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World Development book case study: Agribusiness

The term ‘agribusiness’ emerged in the 1970s and was used to describe the increasing number of inputs to farming in the developed world. It includes farming, seed supply, agricultural chemicals, wholesaling, processing, distribution and retail sales. The term has come to represent different things to different people. For people within the food-supply industry, it is a convenient way to describe the wide range of business and agriculture activities involved in modern food production. For many others, the term has a negative connotation because it is associated with corporate farming. From this point of view, agribusiness is all about large, vertically integrated food-production businesses with profit as their main motive that damage the environment, reduce food quality and cause social dislocation in rural areas in particular.

Agribusiness grew rapidly following the Green Revolution in the 1960s. Almost all farms in the developed world use the products and technology sold by agribusiness and increasingly farming in the developing world is becoming just as dependent.

In the UK, agribusiness has changed the nature of farming in the last 40 years and nowhere is it more apparent than in East Anglia. Farm sizes have increased dramatically as farms have merged to obtain economies of scale in operation practices and purchasing ability. Farmworker numbers have fallen as mechanization has taken over and field sizes have become much larger to make them more efficient to farm with the new machinery. Inputs of agrichemicals have risen sharply as well as farm machinery.

All of these changes have brought considerable environmental and social change. Reducing the number of hedgerows to make larger fields has reduced the habitats for wildlife of all kinds, resulting in a loss of biodiversity. Soil erosion has become more of a problem because of the new farm-management practices and the intensification of farming for food production has been likened to an industrial process – factory farming. Farms which were the centre of rural life have become remote places without the human activity generated by farm workers. Villages once dependent on the farms for employment have undergone profound social change. Many have become dormitory towns for larger towns and cities and lost the access to services they once enjoyed.

Agribusiness supports farmers in East Anglia in many ways and Lynford House Farm is a good example.

Farming in East Anglia – basic details

Physical Inputs (natural)

Human Inputs (artificial)

Processes

Relief – Low flat region. Large fields allow the efficient use of machinery

Government help – Grants and subsidies used to help farmers

Ploughing

Harrowing

Soils – Deep rich soil (Boulder clay on chalk) Drainage can be a problem

Marketing – Technology helps the improved movement of perishable products to markets

Seeding/sowing

Temperatures – Cold winters and frequent frosts help to break up soils and warm sunny summers ripen crops

Mechanization – Extensive use of large machinery such as combine harvesters, potato pickers and pea-mobiles.

Fertilizing

Spraying weed killers and pesticides

Rainfall – 500-600mm per annum with a summer maximum. Irrigation frequently needed for vegetables and soft fruit

Biochemistry – Fertilizers, weedkillers and pesticides used in large quantities. Lime added to soils to improve drainage and lighten soil.

Harvesting

Marketing


Crop rotation – Crops moved in rotation to improve yield.


Lynford House Farm

The farm covers 570 hectares in the Cambridgeshire Fens, northwest of Ely. A farm has existed on the site since 1746 after the land was reclaimed when the Fens was drained. The farm is entirely arable and owned by a family partnership.

Fig 1 Aerial photograph of Lynford House Farm

The land surrounding the farm is flat, fertile fenland and ideal for arable farming. Average rainfall is approximately 560mm a year. The main crops are wheat, sugar beet and potatoes but other crops such as linseed and peas may be grown for sub-contractors.

INPUTS

Labour

The farm employs two family members full-time and two general farm workers. Contractors are employed for jobs such as lime spreading and keeping vermin under control.

Agronomy advice is accessed through a local farmers buying group. The group also saves an estimated 20% a year on the farm’s chemical costs.

Chemicals

Annual costs for nitrogen in compound form - £10,500 ($16,800)
Fertilizer for sugar beet - £4,800 ($7,700)
Pesticides (including fungicides and insecticides) - £43,500 ($69,600)

Fuel

Tractor diesel - £7,700 ($12,300)

Machinery

Machinery costs are high. A combine harvester is over £80,000 ($128,000)and a high horsepower tractor at least £34,000 ($54,400). Specialist machinery such as potato harvesters and beet harvesters are also very expensive. The sharing of the most expensive machinery with a neighbouring farm has greatly reduced farm costs.

Subsidies and quotas

The cross-compliance subsidy was introduced in 2005. Under the system, farmers are paid a subsidy on the area farmed rather than the crops grown. To be eligible for the subsidy, farmers have to comply with regulations that are intended to increase habitats for wildlife surrounding farmed land. At least one metre must be left between the area farmed and hedgerows and the area must be grassed or left for natural regeneration for wildlife, wild flowers and insects. A two-metre space must also be left from the centre of any ditch surrounding a farmed area.

A Stewardship Scheme has also been introduced. This encourages farmers to create areas on their land that are suitable habitats for species whose numbers are declining and under threat. A points system is used to assess the environmental value of the action taken by the farmer and, if it reaches 30 points per hectare, an additional subsidy is paid.

The farm has a quota of 4,154 tonnes for sugar-beet production.

Issues for the farm

Farm incomes have come under pressure in recent years as subsidies have been reduced through the European Union’s Common Agricultural Policy. Like all businesses, the farm has sought ways to reduce its costs and increase its income. Reducing the labour force has been a policy for some years and the work has been done instead by the use of large machinery. Sub-letting some of the land for the growing of other crops has also increased the cash flow on the farm and insulated the farm from some fluctuations in crop prices.

Two years ago we considered letting out our potato land and storage facilities to other growers. With 4,300 tonnes of storage space available, we calculated that by letting out 80 hectares of land, with irrigation and storage, we could estimate a return of approximately £2,000 ($3,200) per hectare. On top of this there would be savings on inputs, giving us a much improved and controllable cash flow. We have implemented this policy this year. The timing has been excellent as we are insulated from the market price for potatoes, which is under great pressure. Our input costs have been approximately half those of the previous year. We now have a simplified system, are under less stress and less financial risk.

Because we are now letting our potato land, it has allowed us to look at the viability of lifting our own sugar beet, rather than employing a contractor to harvest it. The figures confirmed that this would be financially beneficial and we have implemented the idea by purchasing a beet harvester.

A water shortage on the farm has been addressed by installing a 12-million-gallon reservoir for farm use. Only 4% of East Anglia’s water supply is used by farms but in periods of rainfall shortage in the spring and summer that figure can rise to 60% because of the need to irrigate crops. This extra demand is often concentrated in the driest years, in the driest parts of the catchment’s area when the water-supply system is under most stress. Water is also an important requirement of the food and drink processing industries and 18% of the region’s industrial use of water is taken by the agri-food sector. East Anglia is the driest part of the UK and much of the region is designated as an area of serious water shortfall

Diversification

The farm has sold off eight bungalows on the farm to release capital and is letting two other bungalows and two cottages. It also has plans to convert old piggery buildings into offices for small businesses.

The siting of wind turbines on the farm was also considered but the plans were dropped after opposition from local environmental organizations. The farm management is also not convinced of the value of wind power.

Social and economic impact of agricultural change in East Anglia

The intensification of agriculture has certainly had an impact on rural East Anglia. The decline in agricultural employment had a disproportionate impact in the more isolated areas, where there are significant problems that are typical of other remote rural areas in the UK. Among these are social exclusion, high poverty levels and poor access to key services, particularly for the elderly and those without access to a private car.

However, the situation is not uniform across East Anglia. The population has increased because of immigration rather than natural increase and the socio-economic profile has changed as a result. There are fewer young people between the ages of 15 and 29 than the UK average, more people over 35 and a larger-than-average retired population. This influx of middle-aged and retired people through counter-urbanization has boosted the rural economy.

Copyright Rural Evidence Research Centre
Fig 2 Map showing projected population change in the UK 2003-2028 Copyright Rural Evidence Research Centre

The improved communications to London and other cities and a desire for a better quality of life has meant the number of financial workers living in rural areas has risen dramatically. Around 50% more financial-services businesses were located in rural areas in 2005 than in 1994. Tourism has also become an important part of the regional economy, with natural attractions like the Norfolk Broads and the cathedral towns of Ely and Norwich.

With only 2.3% employed in agriculture, there is less dependence on farming in the local economy than in the past, although agrifood is still important in centres where farm produce is processed and distributed. Most farm work is mechanized but the picking of fruit and some vegetables is still a labour-intensive job and farms in East Anglia have found it increasingly difficult to employ local seasonal workers for such hard, low-paid work. It is easy to understand why there has been a large increase in the number of foreign workers in East Anglia during the last eight years. The large numbers of migrant workers in places such as Ely have become an issue in local politics and put pressure on some local services.

‘It’s harder to hire the right people with the right skills from a smaller pool of labour, particularly as rural industry diversifies.’ - Paul Pennycook, Commission for Rural Communities

Diversification in employment has been possible because more jobs have been created in East Anglia in the last ten years than in any other region in the UK apart from the southwest. Future growth will need careful planning to protect the natural environment and provide the right conditions for continued growth in employment.

Sustainable Development: Regional Planning Guidance for East Anglia to 2016

Build on the strengths of rural areas by encouraging business development and the development of local business clusters.

Support the expansion and establishment of businesses that can undertake much of their activity using IT.

Promote farm diversification appropriate to the environmental and ecological setting, in particular uses which support the local economy through increased employment.

Support the viability of rural communities by promoting housing schemes for local needs and the retention of village shops and services.

Protect the countryside from inappropriate development, with priority going to areas that are designated as nationally important; and protect and enhance local identity and distinctiveness by promoting patterns of development and designs that draw on local features of importance and respect landscape character and setting.

Excerpt from government report on sustainable development in East Anglia