What does the future hold for farming post-Brexit?

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What does the future hold for farming post Brexit?

August 2016

farming post Brexit

While the dust settles on the landmark vote, there seems to be only one certainty at least in the short term and that is uncertainty. If we were looking to Westminster to steady the ship, the Conservative Party’s search for a new leader and the turmoil being experienced by the opposition Labour party have done little to calm the waters. 

The immediate fall in the value of sterling following the Brexit vote has led to increases in the value of British export commodities and if the weak pound is sustained throughout the reference month of September, it will mean an increase in the value of farmers’ Basic Payment subsidy payment. However, a weak pound is not all good news for farmers as the bulk of crop inputs and farm machinery are imported and therefore likely to increase in cost. 

In 2014, support payments from the EU constituted 55 per cent of the average UK farmers’ income. Throughout the referendum campaign DEFRA repeatedly stated that there was no “plan B” in the event of a Brexit. David Cameron said that under his government an agricultural support system “would be properly maintained.” However with UK agriculture receiving £3.1bn in EU funds last year it is difficult to say in the hands of a UK government how far up the queue agriculture will be against an ailing NHS and other services more tangible to the public. 

The future for subsidy payments

Until the UK formally leaves the EU, all CAP regulations apply, and farmers should continue to receive payments under BPS as well as any stewardship schemes. In the longer term the likelihood is that rather than direct payments, the focus will be shifted further towards the environment, water quality and climate change, with payments related to protection of natural resources as well as rural development, ie the equivalent of the current ‘pillar 2’ payments. If subsidy payments continue, they will almost certainly require farm businesses to contribute a much greater degree of effort and cost; some may decide that the income does not justify the work involved.

The longer term outlook once the UK formally leaves the EU, is that sterling should increase in value, putting pressure on the UK export market; this combined with the likely decrease in subsidies will have a negative effect on UK agriculture.

Complex negotiations ahead

In the meantime, a lengthy and complicated negotiation process will ensue. If we want to retain our access to the advantageous single market it is unlikely that concessions will be made to the regulatory burden, particularly as historically the UK has opted to enhance rather than simplify in its interpretation of EU regulations and directives. 

Many sectors within agriculture such as fruit and vegetables have become reliant on migrant labour. Whilst immigration was a big driver of the referendum result, it is difficult to see how these and many other sectors can continue to operate in their current form unless there is some freedom of movement of labour between the UK and our European neighbours. 

Some farm businesses see this as an opportunity to compete fairly in an international market without the burden of regulation, administration and tariffs imposed by the EU. For some businesses, particularly dairy and intensive livestock, this might be true but the structure of UK agriculture as a whole is still very inefficient compared to our competitors and the freeing up of trade may well represent a threat rather than an opportunity.

In addition, agriculture is relatively low in priority in the UK as compared to for example banking and other financial services, it therefore may not be a priority when the UK negotiates trade tariffs with countries beyond Europe. There is a danger that freeing up movement of some goods and services could be offset by the removal of tariffs for the import of agricultural products.

We anticipate that interest rates may be driven lower to stimulate the economy. This may give farm businesses an opportunity to fix their borrowing costs at a very low level.

Good news for farm businesses - for now

We expect that the Brexit vote will be good for farm businesses while our politicians negotiate our exit from Europe. There seems a real desire from Europe to get this done but the UK, now that we have apparently got what we wanted are keen to slow down the process. The minimum period of negotiation is two years after formal notice has been served so we should be able to plan for at least two years of subsidies in their current form.

Businesses should use this period to prepare for economic conditions closer to world markets by improving their efficiency and reducing costs with the aid of benchmarking together with other tools that will give them a true picture of whether they are ready to thrive in what will be a very different, global farming environment.

For further information or advice, contact Richard Sanders on 01858 410200 or email him here

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