Nadhim Zahawi portrait

Nadhim Zahawi is the Conservative MP for Stratford on Avon and a member of the Foreign Affairs Select Committee.

Farmers are the keepers of the countryside and without them rural communities would lose much of their character. If that character is lost, Britain will have lost something dear too.

Today is a worrying time for farmers. Prices for cereals and oilseeds have plunged, and profits have been wiped out suddenly. Our attention has to fall on how we can help sustainably without the tools that blighted agricultural policy in the ‘80s and ‘90s.

The volatility of the global food market has been notable in the last few years. As food prices skied at the end of the decade, tipping millions into poverty and the Arab world into revolution, international high politics and the pleasantness of the English countryside were juxtaposed in bizarre fashion. Farmers were seen as profiting as unscrupulous speculators in London and New York and protectionism pushed up prices for the world’s poorest.

Today however, the trend has reversed. This year has seen the fastest drop in the value of the UN’s Food Price Index in seven years driven mainly by a global oversupply, lower energy prices and the collapse of demand from the Chinese economy.

This isn’t itself a huge political concern. Fluctuations in prices always occur and farmers are business people who know how to plan. It does however become a concern when it’s policy itself that’s the cause of imbalances.

To make matters worse, Britain is in the midst of a supermarket price war that’s squeezing down prices further and changes to subsidy payments and communication mistakes made by the European Commission are also forcing many farmers into higher and higher levels of borrowing this winter.

Higher subsidies are out of the question. When linked to production, subsidies distort the market and it would be inappropriate to hand money to farmers while governments all over Europe are having to make savings. But we don’t need to spend money to help the farmers. We can look to remove barriers and make the markets for their major inputs more competitive and transparent. The market for fertiliser is the centre of the attention here.

Fertilisers are a key input of agricultural production. It contributes to increasing yields and reducing unit production costs. If the product isn’t of high enough quality or is too expensive to use in sufficient quantities, then our farmers cannot compete properly on the international commodity markets.  What’s making the cost of nitrogen and phosphate fertiliser so worrying for UK farmers is that prices in Britain have been rising faster and higher than prices on international markets in recent years.

Energy and grain prices are the key drivers of the supply and demand of fertiliser. The oil price collapse ought to have made it cheaper to produce and transport, and the fall in grain price should mean that less is demanded by farmers. Farmers are concerned because shifts in the prices of these determinants have not been followed by a fall in the price of fertilisers.

There is good reason to believe that EU policy is the reason why the price of fertiliser has held steady rather than following energy and grain down. Competition authorities have allowed the European fertiliser manufacturing sector to be consolidated amongst fewer and fewer companies thus reducing the competitiveness of the market. On top of this questionable competition policy, the EU have erected trade barriers to protect these companies from non-EU imports of nitrogen and phosphate products. There are tariffs at 6.5 per cent and 4.8 per cent on these products respectively.

Policy caused this problem and policy can solve it. The EU should urgently look at suspending these tariffs on nitrogen and phosphate fertilisers to help in the short term, allowing European farmers to import them internationally. In the longer term it should look closely at the consolidation of the fertiliser production market and decide whether it is really in the best interests of stakeholders all over the continent and here in the UK.

It is in no one’s interest to see farmers go out of business or become dangerously indebted. The enormous gap between the world price and European price for fertiliser will make this happen unless the EU responds.  The English and Welsh NFU is not like the French farming unions in demanding hand outs and engaging something close to terrorism to get them. They are reasonably asking that the competition authority does its job properly and for an ill-conceived tariff is removed.

2 comments for: Nadhim Zahawi MP: Farmers or fertiliser manufacturers? The Commission should take its pick.

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