With the prospect of Brexit less than two years away, for the first time in more than 40 years, the UK can create its own farming policy. National Farmers Union chief economics adviser Dr Andrew Francis considers the pros and cons of a new tariff environment for the farming community and their tax advisers
Farming has made the headlines recently. The disagreement between Cabinet heavyweights Liam Fox, secretary of state for international trade, and Michael Gove, secretary of state for environment, food and rural affairs, over a future trade deal with the US which could allow the importation of chlorine-washed chicken onto UK plates, highlighted a wider debate about where our food comes from and the standards to which it is produced.
It also sparked talk about the potential risks and opportunities that post-Brexit trade deals could bring to agriculture and the food on our shelves. And it does not stop there; farming is heavily exposed to the issue of labour availability should restrictions on migrant labour be imposed. This could be detrimental, if not catastrophic, to some farming sectors such as horticulture.
Leaving the EU means leaving the Common Agricultural Policy (CAP). This means for the first time in over 40 years the UK can create its own farming policy. This is an opportunity to design a policy that is fit for purpose for the country, rather than the CAP - designed for a continent stretching from Greece to Scandinavia.
By what means and how much the industry will be supported is up for debate and could radically change. The years of subsidies calculated on acres owned is likely to change or have more conditions attached.
A move to support with an emphasis on environmental management has already been hinted by the Department for Environment Food & Rural Affairs (Defra) secretary of state. But there are other areas where government policy could deliver benefits to farming and the country. This could cover assistance to manage price volatility, which has been extreme since 2008 and a reason for the dairy crisis of 2015. This would help provide farmers with the stability to invest for the future.
The implications of Brexit on farming go wider still. Farming is the dominant land manager in the country with nearly three quarters of it under its care. Without a competitive, progressive and profitable farming industry, our countryside – from the dramatic landscapes of the Lake District and Snowdonia to the lush valleys of the Cotswolds - would be unrecognisable without the farmers’ hands.
Annually some 350m day visits are made to the English countryside by tourists, spending £9bn in the process. Agriculture looks after and encourages our biodiversity, enriches our communities and provides environmental services such as flood prevention.
At the heart of all this is a farmer running a business. Farmers are the bedrock to the UK’s largest manufacturing sector – food and drink; a sector larger than the aerospace and automotive sectors combined and which is worth £109bn to the economy and provides 3.8m jobs.
A recent study conducted by Development Economics for the National Farmers Union (NFU), ascertained that farming already delivers £7.40 for every £1 of public money directed at the industry.
In terms of trade, last year the UK exported £13.8bn worth of food and non-alcoholic drink, with 71.4% of it going to the EU. Over 40% of lamb produced in the UK is exported, with almost all of that going to the EU. Coming into the country’s ports and airports was £36.2bn worth of produce, which makes the UK a net importer of food.
In fact, our self-sufficiency ratio is 60% for all food and 76% for indigenous food (food production that the UK can produce within its climatic limitations) and has been steadily declining).
This shows that there is considerable scope for the UK food chain to deliver an increasing proportion of high quality, safe and affordable home grown food. Brexit presents huge export opportunities, given the right trade deal, for farmers to develop new and exciting markets.
A stumbling block in trade negotiations is nearly always agriculture and the worry is that it could be sacrificed over other sectors, such as finance or insurance in late night talks in Brussels or Washington.
We haveto conclude that continued access to the EU single market must prevail. But let’s assume for a minute that come the spring of 2019, or after a transition period, that there was no free trade agreement with the EU.
The result would be that farming produce would be bound by the World Trade Organisation Most-Favoured Nation (MFN) tariffs, which for typical commodities that UK farmers produce, range from 51% to 74% of the underlying price. So for lamb, this would mean an extra £2.36 per kilo – enough to significantly impair the EU market that British farmers have so successfully developed.
On a wider level, where would this leave the Lake District or Welsh hills, a landscape kept in check by the herds of sheep that so inspired the likes of Wainright or Thomas? Trade deals with other non-EU countries are likely to take years, with WTO tariffs imposed in the meantime.
The likelihood, therefore, for the 40% of food imported is that food prices will increase. Not a desirable outcome for a society used to affordable food and where spending on food has declined from a third of household income in the 1950s to about 11% today.
The issue of migration was at the centre of the referendum. British farming depends on a competent and reliable supply of labour which is often from overseas. Some 11% of farming’s 400,000 permanent workers are from outside the UK. The horticulture sector alone depends on 80,000 seasonal workers – mostly from the EU to pick and pack 9m tonnes and 300 types of fruit, flowers and vegetables.
Beyond this, 85% of vets in meat establishments and 63% of workers (or 47,000) in meat processing come from beyond the UK. So clearly, without migrant labour, farming and the food chain is going to struggle – we have already seen some large vegetable producers looking into moving overseas should this be the case.
So what is the solution? From a grower’s perspective, the continuing free movement of labour would be an ideal outcome, although whether this will be allowed in the forthcoming Immigration Bill is to be decided. Automation using advances in technology for picking fruit is at least 10 years away, and even then the cost of doing so may be prohibitive.
A re-introduction of a revised seasonal agricultural workers scheme (which closed in 2012) or visa or work permits allowing workers to work for an employer for a certain length of time might be an option. The opening of Tier 3 (temporary workers) in the UK’s points-based immigration would also be a consideration.
The opportunity also exists to form a new Domestic Agricultural Policy (DAP) that will be necessary to replace the existing CAP as confirmed in the Queen’s Speech.
The government has confirmed the existing support structure until 2022. To put it into context – the financial support British farming receives (circa £3.9bn) is a fraction of the budgets of most government departments. Three quarters of it goes to active farmers based on their land area at around £213 per hectare and the rest is used for environmental management by farmers and through productivity grants.
The NFU is advocating a policy in which farm businesses are provided with the incentives, support and means to be more productive and resilient, and better at meeting the expectations of society at large. We are proposing a framework centred around the following three parts – productivity and business resilience, volatility mitigation and environmental measures. The funding for each would depend on the resultant trade deals, labour availability and the regulatory environment.
Should agriculture get a bad deal it would be necessary to insulate farmers from the resultant damaging volatility and poor business environment in order to keep them sustainably delivering for the economy and environment. The US and Canada operate commodity insurance programmes which are triggered when prices or yields go below certain levels.
Australia’s farm management deposit scheme assists primary producers to deal more effectively with fluctuations in cashflows by building up cash reserves. Canada has a similar scheme.
In recent years British farming has experienced a slowing of improvement in productivity growth. For example, measures to target investment through incentivising adoption of technical advances would strengthen the resilience of the sector.
A revised capital allowances scheme would promote investment in new, more efficient and environmentally friendly buildings. Increasing investment in research and development (R&D) alongside knowledge transfer would improve productivity and promote better farm practice.
And finally, a broad based environmental scheme could provide every farm business with the potential to contribute further to environmental protection and landscape management. This, along with the other measures described, has the potential to provide stability, growth and innovation to the UK’s agricultural industry.
About the author
Dr Andrew Francis ACMA CGMA is chief economics adviser at the National Farmers Union