Brexit Action Plan for Farming

FBC Manby Bowdler Brexit Director Peter Wilding says farmers are particularly vulnerable because of Brexit and must take steps to protect themselves – whatever their personal views

There is something difficult to explain going on in the farming community.

Of all the business sectors destined to be adversely affected by Brexit, British agriculture tops the league. 

Last month, six farming stories dominated the headlines:

1. Trump putting farming "on the table" in the prospective UK-US free trade deal meaning the UK could cut tariffs and regulation to open up the market to the lower standards and lower price of American food products

2. DEFRA announcing its new post-CAP subsidy regime which cuts farm payments and requires farmers to change land use from production to environmental improvement.  

3. The four main UK farming unions warning that a no-deal Brexit could lead to an immediate reliance on world imports, with catastrophic impacts for the nation’s food and farming sector.

4. The Migration Advisory Commission excluding agricultural workers from its Shortage Occupation List (SOL), whilst including dance choreographers and artists. 

5. The Agriculture and Horticulture Development Board, in its 2019 Market Intelligence Report, says farm business income drops under both hard and soft Brexit scenarios for nearly all of the farm and enterprise types they surveyed.

6. The National Audit Office reporting that DEFRA hasn't recruited enough vets to issue certificates for livestock exports

In spite of this, the Knight Frank Rural Sentiment Survey 2019 of 200 farm businesses revealed that more than a quarter of farmers are backing the hard Brexit which will directly imperil their futures. It makes it the most popular Brexit conclusion, just edging the 25% of respondents who advocated for a second referendum. It is not as if nothing is concerning farmers already. A substantial minority (29%) indicated they had taken a financial hit due to uncertainty (17%), having to put business plans on hold (8%) or on no-deal preparations (4%).

 

Facing such problems, real and potential, more than half of businesses said they were making zero changes to their businesses to cope with the challenges or opportunities of Brexit. This despite the knowledge that Brexit will have two contradictory consequences for the rural environment: it will help preserve it because there will be fewer farmers, but will also damage it because those who stay in business – the larger ones with more capital to buy new machinery – will exploit it more intensively unless they are tightly regulated. 

The things that are farmers' main concerns - restrictive planning policy, poor rural broadband, fly-tipping, commodity prices and succession issues - will be as nothing when the Brexit tsunami hits them. 

This feeling is not, however, reflected in our FBC Man by Bowdler polling. Last week, farmers' sentiment is almost wholly negative as to their prospects. Of 10,000 conversations last week, 68% of farmers said they were worried about their future. 

Those most worried are men aged 18-44 with their own families who are owning or managing their own farms. 



What about tariffs?

In the event of a no deal or WTO Brexit, farmers will face a new tariff regime. The key fact is that for exporters of food products to the EU and the world beyond British farmers will be facing punitive taxes. 

As far as importation is concerned, the UK has worked out a new tariff rate based on the EU's current 'Most Favoured Nation' (MFN) tariff. The MFN is the default tariff that EU countries (including Britain) currently charge on goods from the rest of the world - if there's no free trade deal. 

By charging only some of the MFN rate, Britain is choosing to cut tariffs from the rest of the world - but hike tariffs on goods from the EU, since they currently arrive tariff-free. 

Overall, the government has chosen to cut many tariffs. But the agriculture exceptions are important because they are aimed at protecting core farming income - but not all. Sheep farmers are fully protected in the regime that currently operates but other sectors lose out. Pig meat farmers will face a potential 87% threat from countries which export to the UK but who will no longer have to abide by their current EU trading arrangements. 

As far as importation is concerned, the UK has worked out a new tariff rate based on the EU's current 'Most Favoured Nation' (MFN) tariff. The MFN is the default tariff that EU countries (including Britain) currently charge on goods from the rest of the world - if there's no free trade deal.

By charging only some of the MFN rate, Britain is choosing to cut tariffs from the rest of the world - but hike tariffs on goods from the EU, since they currently arrive tariff-free.

Overall, the government has chosen to cut many tariffs. But the agriculture exceptions are important because they are aimed at protecting core farming income - but not all. Sheep farmers are fully protected in the regime that currently operates but other sectors lose out. Pig meat farmers will face a potential 87% threat from countries which export to the UK but who will no longer have to abide by their current EU trading arrangements.

What about subsidies? 

The UK farming industry provides over half of the food the UK eats, employs 474,000 people and comprises 217,000 farms. Post-Brexit the CAP subsidy scheme will be replaced by the Future Farming and Countryside Programme. 

Under the EU’s Common Agricultural Policy, farmers in England received €2.4 billion in subsidies in 2017. Under CAP, most payments to farmers are based on the amount of land they farm. Direct payments from the EU currently account for an average of 61% of farms’ net profit. Without these, 42% of farms would have made a loss between March 2014 and February 2017.These direct payments will be gradually phased out over a seven-year period starting in 2021. 

Under the proposed Agriculture Bill, DEFRA expects the withdrawal of direct payments to be offset by 

- improved business approaches, 
- new entrants to the sector taking over farms that have ceased to be viable, and
- productivity gains across the sector. 

However, there is limited evidence that many farms are equipped to increase their productivity.

The first problem is that the government proposes to use public money as a substitute for regulation.
The second is any US-UK trade deal will need to exclude food and agriculture altogether
The third is the absence of legislation to rebalance the patently unfair David and Goliath power relationship between food retailers and farmers. 

Globally, agricultural diversity has reduced drastically over the past 40 years. The UK has lost 12% of its farm holdings over the past 10 years as farms have consolidated, specialised, intensified and industrialised. During this time mixed farming, where livestock and crops are farmed together, was largely rejected.

Worse still the Agriculture Horticultural and Development Board Market Intelligence report concluded the following:

Farm business income drops under both Brexit scenarios for nearly all of the farm and enterprise types covered. 
For most sectors the main driver of the fall is expected increase in labour costs. However, in the Less Favoured Area (LFA) and lowland beef and sheep farms falls in production returns (from cattle and sheep sales) are much more substantial. 
In general terms trade impacts vary depending on whether the UK is a net importer or net exporter. Net importing sectors generally gain from rising prices, whereas net exporting sectors see falls. 
Under the WTO: UK tariffs scenario some net importing sectors (beef and pigs) also experience a price fall as cheaper world market produce will make its way to the UK market. 

One of the key elements in the new approach is the Environmental Land Management System (ELMS). Under ELMS, farmers will be encouraged to enter into a contract with the government to produce environmental land management plans, and be paid for the environmental outcomes they deliver, often working in collaboration with other farmers. Defra has not yet decided which environmental outcomes will be rewarded or how much farmers will be paid.

Defra is hoping to have 82,500 farmers enrolled on ELMS by 2028.

The policy represents a major shift away from traditional farming towards a system that pays public money primarily for delivering environmental benefits. Critics say farmers will have little time to prepare for participation in a three-year national pilot of ELMS, which will run from 2021 to 2024, because Defra is not planning to set out the environmental outcomes it will pay for or how much it will pay until April 2020. Farmers that do not participate may be forced to leave farming or replace direct payment income by adopting more intensive farming methods that could damage the environment.

Defra has recently scaled back its ambitions for the level of take-up of ELMS during the first year of the three-year national pilot, from 5,000 farmers to 1,250, but is seeking to increase participation as the pilot progresses. It means that Defra only has two years to test how well ELMS will work at scale. Defra currently has no plans to test its assumptions about the level of take-up of the new system.

What about compliance?

The National Audit Office stated last week that food and livestock could be delayed at UK borders in the event of a no-deal Brexit. The public spending watchdog warned that the government has failed to hire enough vets to process exports from the UK in its no-deal preparations. 

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. 

So 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.

Therefore, DEFRA needs vets to process export health certificates, which are used to prove food and livestock exports comply with animal health standards and regulations – a need which is expected to increase if the UK leaves the EU without a trade deal. 

Without them consignments of food could be delayed at the border or prevented from leaving the UK. DEFRA will also have to introduce a UK equivalent for each of 1,400 different versions of the current EU certificates, which currently refer to EU law, and agree these with 154 different countries in order to continue to export to them. 

The NAO says Defra will simply not be able to reach agreements with all of these countries by October 2019, when Britain is due to leave the European union. This could leave UK firms unable to export to some countries for a period after Brexit.

What about the US-UK potential deal?

On top of cost and income challenges, there is the looming threat of the type of free trade agreements the UK will manage to negotiate. Tariffs is one issue. Regulatory compliance is another. The US government and farming industry have made it clear that they want to see the ‘elimination of impediments’ under any trade deal. A senior US meat lobbyist told the Trump administration that the UK must adopt US food producing standards if it wants to secure a trade deal post-Brexit.

The US has long been exasperated at the 'anti-science' approach of the EU, which has effectively banned US meat imports by outlawing certain practices that are widespread in the US. Furthermore, strides made by the UK pig industry to reduce antibiotic use in recent years have not been matched in the US, where usage remains high.

However, if the UK agrees to remain part of the EU customs union or to maintain regulatory harmonisation with Europe, it will be 'difficult or impossible' to achieve any agreement.

The Chairman of the National Pork Producers Council said the UK must be willing to drop high tariffs and adopt a 'science-based approach' to sanitary and phytosanitary regulation based on US standards.

The threat plainly is that, when push comes to shove, it might be tempting for the next Prime Minister to make concessions on agriculture to get a deal through in order to benefit other sectors of the UK economy.

So, right now, with under 150 days to go before the next Brexit deadline, farmers must be ready for what is a generational existential threat to not only their businesses but their communities. Despite, the strong show in surveys for a no deal exit, our polling suggests that the farming community is anxious, fearful for the future. They face pressure on all fronts. 

Incomes will fall. Land prices will fall. Exports will fall. 

Tariffs will rise. Costs will rise. Imports will rise.

The European market will decline. The global market will theoretically improve. 

But the farming sector is "on the table" in all future trade agreements. And with high standards, high costs and high protection, global agricultural exporters will want lower standards, costs and protections. 

British farming is firmly in the cross-hairs and farmers must protect themselves.  

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 peter.wilding@fbcmb.co.uk.


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