This is a long post from me but I hope you can find time to read it all.
I am an Honorary Professor in Food Economics at the University of Nottingham and I acted as the secretary to the AHDB’s AgEcon Advisory Group for 3 years (2018-21). The Group was dissolved by AHDB in 2022. As a consultant I have worked on projects for for the MLC (post-BSE promotion effectiveness), the HGCA (malting barley exports grants), the PMB (structure reform), BPISG (BPEX creation) and the MDC (price analysis), and on a small project dealing with performance evalaution for the AHDB in 2020. I have also worked for several international organisations and sovereign countries, and for Clarence House. My "day job" is providing global market information for the pig sector at www.porkinfo.com My observations here are based on a long experience of the theory and practice of levy-funded organisations and this post is largely based on work I completed for the Ministry of Agriculture in the UK back in 1994.
When farmers talk about levies on farm commodities, they usually do so with three questions in mind: how are “they” spending my money, who pays the levy, and who gets the benefits? Just now, with the AHDB is in the spotlight as it asks farmers to support an increase in levies on beef, lamb, pigs, dairy, cereals and oilseeds, these questions are especially worthy of debate. They are not new questions but they need careful consideration and evidence in order to be answered accurately.
Let’s remind ourselves of the theory – a good place to start when thinking about how stuff works (or doesn’t). First, the theory shows that a mandatory levy on a farmer’s output is the same as a tax. One of the justifications for this tax on farmers is that there may be “market failure” in the agricultural economy and that there is a “free rider” problem. Together, these are reasons for justifying a compulsory levy. Significantly, they should always underly any appraisal of how a levy-funded body allocates its budget.
Because a levy is a tax on all farmers it raises important issues about transparency, accountability, and evaluation: together we can term these factors, “performance” and this term offers a convenient heading for the second group of questions. How a levy-funded-body “performs” is crucial and, in theory, should be examined in the same way that the National Audit Office or a Parliamentary Select Committee examines public spending of a government department. You can see examples of the NAO’s value for money reports at https://www.nao.org.uk/reports/. For some reason, that I have never understood, the NAO, nor any parliamentary select committee, has ever examined the performance of any of the levy-funded bodies in the UK – certainly not the AHDB. Such examinations do not have to be undertaken by official audit bodies or parliament. Examples of independent evaluations of the operation of levy-funded bodies are to be found in Australia and the USA. For example, Australian Pork Ltd provides a copy of its recent independent performance review at https://australianpork.com.au/sites/default/files/2023-06/230413_APL review_FINAL CLEAN.pdf and the National Pork Board in the USA is subject to a mandatory independent performance review of its spending every five years https://porkcheckoff.org/wp-content...Economic-Analysis-of-NPB-Checkoff-Program.pdf
Note, these performance reviews must be independent in order to avoid the accusation that a levy-funded authority is “marking its own homework” and, the results should be disclosed to levy-payers and their representatives.
If farmers could individually opt out of a levy these issues of “independent performance review” and “transparency” might not be so important but they can’t. Hence, one key aspect of the current debate on AHDB levies must be that farmers should be satisfied that the appropriate systems and schedules are in place to ensure that an independent appraisal of levy expenditures is regularly happening.
Another (third) aspect of the theory of levies is the incidence of a tax i.e. who pays the tax and who gets the benefit? This isn’t a straightforward question. A levy (tax) is paid by domestic farmers to the extent that processors, retailers and consumers can’t avoid it being passed on to them. Each of these actors can avoid it by substituting home grown product with competitive products e.g. imports or other meats/non-meat protein, and to the extent that farmers have any alternative outlets. So, for example, a levy on domestic pig producers is less likely to be passed down the food chain to processors or retailers/consumers if there is a large import component in national pork consumption, and if there is a highly competitive meat like chicken available. It could be even worse for producers if they are faced with local monopolies from processors because of transport costs or other aspects of how the supply chain works. A challenge for farmers is that processors will be able to pass their processor levy back to farmers (in the form of lower prices) if the market power of farmers is weak. Note, even if farmers have to absorb all of the levy in their costs they may still justify paying it if the benefits are high enough – and if they can use productivity to offset this cost. And some sub-groups of farmers will have unique calculations. Consider the case of a producer who creates a successful on-farm shop and butchery or, perhaps, a pop-up catering stall for events selling pulled pork or a hog roast. What is the balance of costs and benefits of levies for that farmer? Another example might be a group of arable farmers who have negotiated a price premium based on specific production operations. AHDB (and any levy-funded body) should be able to answer questions about the incidence of levies in these different cases – who pays and who gains – and farmers should be considering those answers in the debate about higher levies.
The lessons I draw from this short discussion are that farmers need to be sure that AHDB understands and communicates its views on who pays and who gains from the levies that it collects. And that farmers need this information as part of their ongoing assessment of the performance of AHDB and the value for money that levies offer.
If you have got this far reading these words it may seem a rather negative piece. I hope not. These questions about performance and transparency and the incidence of the levy are not value judgements or trivial. The answers directly affect levy-payers in a factual way. Asking questions about value for money is best practice. If you think performance or VFM doesn’t matter you can throw your money away of course. That’s your prerogative. That said, the existence and level of a statutory levy is a collective decision – it’s not just about one farmer’s view. In my opinion, the collective view of the industry should be based on a careful and thorough consideration of the issues I have identified above.
I am an Honorary Professor in Food Economics at the University of Nottingham and I acted as the secretary to the AHDB’s AgEcon Advisory Group for 3 years (2018-21). The Group was dissolved by AHDB in 2022. As a consultant I have worked on projects for for the MLC (post-BSE promotion effectiveness), the HGCA (malting barley exports grants), the PMB (structure reform), BPISG (BPEX creation) and the MDC (price analysis), and on a small project dealing with performance evalaution for the AHDB in 2020. I have also worked for several international organisations and sovereign countries, and for Clarence House. My "day job" is providing global market information for the pig sector at www.porkinfo.com My observations here are based on a long experience of the theory and practice of levy-funded organisations and this post is largely based on work I completed for the Ministry of Agriculture in the UK back in 1994.
When farmers talk about levies on farm commodities, they usually do so with three questions in mind: how are “they” spending my money, who pays the levy, and who gets the benefits? Just now, with the AHDB is in the spotlight as it asks farmers to support an increase in levies on beef, lamb, pigs, dairy, cereals and oilseeds, these questions are especially worthy of debate. They are not new questions but they need careful consideration and evidence in order to be answered accurately.
Let’s remind ourselves of the theory – a good place to start when thinking about how stuff works (or doesn’t). First, the theory shows that a mandatory levy on a farmer’s output is the same as a tax. One of the justifications for this tax on farmers is that there may be “market failure” in the agricultural economy and that there is a “free rider” problem. Together, these are reasons for justifying a compulsory levy. Significantly, they should always underly any appraisal of how a levy-funded body allocates its budget.
Because a levy is a tax on all farmers it raises important issues about transparency, accountability, and evaluation: together we can term these factors, “performance” and this term offers a convenient heading for the second group of questions. How a levy-funded-body “performs” is crucial and, in theory, should be examined in the same way that the National Audit Office or a Parliamentary Select Committee examines public spending of a government department. You can see examples of the NAO’s value for money reports at https://www.nao.org.uk/reports/. For some reason, that I have never understood, the NAO, nor any parliamentary select committee, has ever examined the performance of any of the levy-funded bodies in the UK – certainly not the AHDB. Such examinations do not have to be undertaken by official audit bodies or parliament. Examples of independent evaluations of the operation of levy-funded bodies are to be found in Australia and the USA. For example, Australian Pork Ltd provides a copy of its recent independent performance review at https://australianpork.com.au/sites/default/files/2023-06/230413_APL review_FINAL CLEAN.pdf and the National Pork Board in the USA is subject to a mandatory independent performance review of its spending every five years https://porkcheckoff.org/wp-content...Economic-Analysis-of-NPB-Checkoff-Program.pdf
Note, these performance reviews must be independent in order to avoid the accusation that a levy-funded authority is “marking its own homework” and, the results should be disclosed to levy-payers and their representatives.
If farmers could individually opt out of a levy these issues of “independent performance review” and “transparency” might not be so important but they can’t. Hence, one key aspect of the current debate on AHDB levies must be that farmers should be satisfied that the appropriate systems and schedules are in place to ensure that an independent appraisal of levy expenditures is regularly happening.
Another (third) aspect of the theory of levies is the incidence of a tax i.e. who pays the tax and who gets the benefit? This isn’t a straightforward question. A levy (tax) is paid by domestic farmers to the extent that processors, retailers and consumers can’t avoid it being passed on to them. Each of these actors can avoid it by substituting home grown product with competitive products e.g. imports or other meats/non-meat protein, and to the extent that farmers have any alternative outlets. So, for example, a levy on domestic pig producers is less likely to be passed down the food chain to processors or retailers/consumers if there is a large import component in national pork consumption, and if there is a highly competitive meat like chicken available. It could be even worse for producers if they are faced with local monopolies from processors because of transport costs or other aspects of how the supply chain works. A challenge for farmers is that processors will be able to pass their processor levy back to farmers (in the form of lower prices) if the market power of farmers is weak. Note, even if farmers have to absorb all of the levy in their costs they may still justify paying it if the benefits are high enough – and if they can use productivity to offset this cost. And some sub-groups of farmers will have unique calculations. Consider the case of a producer who creates a successful on-farm shop and butchery or, perhaps, a pop-up catering stall for events selling pulled pork or a hog roast. What is the balance of costs and benefits of levies for that farmer? Another example might be a group of arable farmers who have negotiated a price premium based on specific production operations. AHDB (and any levy-funded body) should be able to answer questions about the incidence of levies in these different cases – who pays and who gains – and farmers should be considering those answers in the debate about higher levies.
The lessons I draw from this short discussion are that farmers need to be sure that AHDB understands and communicates its views on who pays and who gains from the levies that it collects. And that farmers need this information as part of their ongoing assessment of the performance of AHDB and the value for money that levies offer.
If you have got this far reading these words it may seem a rather negative piece. I hope not. These questions about performance and transparency and the incidence of the levy are not value judgements or trivial. The answers directly affect levy-payers in a factual way. Asking questions about value for money is best practice. If you think performance or VFM doesn’t matter you can throw your money away of course. That’s your prerogative. That said, the existence and level of a statutory levy is a collective decision – it’s not just about one farmer’s view. In my opinion, the collective view of the industry should be based on a careful and thorough consideration of the issues I have identified above.
