Brexit special: How leaving the EU will hit arable farms
Clarity on how Brexit will affect UK arable farmers may seem a long way off, but there are steps growers can take now to protect their businesses.
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While much is still unknown about trading relationships the UK will develop with Europe and the rest of the world post-Brexit and the future of support payments, possible scenarios have been evaluated by AHDB.
It outlines three different scenarios, named Evolution, Unilateral Liberalisation and Fortress UK in its Horizon report ‘Brexit scenarios: an impact assessment’.
Working on a baseline farm business income (FBI) of £43,796/annum for the cereals sector, under the Evolution scenario this falls by 9 per cent to £39,788, driven mainly by falls in output values for oilseed rape and barley, caused by loss of export potential, according to the report.
Potentially much more challenging to the cereals sector are the Unilateral Liberalisation and Fortress Britain scenarios.
The former sees a fall in FBI of 81 per cent, mainly driven by a reduction in Pillar One payments of £37,439/annum, only partially offset by Pillar Two payments.
The Fortress Britain scenario sees a negative FBI of £-1,341, with a smaller increase in Pillar Two support providing less offset for the loss of Pillar One support and an increase in labour costs contributing to the fall, says the report.
For the ‘general cropping’ sector, which, according to AHDB’s definition can include field scale vegetables, sugar beet and potatoes as well as cereals, the baseline FBI is calculated at £61,231/annum.
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Under the Evolution scenario, there is little change from the baseline. As with the cereals sector, loss of Pillar One payments hits FBI, with a 70 per cent reduction in the Unilateral Liberalisation scenario as well as higher labour costs.
The latter could lead to downward pressure on farm size to keep costs under control, according to the AHDB report.
In the Fortress Britain scenario for general cropping, higher prices for domestically produced processed potatoes are anticipated because of trade friction costs and WTO tariffs, mitigating the loss of Pillar One payments to some extent and delivering an FBI of 60 per cent below the baseline.
Under this scenario, areas of potatoes and sugar beet are likely to increase, on average, says the report.
The cereals sector, along with the upland beef and sheep sector are most likely to see the greatest falls in FBI, according to the AHDB report, which goes on to say ‘Under the Fortress UK scenario, these sectors see their average farm become loss-making’.
In an earlier Horizons report named ‘Post-Brexit prospects for UK grains’, AHDB says: “A free trade deal with the EU is of critical importance for the cereals industry.
Without preferential access to the EU there is a real and significant risk the UK, in a post-Brexit world, will find it more challenging to export surplus grain into the EU, which takes the lion’s share of trade.
“To compensate, UK grain exports may well have to look outside of the protection of the EU tariff system and take on staunch competition from the dominant producer-exporters.”
10 non-EU markets for UK grain
AHDB has identified 10 non-EU markets as possible targets for UK grain.
- Algeria
- Morocco
- Tunisia
- Egypt
- Kenya
- Saudi Arabia
- United Arab Emirates
- China
- Japan
- South East Asia
Plant protection products
The regulations governing plant protection products are likely to be ‘lifted and shifted’ as part of ‘The Great Repeal Bill’, according to AHDB’s Horizon report ‘What will happen to plant health and plant protection product regulations after Brexit?’
Following this, change is possible and the industry needs to think ahead regarding what it wants and needs to compete effectively in a changing global trading environment, as well as satisfying consumer preferences in a domestic market, says the report.
Burden
It may transpire the regulatory burden might not be reduced as much as farmers might hope and, in any event, this would probably take a number of years to achieve.
It is also likely the environmental, conservation, consumer and public health lobbies will continue to be influential and exert pressure for more stringent regulation of agriculture and plant protection products in particular.
Achieving the right balance between regulation and productivity in all areas is an age-old challenge and this is no less true of the position the country finds itself in now, it concludes.
Speaking at BP2017 Sharon Hall of the Potato Processors’ Association says: “Regarding plant protection products, we ask the Government to ensure there is a level playing field with the EU as a minimum.
"We want the UK to have access to the same plant protection products as the EU as a minimum. We also ask Government not to gold plate standards compared with the rest of Europe which would weaken the UK and make it less competitive.”
Tips on preparing for Brexit
In all scenarios, farm businesses in the top 25 per cent of performers remain viable post-Brexit, regardless of size or sector, says AHDB.
It says:
- Use tools, such as by benchmarking, to know your relative performance
- Pursue practical ways of improving output and containing costs
- High performance is not necessarily associated with larger farms
AHDB’s Brexit scenarios
1) Evolution
- Free Trade Agreement made with the EU
- Agriculture support, labour costs and regulation unchanged
2) Unilateral Liberalisation
- No trade deal with EU, but UK unilaterally lowers all tariffs to zero
- 50 per cent reduction in agricultural support
- Permanent labour costs rise
3) Fortress Britain
- No deal with EU
- WTO tariffs apply
- 75 per cent reduction in agriculture support
- Labour (permanent and seasonal) costs rise
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