Meeting of the Parliament 23 September 2015
I am aware of some of the challenges that are facing many of the farmers in Orkney. I simply assure Liam McArthur that my officials are working on the transportation issues that he has mentioned and on other matters where the Government can help out. Those talks are on-going, and I have asked for an urgent report back on the progress that is being made. Some practical issues have to be ironed out, but I assure Mr McArthur that we are looking closely at the issues.
As Liam McArthur has suggested, the effect of continuous rainfall can be profound: the ground becomes saturated; the grass does not grow; and farmers have to buy in extra feed and straw for their stock. Harvests have been delayed, and we are waiting to see what yields are like and whether the drying costs for wet grain will be higher this year. As I have said, we are working closely with the industry to identify what can be done to help those who have been affected most by the heavy rainfall in Orkney and elsewhere.
Other challenges include the euro-sterling exchange rate, which affects the value of farm payments. In recent years, the exchange rate has resulted in higher payments, which have helped to buffer the impact of additional costs. Last year, however, a combination of the exchange rate and a smaller common agricultural policy budget overall led to support falling by around 12 per cent or £70 million.
We are also having to cope with the wider international economic backdrop. For example, we have heard of the economic challenges in China that might slow down growth. Given that China is a big barometer for world trade conditions as well as a potentially huge market for Scotland, its economic prospects are very relevant to the debate. Moreover, the Russian ban on imports from Europe is having both a direct and an indirect effect on our sectors, including dairy, with produce that normally leaves the EU now remaining in European markets.
Of course, the challenges facing the dairy sector have very much occupied the headlines in recent months. Some of our producers are now receiving some of the lowest prices anywhere for their milk. Efficiency improvements have allowed the sector to increase total milk production by 97 million litres since 2004; unfortunately, however, that has coincided with a global oversupply of milk, and the price for many dairy farmers both in Scotland and elsewhere in Europe has plummeted. The situation here has been compounded by our overdependency on liquid milk rather than added-value products. There are some small signs that international dairy prices may be improving, and Europe has made some extra funding available for milk and meat producers. I will come back to that later.
Times are tough for many other livestock producers; it is not just a dairy issue. Beef prices this year are sluggish, and rising costs in the beef sector over the past 10 years have led to a real-terms fall in the average net farm income of more than £6,000. Early analysis by one group of economists suggests that the decisions that the Scottish Government took to have three payments regions under the new common agricultural policy and to use the maximum amount of coupled support available under the policy will help to keep beef cow numbers up. Therefore, there are some bright spots.
I turn to the sheep sector. At the start of the season, lamb prices were again disappointingly low, partly because of slow growth as a result of poor grass, but there are now some signs of improvement in that sector, too.
On arable land, we will have to wait and see what this year’s harvest will yield and how much that contrasts with last year’s harvest, when the amount of arable land was the highest since 1994 and Scottish farmers produced more than 2 million tonnes of barley and 1 million tonnes of wheat.
With the poor market situation, many farmers face cash-flow problems, so the direct payments that are issued to us every year through the common agricultural policy are particularly important this year. However, as members are well aware, we have to implement the first year of the new common agricultural policy this year, with the biggest reforms in a generation.