IB Economics Internal Assessment Front Cover

Candidate Name Emilee Elaine Budhi

Title of Article Revealed: US-style industrial farms receive millions in subsidies

Source of Article https://www.theguardian.com/environment/2018/dec/28/revealed-

industrial-scale-farms-receive-millions-in-subsidies

Date Article 28th of December, 2018

Published
Date the 9th February, 2019
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Revealed: US-style industrial farms receive millions in subsidies

The Guardian and Bureau of Investigative Journalism establish that intensive farms in the UK
received nearly £70m in two years.

The operators of industrial-scale livestock farms have received millions of pounds of public funds in
the last two years, the Guardian can reveal, despite concerns over the spread of US-style factory
farming across the British countryside.

Data analysis by the Guardian and Bureau of Investigative Journalism has found that recipients of
almost £70 million in subsidies in 2016 and 2017 include individuals and companies running:

 Feedlot-style beef units, rearing thousands of cattle in outdoor yards

 So-called mega-dairies, with herds of up to 1,800 cows
 Intensive egg producers using cage housing systems
 Poultry mega-farms and pig units which keep thousands of animals permanently indoors
 Livestock units that have been found guilty of pollution and animal health breaches

As revealed by the Bureau, the number of intensive pig and poultry farms in the UK has increased by
more than a quarter in recent years. Coupled with a rise in intensive production in the dairy and beef
sectors, this has raised concerns over water being polluted with livestock faeces, disease and animal
welfare.

Opponents claim that smaller farms and traditional family-run units could be pushed out of business
by the trend, leading to the takeover of the countryside by large agribusinesses.

The data showed that individuals and companies linked to intensive poultry farms across the UK
received the most money in subsidies, at £32m. The operators of pig and dairy factory farms were
given £18m and £16m respectively, while the figure for intensive beef farms was £2m. The total sum
received could be higher.

Start here

In many cases, subsidies are indirect, with a farmer receiving financial support for one aspect of their
business – crop growing, for example – rather than the factory farm itself.

The shadow environment secretary, Sue Hayman MP, said the subsidy payments “were encouraging
more, and larger, intensive livestock farms”.

“This is not the way to build a thriving and sustainable food sector,” she said.

Taro Takahashi, a researcher at the University of Bristol and Rothamsted Research, said the payment
of subsidies to intensive farms may be justifiable if they were found to be improving environmental
standards. However, this remains unknown and without further research it is questionable whether
such farms should get the subsidies.

“It is unreasonable to preclude mega-farms from the public payment system purely because they are
already large-scale,” Takahashi said. “The question, though, is whether these funds are indeed
improving the environment and ecology of our countryside to sufficiently justify the investment – and
research to date has been inconclusive either way. There is definitely an urgent need to examine this.

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Labour has pledged to investigate the effects of mega-farms on animal welfare and the environment,
and to design post-Brexit farm subsidies that “move away from intensive factory farming and bad
environmental practices”.

Nick Palmer, head of policy at Compassion in World Farming UK, said: “These astonishing findings fly
in the face of the attempt to establish Britain as a world leader in welfare standards and to maintain
a sustainable British farming industry in the uncertain years after Brexit.”

The industry says strict controls on industrial-scale farms mean that disease, pollution and the carbon
footprint can be kept to a minimum, and lower production costs can be passed on to consumers.

Stop here

The National Pig Association (NPA), which represents pig farmers, says only farmers operating mixed
farms – for example, keeping livestock and growing crops – receive subsidies. Defra confirmed that
farmers who only farm pig or poultry and where animals are always kept indoors are not eligible for
subsidies.

“We continue to disagree with the sentiment that intensive production automatically equals poor
welfare,” said Zoe Davies of the NPA. “High quality well trained stock people and sufficient resource
and vet support are the most important attributes which determine an animal’s welfare, not the
number of animals present or the system within which they are reared. British pig welfare standards
are some of the highest in the world and farmers take pride in providing affordable, quality food for
all consumers.”

The British Poultry Council said that “indoor poultry production does not attract subsidies under CAP
[Common Agricultural Policy] or its proposed replacement.”

The sum of subsidies paid to those running intensive farms was calculated by cross-referencing
registers of intensive UK farming operations for pig and poultry, and other databases of intensively-
reared UK beef and dairy cattle, with the Defra register of CAP payments made to farmers in 2016 and
2017.

Defra and the Environment Agency (EA) maintain a public register of all permit-requiring “intensive”
pig and poultry farms, which are classified as such if they can house indoors at least 40,000 poultry
birds, 2,000 pigs grown for meat, or 750 breeding pigs.

A database of intensive beef and dairy operations was compiled through earlier research by the
Bureau.

The actual amount of subsidies is likely to be higher, principally because large numbers of pig farms in
the UK are believed to fall below the size threshold for requiring a Defra/EA permit. Many such farms
house their pigs indoors and would therefore be considered intensive by most experts, but are absent
from the data.

The march of American-style mega-farms or Cafos (concentrated animal feeding operations) – defined
in the US as facilities housing 125,000 chickens for meat, 82,000 laying hens, 2,500 pigs, 1,000 beef or
700 dairy cattle – has previously been revealed in an investigation by the Guardian and the Bureau.

Most of these farms have gone unnoticed, despite their size and the controversy surrounding them,
in part because many farmers have expanded existing facilities rather than seeking new sites.

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Start here

Defra responded to the findings by pointing to the government’s plans for subsidies post-Brexit. “At
the moment, direct payments are allocated according to the size of individual land holdings, not the
way in which that land is farmed. Our proposed new system will move away from this, rewarding
farmers for delivering public goods such as environmental protection and the health and welfare of
livestock,” said a Defra spokesperson.

“This will help farmers to grow food in a more sustainable way and it will ensure public money is spent
more efficiently and effectively.”

Campaigners warn that: “The Agriculture bill, as currently drafted, is an empty vessel as it contains
powers, not duties, and no budget,” said Vicki Hird of the food system campaign group Sustain. “So
unless it is amended, Michael Gove is really not obliged to deliver much – the opportunity to either
encourage sustainable, high welfare farming or to discourage the most polluting, intensive forms of
mega-farms.”

Farm subsidies

The European Common Agricultural Policy began in 1962 with guaranteed prices for farmers, the aim
being to guarantee the security of Europe’s food supply.

In the 1970s and 1980s the policy resulted in overproduction, creating “milk lakes” and “butter
mountains”. This led to an eventual shift from market support to direct subsidies for producers in the
early 1990s, in an attempt to decouple support for farmers from the amount of food they produced.

Stop here

The CAP has been controversial in the UK partly because the country receives much less from the
budget than it contributes. The EU-wide mechanism for distributing subsidies also means large
landowners get more money just for owning more land.

In September 2018, the environment secretary Michael Gove launched his proposed Agriculture bill,
setting out future support for UK farmers after Brexit. The bill sets out a seven-year transition period
from 2021, during which farmers will potentially be rewarded for public goods such as high
environmental standards, ending direct payments after 2027.

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Are Subsidies well placed to deliver the desired consequences?

This article is about UK’s idea of providing enough livestock and crops for the whole country’s
consumption after Brexit. The UK wants to ‘move away from intensive factory farming and bad
environmental practice’, which is endemic in the US-style farms.

Subsidies are generally assistance by the government to individuals or groups of individuals, such as
firms, consumers, industries or sectors of an economy. Consumers are people who purchases goods
and services for personal use. The subsidies may be in the form of direct cash payments or interest-
free loans. Examine the impacts of subsidies on market outcomes in the graph below.

Graph 1: Assumptions of the diagram before and after the subsidy.

In this case, the subsidies change the allocation of resources and affect the price levels of goods in the
farming industry. Subsidies act as a price signal and incentive for farmers such that it affects how
farmers price and how much of the good they produce. The market is assumed to be at its social
optimum before the subsidy, represented as Q* and P*. Increases the price received by the farmers
(producers), a person or company that makes, grows or supplies goods or commodities for sale, can
be seen in price Pp and because of this, farmers will increase in supply as they would want to supply

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more to make more revenue and profit. In addition, the quantity consumed increases as prices paid
by consumers decrease as a result of imposing the subsidies, which can be seen as the movement
from P* to Pc. The general increase in quantity produced and consumed is shown by the movement
from Q* to Qsb. The graph shows us that the quantity produced after the subsidy (Qsb) is more than
the free market quantity (Q*) and in conclusion, this shows an over allocation of resources, otherwise
known as overproduction. This is suitable for the farming industry in the UK as the article indicated
that they need to increase the supply of livestock, crops and dairy goods to be able to sufficiently
supply the whole country after Brexit. Even if it may seem that the subsidy has done its job, the UK
aims to be more efficient and sustainable as an addition to increasing their supply. In this context,
sustainability refers to maintaining the ability of the environment and the economy to continue to
produce and satisfy the needs and wants, depending crucially on the preservation of the environment
over time.

The article also stated that farm subsidies resulted in an overproduction of milk and butter. This is
only one of the many consequences of subsidies along with our reference on the subsidy and
resistance to change. In addition, other consequences are the actual costs of the subsidy, the
opportunity cost of the funds- which is the next best alternative given up in order to obtain something
else, and the distribution of subsidy. As a result, different stakeholders are affected; the government
is worse off due to the burden of the subsidy to their budget and reduces their ability to spend more
on other expenditures. The UK government would have to keep raising funds in order to sufficiently
supply the industry with finance. In relation to industries, the industries are definitely better off as
they are the one receiving subsidies and are able to produce/supply more livestock, crops and dairy
goods, due to the decrease in costs of production, seen in the movement from Qsb to Q*. Furthermore,
they will receive higher prices because some or all of their costs are covered by the subsidies; thus,
the movement of Pp to P* in graph 1. Consumers are better off because there is a decrease in the
prices of the goods but an increase in the supply of these goods to the market. All these consequences
may not be the delivering desired outcome.

To conclude, the article is about subsidies and the overproduction as one of the consequences.
Subsidies affect many different stakeholders in different ways, as mentioned above. According to the
article, the UK government is depending on the subsidy to make farming more sustainable and
efficient, yet aiming to sufficiently supply the whole country. The overproduction caused by the
subsidy is mainly due to the large amount of subsidy given to farmers such that they want to use as
much of it, resulting in such a huge surplus.

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