Brexit Director Peter Wilding looks at the major issues facing sheep farming as the EU withdrawal deadline looms and says a no deal Brexit would be the biggest upheaval to the industry in almost 200 years.
Sheep have always been at the centre of Shropshire’s farming. Today a third of Britain’s sheep graze within 100 miles of the centre of the county. Shropshire has the second highest amount of sheep in the country after Northumberland. Recently, The Economist published an article reporting how sheep farmers on AE Houseman’s blue remembered hills might, with Brexit, end up living in a land of lost content.
Because Shropshire is also Brexit country. Some 57% voted to leave. Four of the county’s five MPs are pro-Brexit. Yet Brexit represents the biggest potential upset to Shropshire’s rural life. No other industry is going to feel the impact quite as keenly as British sheep farmers. Unless there is a deal which maintains subsidies, continues compliance regimes and enables untroubled exports and imports, it will represent the biggest upheaval for farming since the repeal of the Corn Laws in 1846.
Not that you would notice. To politicians, farmers are pretty much an irrelevance —after all, 80 per cent of voters live in towns and cities.
Farming is less than 1% of the British economy. But, with food processing included, it makes up 13% of GDP, making it an industry bigger than cars and aerospace put together.
Nor are sheep farmers a small part of the market. The UK is the largest producer of sheep and goat meat in the European Union, contributing 40% of all meat production. Typically, 64% of UK production is consumed domestically and 36% is exported. We are also big sheep importers, bringing in more sheep meat and offal than we export due to the seasonality of lamb. 89% of it is fresh and frozen sheep meat originating from Australia and New Zealand, whose seasons are opposite to ours.
In a no deal scenario, sheep producers would effectively face a triple whammy of zero-tariff lamb imports, tariffs of up to 60% on some exports and a major change in subsidies.
An average of 55% of farm income comes from the EU’s common agriculture policy and its subsidies. In the long run, farmers will receive money to make improvements to the environment under a new system post-Brexit. Until then, the current £1bn sum paid to sheep farmers and landowners will continue until 2022 -longer than the Government had previously pledged.
If there is no deal, sheep farmers have been assured of financial support from the government. This support is likely to be similar to the old variable premium scheme. This paid farmers the difference between an average price of lamb set over a number of reference years and the current market value.
Details are expected to be finalised between now and 29 March, and it is hoped the scheme will be readyto operate in the event of the UK crashing out of the EU without a withdrawal agreement in place. However, support would be on a temporary basis until a trading relationship withthe EU had been re-established
Subsidies will be needed because, as one sheep farmer says “without an EU trade deal, all sheep farmers will go bankrupt.” Without a deal, there will be very little access for lamb without a tariff. The UK will need to apply to the EU for “third country status”, which is the designation all non-EU countries need to have to send goods into any EU country.
It is unclear how long this could take, with the process normally taking several months.
The current effective tariff rate of chilled lamb entering the EU is 46%, which is based on a charge of 12.8% of the value of the shipment plus an additional €171.30 per 100kg.
The Agriculture and Horticulture Development Board says that lack of access to the UK’s largest trading destination for sheep meat will cause flock owners to cull sheep numbers as they become increasingly unprofitable. The AHDB has warned that sheep farmers will suffer a devastating 30% cut to the value of lamb if the UK leaves the EU without a withdrawal agreement. At current prices, that would slash the value of a 40kg lamb by about £23, as tens of thousands of tonnes of unwanted lamb, previously destined for the EU, drags down the value of the UK market. Last week, Liberal Democrat leader Vince Cable suggested in Westminster that he has seen internal Defra documents that explore the need to cull one-third of sheep in the UK to stabilise prices in the event of a no-deal Brexit.
However, whilst government support would ensure the industry would not significantly contract in size –causing damage to the UK’s long-term objective of tapping into lucrative export markets in the USA, India and China –there are currently no facilities to enable sheep to be stored and frozen –a necessity for long distance export markets. This means the industry would still be reliant on consumers responding to falling prices at the shops by increasing consumption and avoiding lamb going to waste.
The sheep sector would be among those most affected if the government unilaterally opened the UK market to tariff-free imports. Even if that did not occur, all animal products entering the EU would have to pass through a veterinary inspection post. Importing pesticides, medicines, seeds and fertilisers would also face new regimes. For example, mutual recognition of veterinary medicines would cease immediately. Import controls on animal feeds would start within a new notification regime because the UK will no longer have access to the EU import system.
Even sheep farmers stockpiling feed now will have to ensure stores meet assurance scheme requirements. So, a no-deal Brexit could affect availability of animal health products in both in the short-term and long term. This could present supply problems and real risks to livestock health and welfare.
The Economist suggested that some may say Brexit is positive as it would break Shropshire employers’ habit of relying on cheap imported labour rather than mechanisation, end their fixation on the EU rather the world, and stop slaughtering sheep instead of exploiting the county’s natural beauty.
But automating sheep slaughter will not be cost-effective. The global market will force sheep farmers to battle cheaper frozen Australian, American and New Zealand lamb. And new subsidies for stewardship of the countryside rather than sheep grazing would mean that the Shropshire hills could end up as farm-free scrubland.
For sheep farmers, it is time to get informed, prepare yourselves, protect your business and influence the legal environment you will soon have to work in.
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.
Download this briefing here