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Brexit vote - what are the implications for UK farming?

Insights

The British electorate have delivered a political earthquake with the shock vote to leave the EU, after 43 years of being a member. The implications for farmers have been described as ’seismic’.

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The UK will leave the EU once it has neogotiated terms for its departure
The UK will leave the EU once it has neogotiated terms for its departure

From a farming perspective, the EU Referendum debate has confounded prevailing perceptions about the industry’s relationship with the EU.

 

As campaigning started, the general assumption was most farmers would back Remain - why turn our back on a market of 500 million and £3bn of support delivered from Brussels each year?

 

The vocal few backing ’Leave’, with its promise of regulatory freedom and a fresh start would surely be in a minority?

 

It has not turned out like that, far from from it, in fact. It is evident parts of rural Britain, particularly the east and north of England, played a big part in voting Britain out of Europe.

 

While there are no hard figures on how the farming industry voted, it also clear it has been genuinely divided between those embracing that thought of freedom from Brussels’ grip and those fearing the implications of Brexit for trade and farm support.

 

The arguments are now over, the decision is now made and, for farmers, life will never be the same again.

 

So what will it all mean?

 

The short-term implications

 

There is turbulence ahead, NFU president Meurig Raymond warned at 6.20am on Friday morning, as the Referendum result started to sink in.

 

But he stressed the UK will remain a member if the EU for at least another two years as the Government negotiates its terms of exit.

 

Once the UK triggers Article 50, it then has two years before we leave, in theory, although some Brexit campaigners, including Farming Minister George Eustice have said the process could take longer.

 

So there will be no immediate implications as far as the CAP is concerned or for the swathes of EU regulation farmers have to comply with. It will all take time to unravel.

 

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Mr Raymond said: "The next 12 months is going to be pretty intense for the NFU in making sure British farmers are not going to be disadvantaged and we have the access to markets to allow us to grow."

 

But he highlighted the ’turbulence in the currency market’, which could have immediate implications for trade. "This highlights the importance of increasing our ability to produce food because if the pound falls to lower levels, it becomes more costly to import food."

 

This was reinforced by Will Gemmill, head of farming at Strutt & Parker, who said the vote would ’delight significant numbers of farmers, as polls had consistently shown strong farmer support for the leave campaign’.

 

He said: “The UK’s decision to leave the European Union will have seismic implications for UK agriculture – ending more than 40 years of British farmers’ inclusion in the Common Agricultural Policy (CAP).

 

“If the value of sterling drops, then in the short term we could see improvements in our competitive position which will help exports and push up prices."

 

What happens next?

The NFU's Brussels office has outlined what happens next.

 

  • Article 50 of the Treaty of the European Union describes the withdrawal process
  • It allows two years to negotiate the terms of our exit but in all likelihood could take as long as 10
  • The UK will also have to start the process of unravelling all the rights and obligations, and then set about creating a new relationship with the EU
  • If after two years the negotiations are still not complete, an extension can be granted, but only if all 27 member states agree
  • Outgoing Prime Minister David Cameron has confirmed the process will not start until his replacement is in position, October at the earliest

Already, the Commission is putting pressure on the UK for a fast exit.

 

In a joint statement European Council President Donald Tusk, European Parliament President Martin Schulz, EU council President Mark Rutte and Commission Pressident Jean-Claude Juncker said the UK should trigger Article 50 as soon as possible.

 

They said: "We now expect the United Kingdom government to give effect to this decision of the British people as soon as possible, however painful that process may be.

 

"Any delay would unnecessarily prolong uncertainty. We stand ready to launch negotiations swiftly with the United Kingdom regarding the terms and conditions of its withdrawal from the European Union.

 

"Until this process of negotiations is over, the United Kingdom remains a member of the European Union, with all the rights and obligations that derive from this."

 

But Boris Johnson has insisted 'there is no need for haste' and 'nothing will change in the short term' as he addressed the media on Friday morning.

 

Land prices

 

Michael Fiddes, head of Strutt & Parkers’ estate and farm agency, warned uncertainty over areas like trade and the CAP could hit land prices.

 

He said: “What markets hate more than anything is uncertainty and a vote to leave will inevitably create a great deal of uncertainty about the future of our agricultural policy as we move outside of the CAP.

“This is likely to have a negative effect on the UK land market at a time when prices are already under pressure because of falls in farming profitability.

 

"Farmers remain the largest buyer of farmland in the UK, so any changes in income as a result of changes to the subsidy system will have an impact."

 

 

Political landscape

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We do not yet know what the UK political landscape will look like as the Governments leads us out of Europe in the next few years.

 

Following David Cameron's resignation there will be a new Prime Minister and probably a very new-look Cabinet come the autumn.

 

The fates of Farming Minister George Eustice, who argued passionately for Brexit, and Defra Secretary Liz Truss, a Remain supporter will be eagerly awaited.

 

There is even talk of a possible General Election, ahead of schedule.

 

Then there is the Scottish question. Scotland was very much 'in' and today's result will only increase the likelihood of a second Scottish independence referendum.

 

EU trade implications

 

One of the biggest unknowns for UK farming is what sort of trading arrangements will be put in place after we leave the Single Market, with its 500 million consumers and free movement of goods and people.

 

  • The UK currently has free access, without tariffs or border controls, to an EU market of 500 million people
  • The UK exports nearly £11 billion of food, drink and animal feed products to the EU, 60 per cent of total exports
  • About £26.5bn comes the other way
  • 38 per cent of UK lamb goes to the EU, with France accounting for nearly 60 per cent of exports
  • 93 per cent of beef exports and 92 per cent of sheepmeat exports go to the EU

 

Everything depends on the nature of any agreement the UK negotiates with the EU. This will determine what sort of tariffs, if any, are put in place on trade both ways between the UK and the EU and what other conditions are attached, such as the need for regulatory compliance.

 

In terms of EU trade, the various options open to the Government are outlined in this FG Insight article.

 

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Farming Minister George Eustice has repeatedly insisted it would be relatively straightforward to negotiate a Free Trade Agreement with the EU, bringing minimal disruption to the farming sector.

 

He said: "It is actually very easy to agree a Free Trade Agreement between the UK and EU provided people behave rationally and not petulantly.

 

"Our starting point is that we are in the single market now, have been for decades and there is a high degree of equivalence and compatibility in our approaches to issues like product specification, food safety and labelling."

 

He also suggested the UK would be in a better position to negotiate deals with other countries and trading blocks.

 

He said: "The truth is that the countries that have been most successful in opening markets and securing free trade deals are the independent nation states of the world."

 

Business as usual, then?

 

Hardly, according to the likes of Sir Peter Kendall, one of the lead farming figures in the Remain campaign for farming. He claimed Mr Eustice’s assurances flew in the face of comments by the Leave campaign leaders Boris Johnson and Michael Gove.

 

WTO rules and global trade

 

Sir Peter, chairman of AHDB, claimed they were leaning towards an arrangement where the UK would have no formal trading arrangement with the EU but would be trading globally under general World Trade Organisation rules.

 

This, he said, could ’decimate’ UK farming if the UK lowered its tariffs and allowing in swathes of cheap imports, for example, South American beef.

 

He said: "On the one hand, we have George Eustice outlining some reasonable policies but on the other extreme you have Michael Gove talking about tearing away tariffs and protection and running a cheap food policy.

 

"That would allow UK farming to be decimated by permitting the dumping of low-welfare poor quality produce from anywhere it can be sourced.

 

"It could be red meat from South America, poultry meat and there are tariffs on spring barley. What would happen if we had a big surplus somewhere else?"

 

The problem with any free trade deal that retained large elements of our current single market access is that it would come with many strings attached.

 

The trade dilemma facing the UK was perfectly summed up by former CLA chief economist Allan Buckwell, in a report on the implications of Brexit for farming.

 

He said the UK would face a trade-off between retaining single market access and freeing itself from EU regulation.

 

He said: "The EU trade question is fundamentally a choice between remaining close to the EU single market, and therefore having to retain most EU existing regulation, or leaving the single market in order to allow some deregulation."

 

Then there is the question of just how amenable the rest of the EU is going to be to giving the UK, which has just walked away from it, an easy ride when it comes to trade.

 

Global trade

 

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And what of trade with the rest of the world? The EU has negotiated preferential trade agreements with 48 countries and is in ongoing negotiations with a further 84 countries. It is considering opening negotiations with another seven, including China.

 

The Government and food sector has put a lot emphasis on increasing global exports recently.

 

Is Brexit an opportunity to forge new markets and enjoy greater influence on the global stage, as former Defra Secretary Paterson has frequently claimed?

 

Or will the UK suffer from losing the collective clout of the EU on that stage, a point forcefully made by EU Agriculture Commissioner Phil Hogan in Oxford in January.

 

Reacting to the Brexit vote, CLA president Ross Murray said: "As negotiations begin on trade relationships to succeed our position as a full member of the European Union, Ministers must have the needs of farming and other rural businesses at the front of their minds.

 

"The ambition must be a barrier and tariff-free relationship. Whatever happens, the UK Government must not allow a poor trade dynamic that leaves UK agriculture at a disadvantage."

 

NFU Cymru president Stephen James said negotiating and concluding trade agreements with the EU and the rest of the world, for our exports, 'now becomes vital'.

 

"We will be looking to the UK Government to prioritise the negotiation of favourable trade agreements.

 

"Whilst doing so I would stress that it is essential that decision makers do not undermine domestic agriculture by opening the UK market to goods which do not meet our own high standards of production.”

 

 

A UK Agricultural Policy (or four)

 

UK farmers currently receive £3bn a year under the CAP. While Leave campaigners have guaranteed current levels of funding will be maintained until the current regime in 2020, new UK national policies will need to be formulated to come into effect from 2021.

 

UK farming, rural and environmental organisations will all be looking to have a big say in the formulation of new agricultural policies.

 

Mr Raymond said: "We have heard politicians who wanted to leave the EU categorically state they were going to support farming. We are going to have to discuss with our members what framework they want to put together for a new UK farm support system."

 

The Tenant Farmers Association has already set out a potential draft policy, which chief executive George Dunn said would be used as as a basis for its discussions with the English and Welsh Governments 'to gain early traction to ensure that the farming community is not forgotten as we build new, domestic policies from the bottom up'.

 

CLA president Ross Murray said: “Discussions must begin as soon as practical on what will replace the support provided through the CAP.

 

"A dedicated UK Agriculture and Land Use Policy must be in place ready for the day we exit the European Union.

 

"This has to be a widely accepted policy that supports our farmers, helping them to be resilient to unpredictable markets, and providing them with a firm foundation to compete with EU and other farmers from across the world.

 

"It must also be a policy to support the work of managing our land and wildlife, preserving our landscapes and supporting rural communities.”

 

Will farm support be cut?

 

In an interview with Farmers Guardian, former Prime Minister David Cameron said: "If Britain votes to leave we would have to put in place an agricultural support system. I am very pro-countryside and pro-farming and, as Prime Minister, I would make sure that happens."

But he said there would be no such certainties under a Labour Government.

 

Arguably more significantly, given the events of Friday morning, Boris Johnson, surely the frontrunner to succeed David Cameron as Prime Minister, and Mr Eustice have also pledged to maintain farm support.

 

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During a visit to Gisburn auction mart, in Lancashire, a few weeks ago, Mr Johnson told FG's Olivia Midgley a future UK Government ‘would be mad’ not to subsidise the industry at the current rate. You can see a video of the interview here

 

Launching his Farmers for Britain campaign, Mr Eustice said: “Let us get one thing straight. The UK Government will continue to give farmers and the environment as much support – or perhaps even more – as they get now.

 

"The Prime Minister has made this clear and I agree with him. After all, non-EU countries like Switzerland and Norway actually give more support to their farmers than we do."

 

But others are deeply sceptical. The Remain camp, led by Sir Peter Kendall, have pointed out it has been Government policy for many years to phase out direct direct farm support.

 

They have also argued farming might struggle to get a look in up against other priority spending priorities like health and education, given the ongoing pressure on public finances.

 

Sir Peter accused leave campaigners of 'taking farmers for fools' and 'dishonest' by promising to 'spend the same money many times over when experts say it will be in short supply'.

 

With CAP support accounting for about 75 per cent of farm incomes in 2015, there are concerns farm profitability could be hit of farm support payments are reduced.

 

Plan B

 

Mr Eustice has argued, freed from Brussels bureaucracy and the ever present threat of infringement fines from its auditors and the Court of Justice, the UK could construct a far more effective policy than the much-derided CAP.

The constant threat of fines for ’petty infringements’ of EU rules - which have totalled more than £600m in recent years - has created a ‘culture of fear’ within Defra when it comes to implementing policy like the new CAP, he said.

 

He has laid out a broad ’Plan B’ for farm support and pledged to work with the UK farming industry to develop an effective new policy.

 

George's plan B

Mr Eustice has outlined a broad 'Plan B' for a British Agricultural Policy, or in reality for England. It includes:

 

  • Retaining an element of area payments, initially at similar levels to the CAP but likely to be reduced over time
  • Under the new farm area payment, farmers would sign up to privately operated UKAS accredited schemes promoting environmentally-friendly farming
  • Cross-compliance rules would be abolished
  • Funding to support science and technology, including new breeding techniques like gene editing
  • Government-backed insurance schemes to mitigate risk similar to those in place in Canada and US-style futures markets
  • An environmental stewardship-type scheme, with an element rewarding animal welfare-friendly systems.
  • We have asked various industry figures, including Mr Eustice, to come up with their '2020 farm vision' blueprints for a future farm support policy. It makes for interesting reading.

 

Regulation

 

Arguably the biggest perceived benefit of Brexit for farmers will be the prospect of freedom from the grip of EU regulation.

 

And while the UK will undoubtedly have more flexibility, it remains unclear exactly how this will pan out.

 

For example, in order to continue trading with the EU, the UK will be required to comply with some EU regulation, at least where goods are destined for exports.

 

Even Mr Eustice has acknowledged, for example, that sheep will need to be compliant with EID regulations in order to maintain EU trade.

 

But he said ‘there would be no such thing as EU law’.

 

" I believe there is a special value in having the ability to act, to decide and to get things done.

 

"Where we have control we can bring clarity and consistency. We are more agile. We can act decisively and quickly to deliver change where change is required."

 

Then there is the question of the UK will approach issues like GM authorisations and pesticide approvals, a massive issue currently for the crop sector.

 

Mr Eustice and fellow Brexit campaigner former Defra Secretary Owen Paterson have insisted the UK would be able to authorise GM crops and bring back neonicotinoid seed treatments.

 

There would be no repeat of the current 'nonsense' over the re-authorisation of glyphosate.

 

Others have questioned this. Former Farming Minister Sir Jim Paice has pointed out the UK would still need to comply with EU regulation is this area to export to the EU.

 

There is no guarantee, given the power of NGOs, future UK Governments would be any more 'sympathetic' when it comes to this sort of regulation than the EU is today, he added.

 

NFU vice president Guy Smith highlighted the Government's refusal to accept the NFU's request for a derogation from the EU neonicotinoid ban as an example of how there can be no guarantees of 'better regulation' outside the EU.

 

How could the UK regulate GM and pesticides outside the EU?

Mr Eustice said: “If we were to leave the EU, we would be able to put in place a credible authorisation procedure for both pesticides and genetic technologies which was rooted in science rather than EU politics.”

 

The UK would be free to authorise chemicals banned in the EU, such as neonictinoids, but would then have to agree minimum residue limits with the EU in order to continue to trade, he added.

 

Mr Eustice envisages a model where the UK continued ‘joint working on EU technical and scientific groups’ and have input into the work of the European Food Safety Authority in assessing the safety and environmental impact of crops and chemicals.

 

Once the scientific assessment was complete, there would be ‘dual legislation process’ with the UK authorities and the Commission adopting separate processes.

 

“You would get round the problem where the technical group says these things are safe but politics gets in the way.

 

"It would not be possible for the EU to ban imports of products we have authorised because the food safety conclusions would be indisputable," Mr Eustice said.

Migrant labour

Migrant labour

Another big concern to the horticulture industry in particular, but also other sectors, is whether the ability to employ essential EU labour will be lost.

 

Brexit will almost certainly the current free movement of labour arrangement that paves the way for both seasonal and permanent labour on our farms and food processing units.

 

The horticulture sector is already facing something of a labour crisis, given the introduction of the Living Wage and the end of the SAWS scheme, which provided labour from Bulgaria and Romania before they joined the EU.

 

The UK industry will see this as a priority issue in a post-EU Britain.

 

Mr Eustice said: "If we voted to leave and took control we could develop an immigration policy which delivered for the UK with special, tailored provisions for industries such as agriculture which have a unique seasonal nature.”

 

But Guy Poskitt, whose family business in Yorkshire grows and packs more than 150,000 tonnes of carrots per year and employs 250 people, two-thirds of which are European said EU labour was 'as important an ingredient to horticulture as sprays and fertiliser'.

 

He said: "The out campaign argues it would be easy to get the labour. I would argue it may be the same, it may be harder but it certainly will not be easier.”

 

Immigration concerns

 

English Apples and Pears, which represents fruit growers, said UK voters had been influenced to leave the EU by concerns over the level of immigration to the UK.

 

It said it was 'highly likely' the British government will introduce measures in the coming months to reduce the number of immigrants allowed to enter the UK, which 'could spell disaster for many fruit growers'.

 

Chief executive Adrian Barlow said: "Apples and pears are harvested by hand and seasonal workers are required for this.

 

"Despite enormous efforts by growers, government departments and Job Centres, it has proved impossible to recruit from the UK any more than a small proportion of the numbers necessary.

 

"In short, the British are not prepared to undertake this type of work. Unless they can be recruited from abroad, many growers will be forced to cease production which will damage local businesses, local economies, the national economy and deprive consumers."

What would WTO tariffs mean?

According to an analysis by Dr Alan Swinbank, if no arrangement could be negotiated, then the EU and the UK would trade with each other as WTO partners, applying their respective Most-Favoured Nation tariffs against each other.

 

Fresh lamb carcasses dispatched from the UK to France would, for example, face a tariff of 12.8 per cent plus €1,713 per tonne.

 

Similarly, if the UK retained the MFN tariffs it currently applies on imports from outside the EU it would now charge them on shipments from its former EU partners as well.

 

Irish and Danish butter into the UK would pay €1,896 per tonne (for comparison the EU’s support price for butter is €2,463.9 per tonne).

 

Under WTO rules the UK could unilaterally reduce its MFN tariffs, rather than continue to apply a tariff schedule inherited from its EU membership, but, according to Dr Swinbank, this is ‘perhaps unlikely’.

 

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