The new agricultural revolution

Britain's farming landscape is set for change unknown since World War II, under reform of the Common Agricultural Policy which begins next year and aims to remove the link between agricultural production and subsidies over an eight-year period.

Worryingly, a large number of farmers are still in denial about the radical changes they face, according to research from the IGD grocery research body. But more enlightened farmers are already starting to look at doing things differently -- whether it is transforming themselves into environmentally-friendly land stewards; becoming tourist businesses; or by working collaboratively, creating vertically integrated farmer-controlled businesses (FCBs) with much closer links to consumer markets.

Some consultants in the sector warn that many of the best farmers will exit the business entirely, leaving the rest to struggle on. Ultimately there will be far fewer farmers in Britain in 10 years time than the 100,000 or so there are today.

But, according to food industry experts, it would be disastrous for all farmers to switch to manufacturing ?added value' food products in order to survive in the new commercial world they face. While Britain will never be able to compete with lower cost international commodity producers, they say, trying to eke out a living producing high-volume, low-margin ready meals is not the solution either.

While some farmers -- who have identified true niche markets and have the expertise to make added value products themselves -- may prove successful, many others who go down the manufacturing route are destined to fail. Despite growing interest in locally produced foods and outlets such as farmers markets, a straight switch to making anything from farmhouse cheeses to ready meals from a converted barn is unlikely to be the right solution for most.

Without the right expertise, such enterprises are destined to suffer even poorer returns making food than those they are already getting from their produce, says Dr David Hughes, professor of Food marketing at the Centre for Food Chain Research, Imperial College London. And he should know, he is also a non-executive director of a successful farmer-controlled KG Fruits which this year will see its turnover grow to almost £100m.

Collaboration is the key, but that in itself is not enough. While there are some very successful FCBs,the record of others hasn't been very good. One only needs to point to the dramatic failures of the Amelca dairy venture in Derbyshire followed by the United Milk plant at Westbury last year. These plants had some of the latest low-cost production equipment, but that was not enough. Experts point to their flawed marketing strategies.

The traditional co-operative model based on the old Rochdale principles of The Co-operative movement is unlikely to meet the needs of to today's consumer driven world, as farmers in the US have discovered. Research in the States is throwing up new "offensive rather than defensive" approaches to co-operation which involve attracting investment capital in ways which would have the Co-op's founding fathers spinning in their graves.

But it is not only in the US where ideas about co-operation are being revisited. Here in the UK, there are some good examples of vertical collaboration down the supply chain, where farmers, manufacturers and retailers are working closely together to mutual benefit. Good examples include those between Birds Eye and its pea growers, McCain and its potato suppliers and Warburtons and its grain suppliers.

What the successful FCBs all have in common is a recognition of the need to bring in external expertise, as companies such as KG Fruits have clearly demonstrated. KG Fruits has around 70 farmer members across the country. But its board comprises a mix of backgrounds and skills. It markets 90% of its raspberry and strawberry products through the major UK multiples. And, recognising the need to meet its customers needs, it also imports a small amount of produce to ensure continuity of supply.

The company is progressive in its thinking and invests significant sums in sales and marketing as well as in research and development to add value to its products and grow its market share. "We are basically in a commodity market at the moment but that isn't the future for berries," says Hughes.

It is to provide farmers with guidance and access to expert advice that English Farming and Food Partnerships (EFFP) was set up last year in response to the recommendations of the Curry Commission into the Future of Farming and Food. EFFP is chaired by Jeremy Pope, who is also chairman of £300m+ turnover Milk Link FCB.

EFFP is clear in not seeing its role as encouraging the creation of a whole new crop of FCBs, unless there is a clear market need. Its mission is ?to strengthen the profitability, competitiveness and sustainability of England's farming, food and related farm-based industries'. It plans to do this by: assisting with business development; raising standards and skills; and influencing public policy. Interaction with the farming community will be crucial to its success. And for this reason it has appointed a series of regional managers.

"There is still a long way to go and the EFFP will play a key role," says Sir Don Curry. "There isn't a single model -- there will be various models and they won't be all co-operatives." But he adds: "For sound business reasons we need to apply the principle of working together more collaboratively than in the past."

EFFP chief executive Siôn Roberts agrees that the solution for many farmers probably isn't to transform themselves into manufacturing enterprises, but rather enter into joint venture partnerships. He sees jvs as probably the most important area for collaboration after collaborative production and purchasing schemes.

The government sees EFFP as a crucial pillar in the successful transformation of farming in Britain. Last month Food Minister Lord Whitty announced the first £500,000 installment of a £2.5m five-year grant to help EFFP promote collaboration and co-operation between farmers and the rest of the food chain.

"EFFP is there to help farmers be more profitable," says Whitty. "With the support of EFFP, government and regional bodies, England's farmers can be competitive at home and abroad, and deliver the economic, social and environmental benefits we all want to see." He adds: "Co-operation -- horizontally and vertically -- is essential to success of that strategy."

Whitty acknowledges that FCBs have not been developed in the UK to the same extent they have elsewhere. That may be in part due to cultural differences here. "Collaboration is significantly higher among larger farmers and lower among smaller farmers where it is most needed," says EFFP's commercial director David Neal-Smith.

New skills

To succeed, UK farmers will have to acquire new skills. And this is another area where EFFP hopes to play an important role.

Over the past six months EFFP has conducted research among retailers and processors as well as with FCBs and farmers to identify action points. It also plans to carry out research in the foodservice sector to determine how farmers can work more collaboratively with caterers.

There are distinct differences in perception between FCBs and farmers about the reasons why there has been so little collaboration to date. While FCBs attribute it to a fear among farmers of losing their independence, farmers themselves put it down more to the lack of opportunities. "The opportunities to collaborate have to be promoted to farmers," says Neal-Smith.

EFFP's research shows that while safety and consistency of quality are basic retailer expectations, processors and retailers will in future want to develop longer-term commercial partnerships with their suppliers. Here considerations such as ?integrity' of products -- eg genetic modification, use of pesticides etc --- will become more important. However, farmers need to recognise that their customers' main focus today is on the predictability of supply and the price of products.

"Producers looking for a safer future need to find some form of partnership," says EFFP's associate director for the food chain Stuart Thomson. But, he warns: "Retailers will form a partnership with those best able to understand their businesses."

Much will depend upon FCBs acquiring the skills they need to make the right decisions, and that comes down to training and having the right mix of skills on their boards.

At the moment farmers make up the vast majority on most FCB boards, which generally fail to take advantage of external non-executive director skills. EFFP research shows that six out of 10 FCBs do not have executive directors on their boards and seven out of 10 do not have non-farming non-executive directors. "FCBs have to be up to the job and here we have concerns about management," warns Neal-Smith. "If FCBs are to perform to the highest standards they must address these issues."

EFFP is planning a series of meetings with farmers across the regions later in the year. The question is: are they prepared to embrace change, work together and learn new skills? Sir Don Curry remains optimistic.FM