Broking the land

Farming is once again in the national media spotlight as multibillion dollar subsidies for farms were up for debate at the World Trade Organization's Doha talks in Hong Kong. At the time of writing, Peter Mandelson, the beleaguered EU Commissioner for Trade, is struggling to reach an agreement with his fellow trade leaders. Cutting farm and export trade subsidies as well as import tariffs is a priority at the talks.

The threat to UK farmers is that changes to tariffs and subsidies will make life easier for its competitors, with cheaper imports available for supermarkets and shops.

The Common Agricultural Policy has been the cause of huge debate in discussions over the EU's 2007-2013 budget and, in 2005, will have taken up 46% of the EU's budget or £33bn. Ten million EU citizens work in farming and the sector generates 1.6% of EU gross domestic product.

One of the most recent changes in farming is the introduction of single farm payments, and will simplify European Council regulation pay schemes. It will have different starting dates in England, Northern Ireland, Wales and Scotland, respectively.

Market size

According to the Department for Environment, Food and Rural Affairs, in June 2004, the total area of agricultural land in the UK was 18.4 million hectares, which is 77% of its total land area. There are around 279,500 farms in the UK, 67% of which are based in England, and a workforce estimated at 546,000.

The insurance opportunities include the farm itself, the farm's employees, the farm's machinery, the farmer's other businesses and the farmer's personal needs. Farmers, for example, have diversified into sports such as quad-biking.

David Murray Wells, executive chairman at Harrogate-based Agricultural Insurance, owned by Towergate since July 2004, believes the insurance market is worth £240m of gross written premium, excluding farm motor insurance.

Elaine Pyke, chief executive of FarmWeb, says it is too difficult to gauge the size of the market, but believes the motor element is around half of the market. Applying that to Wells' figure, that would make the market almost £500m.

Overall, the farming market has been getting smaller. Wells says: "Since before the Industrial Revolution, there has been gentle consolidation."

The market has been cornered by insurer NFU Mutual, where around two-thirds of agricultural business is negotiated directly. However, some see NFU Mutual, which grew out of the National Farmers' Union, as only catering for the top end of the market.

One of the largest players in the farming market is Farmcare, which is part of the Co-operative Group, and farms 30,000 hectares across 27 farms in England and Scotland. A spokesperson said the group predominantly self-insured.

The main underwriters for farms are NFU Mutual Towergate, Norwich Union and FarmWeb, the policies of which are underwritten by NIG. There are also two underwriting agencies BIB and the 10-year-old, Primary-owned Rural Insurance Group.

Wells says Towergate's policies comprise 18 sections, including hailstorm damage to arable crops, while FarmWeb has 16 sections. Rural offers policies including farm combined, livestock and farm motor fleet.

FarmWeb's policies are accessible over an alternative service provider and thus records, amendments, premiums, renewals and contract certainty can be executed online. Julian Boughton, of Alan and Thomas, has used a laptop onsite and has praised its convenience.

Brokers

There are several thousand brokers dealing with agriculture and, unlike many areas, the big three - Marsh, Aon and Willis - are not dominant.

Wells says: "As far as I am concerned, the biggest players nationally are Lycetts in Newcastle, RK Harrison, Willis and Smart and Cook."

FarmWeb - which has been appointed by NatWest and the Royal Bank of Scotland - uses 66 brokers and, if a broker agrees a contract with FarmWeb, it is expected to place a certain amount of business with them. Pyke says: "We ask for a high level of support from our brokers and give them delegated authority, which we expect them to use."

Agricultural Insurance deals with 1500 brokers, though 75% of the business is carried through around 20 brokers. Towergate, which employs 65 staff, offers training for its brokers including on the farm and at local agricultural colleges.

Kevin Hammett, who runs a farm in Worcestershire, says: "Brokers need a knowledge of farming and need to assess people's overall needs." He has been using the same broker, BarPax, for 20 years and has recently placed a claim for around £40,000 for property damage after a fire from an incinerator overheated due to a faulty chimney. All of his insurance is placed on one contract, and he is happy with the broker who also provides risk-management information.

Wells argues the major issue for farmers is the bottom line. Problems include the price of milk, the Common Agriculture Policy and tuberculosis. He says: "The government has completely failed to solve the tuberculosis problem. It is always popping up and causing losses to dairy farmers." He also claims the price of milk is less than the cost of production.

Imports and climate change

Pyke says the EU is planning on cutting some import tariffs from 85% to between 46% and 60%. He says: "This will drive prices down and make imports more attractive." Imports from the US and South America may become even more attractive for the UK's supermarkets.

Hammett warns: "The next four to five years are going to be difficult. Supermarkets have the major say; when it suits them, they change supplier. We have to negotiate with them to market UK produce, otherwise we will not achieve a stable market place."

More than 8% of farmers left the farming world in the UK between 2002 and 2003.

The NFU published a report, Agriculture and Climate Change, in November 2005 warning that farmers are being forced to change agricultural practices due to the impact of climate change.

NFU President Tim Bennett says: "Global warming will present a number of significant challenges to the industry with new diseases, pests to combat and increased competition for vital resources such as water. Even in the short term, the impact of climate change on farming will be profound."

The report notes that few industries are as dependent on the climate as agriculture. It is estimated that the wet autumn of 2000 cost UK agriculture £600m through decreased yields and increased drying costs. Alarmingly, 36% of farmers see climate change as a threat to their livelihoods.

The irony is that the agriculture industry is contributing to the problem itself by producing man-made greenhouse gases. While agriculture only contributes 0.7% of the total carbon dioxide emissions in the UK, it produces 67% of nitrous-oxide emissions and 46.5% of methane emissions.

However, climate change may produce some good news for farmers as an increase in carbon dioxide can stimulate photosynthesis, leading to increased yields.

Fatalities

A Health and Safety Executive report, Fatal Injuries in Farming, Forestry and Horticulture, claims that fatal farm accidents caused 45 deaths from April 2004 to March 2005, and there have been around 500 deaths in the last 10 years.

Risk management is key across the insurance sector, and FarmWeb has introduced a document to clarify risk-management practices in farming.

Seventy-five per cent of accidents are caused by 'bad working practice', so there is room for improvement, especially given there are 7000 injuries a year, and supposedly only one-quarter of accidents are actually reported.

Pyke says: "Employment liability insurance has been vague, there needs to be clarity in some areas."

There is also a free HSE guide called Farmwise, sponsored by NU, which includes the legal requirements for farmers.

TYPES OF FARMING

ARABLE - production of crops for human and animal consumption and, crops for non-food uses, for example, biofuels. The main crops grown in the UK are wheat, oats, oil-seed rape, sugar beet, barley and potatoes.

CATTLE AND SHEEP - beef and lamb production is concentrated mainly in the upland areas, with weaned offspring being moved to lowland areas in preparation for being sold into the retail sector. The UK has more than 1.5 million suckler cows producing calves for beef and is one of the EU's biggest sheep producers, with a national flock of approximately 25 million sheep and lambs, making the UK the seventh-largest lamb-producing country in the world. As well as meat, British sheep farmers produce about 70,000 tonnes of wool.

DAIRY - dairy farms are found mostly in the western part of the UK where there is a lot of rain and grass grows well. Dairy cows graze outdoors for most of the year but are kept indoors for the winter months, where they eat silage (pickled grass) and cow cake (dried cereal). There are more than two million cows in the UK, which collectively produce around 14 billion litres of milk a year. Around half of this milk is processed further in order to create such products as cream, yoghurt and cheese.

HORTICULTURE - this refers to the specialist production of fresh produce and includes vegetables, fruit, flowers and plants. The value of horticultural production to the rural economy is more than £2bn a year.

POULTRY - the UK poultry and egg industry is seen as a leading light within the European and world markets. The UK is the largest producer of chicken within Europe and a leading supplier of free-range, barn and organic eggs, and traditional turkeys. This is an industry that has constantly reinvented itself in order to keep up with the market and, on occasions, get ahead of it.

PIGS - UK pigs enjoy some of the highest welfare standards in the world. Pig farming is a specialised business and the major pig-producing areas in the UK are in East Anglia, Yorkshire and Lincolnshire. A significant number of UK pigs are kept outdoors.

ORGANIC FARMING - a method of food production that uses lower inputs of such things as pesticides and artificial fertilisers. Organic food is growing in popularity but, due to higher production costs, is still generally more expensive than conventionally produced food. During 2003 and 2004, organic sales grew by 10.2%, and organic or in-conversion land now accounts for 4% of the UK's farmland.

AGRICULTURE'S CONTRIBUTION - the contribution of agriculture to the national economy in 2004 was £16.9bn. Agriculture's share in the gross domestic product of the UK was 0.8%. Farming allows the UK to be 63% self-sufficient in all food and 74% self-sufficient in indigenous food.

Source: National Union of Farmers.