Brexit Director Peter Wilding looks at the major issues facing the farming industry as the EU withdrawal deadline looms and answers some key questions.
Agriculture is vital to all of us. We depend on a secure, affordable and high-quality food supply, and we benefit from some public goods which farmers help deliver. Rural communities across the UK are sustained by the agricultural sector, the funding it receives and the jobs it creates.
Leaving the EU will mean leaving the Common Agricultural Policy (CAP), the Single Market and the Customs Union. Leaving the single market and the customs union means leaving the commonly agreed rules that govern our current trade arrangements both with the EU and with the world. For your business, whether it is cereal, dairy or livestock farming or whether you are in the agricultural supply chain, Brexit means four big problems and two potential opportunities:
- What will happen to subsidies? Currently, some 55% of total UK farm income comes from CAP support. The government has guaranteed that current levels of support would remain until 2020.
- Will there be import tariffs? 70% of agricultural imports (by value) come from the EU.
- Will there by export barriers? Nearly two-thirds of UK agricultural exports (measured by value) currently go to the rest of the EU
- Can I get access to seasonal labour? Without access to EU labour, both the agricultural sector and food manufacturers may face difficulties.
Many stakeholders see Brexit as an opportunity to create a new framework that better supports farm business. Certainly the government may take the opportunity to amend some areas of law that are unpopular with the farming industry, such as reducing red-tape, authorising certain crop products, and reducing the standard of enforcement standards, which are strict offences and do not distinguish between a negligent breach or willful intent.
- To replace the Common Agricultural Policy (CAP) with a new policy promoting competitive and environmentally sustainable farming by repurposing direct payments to farmers and increasing subsidies for public goods
- To import produce on WTO terms or, by December 21 2020, under a negotiated free trade agreement with the EU and influence the terms of the agreement during that period.
Agriculture currently obtains £3bn of funding from the EU budget under the CAP. The practical and legal consequences of Brexit are further complicated by the high degree of integration that currently exists between EU and UK agricultural and environmental legislation, and the significant differences between England and Wales in the implementation of EU requirements. While Brexit brings some scope for deregulation and new UK policies, it may also herald increased national divergence in the absence of a common EU legal framework.
Change is coming in trade
Change arising in agricultural product trade and in the food supply chain is bound to impact on UK farmers as well as the wider food processing industry. First among these are tariff and quota regimes. In the absence of a preferential trade agreement with the EU, the UK agriculture and food sector could find itself facing high tariffs on its exports to Europe. In fact, tariffs are likely to affect the whole supply chain because they will cover both imported products and inputs such as machinery, feed and fertilisers.
Even if we do manage to negotiate tariff free and quota free access trade, will you be able to compete? Any lower level of subsidy than you currently get will make that difficult. Any higher level of subsidy will be challenged as unfair competition. Tough negotiations about subsidy equivalence will ensue, unless we just keep on with the CAP system.
Trade agreements take a very long time to negotiate and are immensely complicated, particularly in the area of agriculture. There is no guarantee that the UK can quickly replace any losses in our European trade with gains elsewhere. On the contrary, there is a real danger that the UK government, eager for new trade deals around the world, will concede access to the UK market for cheap agricultural products from, say, the Americas, in exchange for access for UK financial services to their markets
Change is coming in law
Consumer protection rules, from labelling requirements to phytosanitary standards will change. If you want to continue selling in the European market, you will still have to follow those rules – but the UK will no longer have a say on making them or changing them. This is an important loss of influence. It will require farmers to be more vigilant.
Question 1: How will the end of the Common Agricultural Policy affect me?
* When will payments cease under the Common Agricultural Policy and what will replace them?
If the UK leaves the EU, the CAP will cease to apply. CAP provides an EU framework of regulation for direct payments to farmers, market support measures and rural development programmes to support the wider rural economy. In the UK, EU farm subsidies currently make up around 50-60% of farm income. This means that, regardless of the shape of the future EU-UK relationship, the UK will need to replace CAP with its own farming policy and support system.
The Agriculture Act 2018 pledges to guarantee the same amount of money now going toward the farming sector in both 2019 and 2020. The cut to direct payments will kick in for the first time in 2021 and continue until they are totally eradicated after 2027. For example, annual payments of up to £30,000 will be cut by 5 percent in the first year of the transition, while payments of £150,000 or more will fall by 25 percent.Uncertainties over the future of the CAP and the character of any replacement UK agricultural policies raise various practical problems, particularly for parties in long-term tenancy agreements or other contractual arrangements that are likely to remain in force after Brexit. They should consider reviewing such arrangements to check that they will still operate as intended.
- Direct subsidies in the future will be lower than current levels and linked to the delivery of wider public goods such as environmental protection. Any additional money will be paid to farmers that agree to do things such as reduce ammonia emissions, plant trees and maintain hedgerows as habitats for wildlife
- With regard to contracts, provisions dealing with the CAP may require broader drafting that attempts to cover potential replacement UK agricultural policies, and the parties may want to add a mechanism to resolve disputes.
Question 2: What about funding from Rural Development Programmes?
Across the UK, a large component of the pillar 2 Rural Development Programmes is directed at agri-environment schemes where farmers receive additional payments for practices that especially protect and enhance the environment.
Whilst the government has committed to supporting the current levels of direct financial support and rural development funding until 2020, more recent comments by Farming Minister George Eustice indicated that the government is considering a more outcome-focused and targeted support system.
Question 3: Will I still be able to employ seasonal labour from EU countries?
The UK agricultural industry relies heavily on seasonal labour, which is particularly important in some sectors, such as horticulture and poultry. This need for labour will have to be reconciled with policies to control immigration.
- The Government has confirmed plans for the settlement scheme affecting all EU citizens in the UK and their families.
- If EU citizens and their families have been continuously resident in the UK for five years by December 31, 2020 – the end of the Brexit implementation period – then they will be able to apply for settled status.
- Pre-settled status is for EU citizens and family who have not lived in the UK for five years on December 31, 2020. They can continue to live in Britain until they reach the five years, and then apply to change their pre-settled to settled status for no fee. They do still need to apply for pre-settled status in order to be eligible for settled status.
- However, for farming, UK fruit and vegetable growers will be able to recruit non-EU migrants as seasonal workers after Brexit under a new pilot scheme. Ministers say the initiative between spring 2019 and December 2020 will help tackle labour shortages during peak production periods. The visas for up to 2,500 workers a year will last for six months.
Question 4: What about plant, animal health and food safety rules?
The regulation and licensing of pesticides has a major impact on agricultural and horticultural businesses and has led the way in promoting high animal welfare standards. All of this is currently undertaken on a pan-European basis, sharing the burden of evaluating scientific evidence through the European Food Safety Authority (EFSA). These common standards facilitate trade and provide the EU with a comprehensive disease and food safety system.
The UK will need either to replicate these systems, seek approval to participate in them or agree other terms. Whilst undoubtedly the industry will seek to continue to uphold and improve welfare standards, there is concern that the UK may, in the process of negotiating trade deals, disadvantage UK farmers having to compete with the potential influx of cheaper products for consumers that are not subject to the same high standards.
Question 5: What will be the impact on exporting/importing livestock to and from Europe?
At present, a high percentage of UK agriculture exports go to other EU member states and the EU's common external tariff on agricultural produce protects prices. The changes to trade models and level of continued access to the Single Market will have a significant effect on the agricultural sector. Currently, to export animal products and live animals to countries outside the EU, exporters must apply for, and be issued with, an Export Health Certificate (EHC). Exporting live animals requires exporters to provide either an EHC or, more generally, an EU-specific version of an EHC known as an Intra Trade Animal Health Certificate (ITAHC). After Brexit, the EU would require the UK to be a listed third country. In the event of a ‘no deal’ scenario, the UK would apply for this status but cannot be certain of the EU response or its timing. Without listed status no exports to the EU could take place.
If a deal occurs, UK farmers will want assurances that they will have some degree of protection from cheap imports. Currently the total value of UK imports for food, feed and drink is over twice the value of UK exports. Policies may seek to reduce the trade gap, by encouraging farmers to produce agricultural products that can be grown in the UK.
- EHCs would be required for exports of all animal products and live animals from the UK to the EU. Consignments would need to travel through a Border Inspection Post (BIP) within the EU. EHCs would need to be signed by an Official Veterinarian or authorised signatory following inspection of the consignment.
- Changes would be required to the wording of EHCs, which would need to be agreed with the destination country, to reflect the fact the UK would no longer be a member of the EU.
Question 6: How will the UK safeguard food and environmental standards after Brexit?
The UK’s future trading relationship with the EU could also have a major impact on the extent to which the government could, or would, seek to deregulate food and environmental policy post-Brexit. Stakeholders are calling on the government to ensure one unified approach to farming, albeit taking into account regional differences.
- The UK would need to comply with, or seek to adopt measures equivalent to, EU environmental standards in order to continue to trade freely with the EU. For example, the UK is likely to follow EU policy on genetically modified organisms (GMOs), whilst there are obvious areas of divergence on policy such as glyphosates.
- Do not forget devolution. Agriculture is a devolved matter and therefore, if Wales, Scotland and Northern Ireland choose a different method of support, cross border issues could increase.
Remember, you are not alone in going through this process. Here at FBC Manby Bowdler we have a stellar team of experts who can help you take control of your business whatever the politicians decide.
If you would like to contact Peter Wilding to discuss any of the above please contact him on 01694 724440, 07901 008220 or email email@example.com.