Ministers have been warned that farmers face falling profits whatever form Brexit now takes. FBC Manby Bowdler’s Brexit director Peter Wilding analyses the situation facing the UK’s farming industry and what it might mean for farmers across Shropshire.
In a devastating report published on Friday, the government-backed Agricultural, Horticultural and Development Board predicted that post-Brexit farming incomes would fall by 25 per cent.
This wasn’t just in an apocalyptic “no deal” scenario. If it was, farmers seeing this figure could mutter ‘Project Fear’ and carry on their arduous work.
The problem is that this collapse occurs in any Brexit scenario. It is no exaggeration that entire enterprises, for example poultry production, could be unviable if the AHDB predictions are correct.
This is a problem because, in Shropshire, poultry accounts for 86 per cent of all cattle and livestock. Sheep is 10 per cent and cattle, 3 per cent. Shropshire has the second highest amount of sheep than any other local authority in England, the second greatest amount of cattle and the third greatest number of chickens.
Farmers will face higher labour costs, roller-coasting prices and slashed profits. Even if Theresa May’s benighted Withdrawal Agreement finds some way of getting itself over the Parliamentary line before the next Halloween cliff-edge date, there are no sunlit uplands for British agriculture.
Why is this?
1. Domestic agriculture policy: In sectors where direct financial support accounts for a significant proportion of farm business income, the AHDB report shows the dramatic immediate impact of reduced support levels on business profitability.
2. Trade policy: The UK is a net importer of products for most food sectors, and the EU is a key trading partner. In areas such as dairy and pigs, the scenarios show that farmers may just about benefit from rising prices, reflecting the rising costs of trade. In sectors where exports are significant, such as cereals and sheep meat, rising costs of trade for UK products into EU markets will mean downward pressure on domestic farm-gate prices.
3. Immigration policy: Higher labour costs, resulting from restrictions on migrant workers, will reduce farm business incomes.
So to understand the general impact on farmers, first we need to know in which agricultural sectors the UK is a net produce importer or exporter. Where the UK is a net importer, farmers tend to gain from rising prices.
However, as fixed and variable costs for fertiliser, feed and labour are predicted to rise whilst EU subsidies vanish, being an importer would still reduce overall income in a “deal” scenario.
But, in a “no deal” scenario the dumping of cheaper global livestock produce on the UK market could lead to a collapse in farm-gate prices under a no deal outcome. Why?
Because under the World Trade Organisation tariff regime there is a 0 per cent tariff on the first 230,000 tonnes of livestock produce meaning a fall in average farm profits from around £42,750 a year to £26,285 in 2022.
In its report released on April 11th the AHDB says that Shropshire sheep farmer’s income - even if a deal is done with the EU – will plunge from the current average of £25k per annum into a marginal annual loss.
In a no deal scenario, sheep farmers would face a business-busting loss of on average £10k each year.
In short, farmers face the following unpleasant scenarios:
• Income for beef and sheep falls to £15,000 with a deal but to £9,771 in a no deal scenario.
• Income for pig farms drops under a deal to £21,273. The average farm loses £10,741 a year under no deal.
• Incomes fall for the poultry farms under a deal to -£32.60 per 1,000 birds and under no deal the fall is smaller, to 1p per 1,000 birds.
All these falls are a relative drop in the ocean if the current CAP basic income support is removed. Expect an income collapse of 50 per cent on top of these estimates not least because the government have already stated that direct payments will be focused on agri-environment management in future instead of production.
What farmers need to understand is that the AHDB sees no positive outcome on already stretched incomes from any kind of Brexit.
It says in its conclusion that change is coming. The question is only how fast it will come.
In the event of a deal, farmers’ first priority is to deal with the removal of direct payments. If there is no deal with the EU, accelerated restructuring of farming sectors seems inevitable. The only farms which may weather the oncoming storm are large, top performing enterprises.
West Midlands’ farmers need to ensure that their incomes are protected. To do that farmers need legal advice soon to ensure that their supply contracts, regulatory compliance, employment practices and subsidy regime are fit for purpose in order to avoid the shock that will come from Brexit – with or without a deal.
Peter Wilding, our Brexit Director, is able to provide in-depth analysis on the political, policy and legal implications of Brexit, and translate what they mean for manufacturing, agricultural and hospitality clients. If you would like to discuss any issues with Peter, please call him on 07901 008220 or email firstname.lastname@example.org.