The Structure of British Industry

Peter Johnson

• Publisher: Routledge
• Year: 2002
• Print ISBN: 9781138419087
• eBook ISBN: 9781134999002
• Edition: 2
• Topic: Business
• Subtopic: Business General
• Index: Business

`...as an up-to-date and intelligible an account of large areas of British industry as you will find...It will be a valuable handbook for a variety of users: students and teachers(its prijmary audience), businessmen or coivil servants.' British Business

Chapter One

Agriculture

BRIAN HILL

1.1 INTRODUCTION

According to official estimates for 1985 agriculture contributes about 2 per cent of UK GDP, its share of gross fixed capital formation is 2.1 per cent and it employs 2.6 per cent of ‘total civilian manpower engaged in all occupations’ (Ministry of Agriculture, Fisheries and Food, 1986a). These figures must be treated with some caution; although the GDP figure values output at market prices, these are artificially raised to levels far above world prices (see Section 1.4), and the employment figure is just over 2.2 per cent if manpower in agriculture is expressed as a percentage of civilian manpower including the unemployed. Even if the official figures exaggerating the importance of agriculture are accepted, this industry is exceptionally small in the UK compared with other industrialized countries: see Table 1.1.

Agriculture has a unique place in economic development. Initially it is the major, indeed almost the only, economic activity occupying the labour force, largely as subsistence producers. (This is still the situation in less developed countries today.) Gradually, due to improvements in labour productivity, a decreasing proportion of the population can produce sufficient food to feed the whole population, thus permitting an outflow of labour from agriculture. The surplus of labour in agriculture is reallocated to other sectors by the price mechanism–earnings in agriculture are necessarily lower than elsewhere. Concomitant with increasing labour productivity is increasing land productivity, and the extra output causes the price of food to fall in real terms. Falling relative returns to agricultural resources are a normal consequence of economic development, but in the twentieth century low incomes in agriculture have become regarded as a social evil, and much government intervention has aimed to raise farmers’ incomes. The methods currently employed in the UK, and their consequences, are outlined in Section 1.4 below.

Table 1.1 Agriculture in Industrialized Countries, 1982

In some respects agriculture may be seen as virtually perfectly competitive. In the UK there are 231,000 farms, each of which is extremely small in relation to total output, and each farm product is homogeneous. This atomistic structure means that farmers are price-takers. There is freedom of entry and exit, though many resources–most notably land and labour–are not perfectly mobile. Producers are generally well informed about techniques of production, but lack knowledge in many other areas. Thus, when production costs are incurred it is in ignorance of the actual yields and prices to be obtained in the future. Indeed in production processes which are essentially biological and peculiarly subject to the influence of the weather considerable uncertainty exists.

Characteristically farm firms are family-based with the farmer acting as combined entrepreneur, manager and labour force, and with the farm being both the workplace and dwelling. Only a small minority of farmers hire regular full-time employees. In Great Britain 70 per cent of farms were wholly or mainly owner-occupied in 1985. The remaining 30 per cent were tenanted and these were larger on average since they accounted for 39 per cent of the land area. In Northern Ireland virtually all farms are owner-occupied (MAFF, 1986a, p. 2).

Farms are invariably multi-product firms, for three reasons. First, farm products are always joint products. For example, milk cannot be produced without simultaneously producing beef, hides and manure; similarly grain production necessarily results also in straw. Second, many products are interrelated (for details see Hill and Ingersent, 1982), most notably through crop rotations whereby a variety of different crops follow each other on the same area of land year by year in ‘rotation’. These rotations prevent the buildup of pests and diseases affecting a particular crop, harness the beneficial effects of some crops upon the yields of others, largely by improving the soil structure; and ensure that the mix of activities will keep the resources–particularly labour and machinery–fully occupied through the year. The final reason why farms are multi-product firms relates to uncertainty. Farm products are peculiarly subject to output variation due to the effect of pests, diseases and weather; market price variation may also be substantial. So to reduce income variation most farmers avoid ‘putting all their eggs in one basket’. There are however some ‘specialist’ farms, where one particular product dominates revenue. Such farms reflect either limited product opportunities, for example, hill sheep farms, or a main product having a low revenue variance. Milk which has a relatively stable yield and an unusually stable price (due to government intervention) is the main example here.

British agriculture is a very capital-intensive industry. In December 1985 the total capital employed was estimated to be £64 billion, of which land represented £45 billion (Pettitt, 1986). Dividing total capital by total agricultural employment (that is, including all farmers and workers whether full or part time) of 616,000 (MAFF, 1986a, p. 14) gives a figure of £73,000 per person. The net product of agriculture in 1985 was £4 billion of which £3.76 billion was the return to labour (taking the opportunity cost of farmers’ labour to be the income of general farm labourers). So the return to capital was less than 0.4 percent.

In 1985 the £12 billion revenue of agriculture included large subsidies and an even larger element of consumer transfer (money transferred to farmers via prices raised above free market levels, see Section 1.4.1 below). Direct public expenditure on the support of agriculture in 1985/6 (April/March financial year) was forecast to be £2,215 million. This contrasts sharply with forecast farming income (that is, ‘the return to farmers and spouses for their labour, management skills and own capital invested after providing for depreciation’), for 1985 of £1,154 million (MAFF, 1986a, pp. 39, 47). This is only the second time that public expenditure has exceeded farming income, the previous occasion being 1983, but the growth rate of public expenditure now greatly exceeds that of farming income and these trends seem set to continue. Another indication of economic ills afflicting the industry is the rapid increase in its debt-to-income ratio since 1979; during the 1970s this ratio was at or near to unity, but between 1979 and 1985 it increased to exceed 4 (Craig et al., 1986, p. 43). Also during this period depreciation has generally exceeded gross fixed capital investment, that is, investment has been insufficient to keep the capital stock intact. Land prices have been falling in money terms since 1985, and in real terms since 1979, and as land accounts for more than half of the assets of UK agriculture this has helped to cause a decline in net worth. Between its peak in 1979, and 1985 the net worth of UK agriculture has declined by 40 per cent (MAFF, 1986b, pp. 52–3).

Table 1.2 shows that UK agriculture is dominated by livestock and livestock products, which account for about 60 per cent of total revenue. Cows’ milk is the single most important product, closely followed by fat cattle and calves, so altogether cattle contribute more than one-third of total output. England and Wales together produce more than 80 per cent of total UK revenue, livestock and livestock products being about 58 per cent. Scotland contributes some 13 per cent of output of which livestock and livestock products are about 70 per cent. The latter category accounts for well over 90 per cent of revenue in Northern Ireland, but this country’s share of UK revenue is less than 4 per cent.

Table 1.2 Structure of Agricultural Output by Value, UK

1.2 PRODUCTION

1.2.1 Structure

In the UK the farm unit in official statistics is termed a ‘holding’. A full agricultural census has been conducted annually since 1866, and although many of the original holdings have now been amalgamated farmers often continue to fill in separate census forms for two or more holdings long after they have become one farm. Despite Ministry of Agriculture efforts to remove this source of distortion it has been estimated that there are probably about 10 per cent fewer farm businesses than holdings enumerated (Britton et al., 1980). Since the number of farms in the UK is unknown, the number of holdings must be used as a reasonably close proxy.

Measuring holding (farm) size is surprisingly difficult. Traditionally the land area was used as a basis, but this can be very misleading–a hectare of high yielding land in Lincolnshire is a very different unit to a hectare of rough grazing in the Pennines, for example. One way of measuring farm businesses is by labour input. The standard labour inputs for each activity on a farm can be aggregated to give a measure in terms of standard man-days. Some 250 standard man-days (smd) of 8 hours each, are taken to constitute employment for one man for one year. This method of measurement gives the business size in terms of the number of (‘standard’) men a farm might employ.

Table 1.3(a) indicates that more than half of UK holdings appear to provide less than enough work to occupy one man fully, but it must be remembered that this results from applying ‘modern efficient’ labour standards to all farms and many may well not use the standard methods. Thus many of these smaller ‘part-time’ businesses occupy a farmer full time, and sometimes some family or hired assistance also. The table shows that in terms of both size of business and area, there has been a decline in the numbers of holdings of all sizes except the largest, and that the decline is most marked in the smallest holdings. This reflects opportunities for economies of size, discussed below.

Table 1.4 provides further details of holdings having 250 or more smd. These holdings, which are very slowly increasing in both number and size, account for fewer than half the total but contribute more than 90 per cent of total output. The corollary is that more than half the holdings supply less than 10 per cent of output. This very great disparity in output is reflected in the similar disparity in incomes discussed later.

Table 1.3 Number and Size of Holdings in UK, 1975 and 1985

Table 1.4 Holdings of 250 Standard Man-Days and over

As one would expect, the disparity in size of holdings is paralleled by disparities in the full-time employed labour force. Table 1.5 shows that three-quarters of all holdings have no full-time regular employees. Fifty-two per cent of full-time regular employees work in small groups of 1 to 3 persons, whilst the remaining 48 per cent are employed on less than 5 per cent of the holdings.

The regular whole-time labour force discussed so far is only a quarter of the total number of persons engaged in agriculture. Less detailed information is available for most of the remainder, but the numbers and categories and their changes during the past decade are shown in Table 1.6.

Table 1.6 illustrates the continued outflow of labour from agriculture. The greatest reductions in both absolute and relative terms occurred in the number of hired whole-time workers. Whole-time farmers declined numerically far more slowly. It is not clear how the data on part-time farmers, partners and directors should be interpreted. For example, the ‘part-time’ description can apply to semi-retired farmers whose offspring have become full-time farmers, or to farmers who spend some or most of their time on other business interests, and are really ‘hobby farmers’. The importance of seasonal work in agriculture is emphasized by the large number of seasonal and casual workers. During the past ten years this group of workers has expanded 26 per cent–the increasing work capacity of machinery has allowed a declining full-time workforce to cope with work during most of the year, but the reduction in the latter requires extra seasonal labour to deal with the work peaks at harvest times.

Most holdings are farmed by farmers, the alternative being salaried managers. As Table 1.6 shows there are very few such managers. Indeed, the generally small size of labour force on the minority of holdings which employ full-time labour, results in little need for a managerial grade between farmer and workers –consequently there is no career structure in this industry.

Table 1.5 Distribution of Holdings by Total Regular Whole-Time Family and Hired Workers Size-Groups, Great Britain, 1984

Table 1.6 Number of Persons Engaged in UK Agriculture

Farming is male-dominated. Only in the part-time, seasonal and casual elements are women a larger proportion of the workforce. The annual June census does not give a breakdown of farmers by sex, but analysis of the 1981 national census suggests that about 10 per cent of farmers are female (Craig et al., 1986, p. 64).

The use of capital in agriculture has changed dramatically i...

Table of contents

• COVER PAGE
• TITLE PAGE
• COPYRIGHT PAGE
• PREFACE TO THE SECOND EDITION
• CHAPTER ONE: AGRICULTURE
• CHAPTER TWO: NORTH SEA OIL AND GAS
• CHAPTER THREE: COAL
• CHAPTER FOUR: STEEL
• CHAPTER FIVE: PHARMACEUTICALS
• CHAPTER SIX: SYNTHETIC FIBRES
• CHAPTER SEVEN: INFORMATION TECHNOLOGY
• CHAPTER EIGHT: MOTOR VEHICLES
• CHAPTER NINE: FOOD PROCESSING
• CHAPTER TEN: CONSTRUCTION
• CHAPTER ELEVEN: RETAILING
• CHAPTER TWELVE: RAIL TRANSPORT
• CHAPTER THIRTEEN: DOMESTIC AIR TRANSPORT
• CHAPTER FOURTEEN: INSURANCE
• CHAPTER FIFTEEN: MEDICAL CARE
• CHAPTER SIXTEEN: TOURISM
• NOTES ON THE CONTRIBUTORS