Farmers shouldn't hold their breath savings on costs

It is already 20% economically inactive and productivity could be down by more than a third by the last quarter of the year. That is grim by any standards, but it is far from unique to Scotland. It is a global economic problem that will demand global solutions – the problem being that with economies in tatters most solutions are unaffordable.

The biggest of many economic shocks is that we never thought we would see a situation where the price of oil is negative. In the middle of this week it was trading at minus $30 a barrel, because in the US and elsewhere there is nowhere left to store oil when lock-downs have reduced demand. This really is a situation that was never on anyone's economic radar.

It will be interesting to see the impact this has on agriculture. We are constantly told that the price of fertilisers and agrochemicals is linked to energy prices. Since these are normally rising we see rising prices. No doubt the claim will now be that there is another reason for prices staying high, not least the collapse in the value of sterling.

Time will tell how long it takes oil prices to recover, but farmers would be unwise to hold their breath for early cost-side gains from global events. A worry is that for the past decade global food commodity prices have tended to track oil prices. High oil prices are traditionally a measure of economic success and that has driven food prices. With the opposite now the case, a fall in food prices seems likely.

Demand is a complex equation, but people's spending power will be damaged by the fallout from the coronavirus crisis, and this will last for some time. On top of that, traditionally oil and gas rich countries will have had their spending wings clipped, reversing the trend of ever growing demand for high value products.

The irony in the mess farmers find themselves in is that they are not part of the problem. The industry is working flat out and is coping with major challenges to keep supermarket shelves full. Some parts, especially in the horticultural sector, have seen their markets obliterated by the government decision to close garden centres and florists. This is a small part of the Scottish rural economy, but it was a successful diversification business for many.

Despite doing what they do best by producing food, many farmers will be relieved that they will be able to take part in the grant scheme for self-employed people. Applications will open in mid-May and HMRC will contact those eligible to apply. This is based on loss of income as a result of the coronavirus crisis.

It is ironic that farming should be in this position. Farmers are flat out in perfect weather conditions; it is a long time since the weather has been so kind at a crucial time of the year. They are producing to meet a genuine demand and their efforts are appreciated and admired by most of the rest of society. Yet their reward for success is that they will be in a position to join others whose businesses have been closed down in seeking financial support from the government.

Farmers should not feel in any way guilty about seeking this support. The financial mess they are in is not of their making. We have never fully understood the demand side of the food equation. We see it in terms of what happens on supermarket shelves. What we rarely factored in was the full impact of the food service sector. The coronavirus crisis has taken away that part of the market. Restaurants, hotels and canteens are closed and people are not meeting socially. There are no family parties or celebrations, where the centrepiece was food.

Add that all up and it has taken out the top end of the market. This is hitting beef and lamb hard and that is dragging down the rest of the market. The result is lower prices and rows over imports. On top of that the export trade for dairy commodities has dried up. Combine those and it is why we are in the situation where farmers are working hard – but are little better off financially than businesses that have been forcibly closed by lock down restrictions.

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