the decline in the value of the pound since the referendum vote ought to have strengthened the hand of British growers against imports, in practice this also militates against investment, he explains. "All glasshouses are made in the Netherlands, we buy plants from the Netherlands, machinery from Belgium, even the gas is foreign, so all our costs are in overseas markets and when the pound is down, as it has been for a year now, it puts all our costs up."

He adds: "At the NFU we deal with several Government departments, not just Defra, but for the last six weeks we've had no one to talk to."

The NFU's survey also shows a slight rise in farmers' mid-term (three-year) confidence since the Brexit vote and, perhaps surprisingly, a surge in short-term (one-year) confidence, which was found to be at its highest since October 2013.

"The outlook from farmers is positive for the next 12 months due to the weak sterling," Raymond explains. "But we all know that farming businesses are long-term and cannot rely on currency fluctuations."

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