June 25, 2016

Earlier this year, GAI News examined how a potential Brexit could affect UK agriculture and on June 23, in a historic vote, the UK decided to leave the European Union, with a 51.9% vote in favor of the decision. Strong reactions from global markets have seen the British pound (£) drop to the lowest value since 1985. And amidst David Cameron’s resignation announcement and financial market uproar, the UK’s decision is already having a significant impact on the small country that will ripple globally.

Farming communities within the UK may be some of the most affected populations. European Union’s Common Agricultural Policy (CAP), in place since 1957, financially supports farmers in the member bloc states and advises them on production means and environmental impact. According to the National Farmers Union (NFU), in 2015, farmers in the UK received almost 3.1 billion (euros) in direct payments from CAP, comprising over 50% of farmers’ incomes.

Sectors like dairy may be particularly strained without EU support. According to the National Farmers Union, the EU dairy market has greatly benefited from EU market support measures such as intervention buying and private storage aid for value-add dairy products like butter and skimmed milk powder. The EU Commission provided an extra £500 million to support the EU dairy and pork sectors last year – financing that was crucial to farmers in these industries. If Britain were no longer privy to CAP support like other EU nations, the island nation could be at a significant disadvantage in the regional and global marketplace.

Alternatively, some Brexit advocates affirm that this decision will open up 2 billion (euros) from EU payments that UK can use to support its own farmers individually. However, whether UK government supports agricultural subsidies as thoroughly as the European Union has, still remains to be seen.

Others remain optimistic and it has been noted that agricultural economists are assessing agricultural payment structures of European countries outside the EU like Norway and Switzerland. The Telegraph reports that The Fresh Start Policy, drafted by a Coalition in 2013, advocates for systems like New Zealand and Australia with agrarian free markets and directing payments towards smaller less productive farmers rather than agro-industrial farms. As an independent nation, Britain will need to figure out how best to support the farming sector whether through CAP replacement policies or new structures better suited for the British market.

Farmland Values

GAI also reported earlier this year on the decline that farmland values are set to experience in the wake of the Brexit. The value of English farmland has seen its largest quarterly decline since 2008, according to the latest index issued by Knight Frank. Combined with the potential lost income from CAP payments, the UK’s Plymouth Herald concludes that England’s farm incomes would fall by £29,000 per year. Debt tied up in farmland could also prove devastating for farmers. A report from Agra Europe states that, “18% of farms have current liabilities that exceed current assets.” Without CAP subsidies, land prices could fall an estimated 30%, according to the European Commission, driving thousands of farms to be unprofitabile.

Trade

Over 90% of Welsh beef and lamb is exported to the EU, meaning disruption in trade flows could prove to be fatal for some, if not many, agricultural markets in the UK. The single market of the EU provides access to over 500 million consumers without tariffs. The favorable trade dynamic has led to an almost dependent relationship. In a report on the impact of the Brexit, the National Farmers Union noted that the UK imports about 70% of its agricultural goods, and exports almost 65% of its agri-food goods to the EU, a £16 billion market in 2014. New tariffs could disadvantage British food exports and increase the cost of food imports.

The UK also risks losing both leverage for trade negotiations and food and ag companies. U.S. President Barrack Obama said in April that a Brexit would move Britain to the back of the line in terms of trade deal negotiations with the U.S. Additionally, the UK hosts 17 of the world’s 100 biggest food and beverage conglomerates, and 60% of processed food exports go to the EU. Dual taxation could cause a number of these companies to relocate and stifle Britain’s significant food-processing industry.

Liz Truss, secretary of state for environment, farming and rural affairs warned against the dangers a Brexit could cause for trade. “At a time of severe price volatility and global market uncertainty, it would be wrong to take a leap into the dark. The years of complication and risk caused by negotiating withdrawal would be a distraction,” she stated.

On the other hand, some sectors within agriculture may be positively affected. Departure from the EU could mean negating laws and financial implications that have limited some industries and allow Britain to make independent decisions regarding GMOs and other legislation.

CAP Subsidies

Additionally, there are concerns that CAP is not fairly distributed and British farmers are getting a shorter end of the stick, despite paying more into the system. According to journalist Nigel Farndale, British taxpayers pay £6 billion into the CAP per year, but only receive about half of that back. This imbalance has caused frustration in a number of farmers who feel the Brexit could alleviate this shortfall. Numerous polls by Farmers Weekly have shown that about 58% of farmers said they wanted to leave. Michael Seals of the Farmers for Britain Campaign stated, “The country has voted for change – and the farming industry has clearly indicated it wants change.” This contrasts, however, with the opinions of a significant portion of the farming community who still rely heavily on CAP subsidies and benefit from the EU market.

The Future

The Brexit will continue to create uncertainty in many markets throughout the Europe and particularly in the UK. In the short term, the steep decline in the value of the pound may prove beneficial for exports, and farmland may also become slightly more favorable for investments. However, generally, both its short and long-term impacts are unclear and will likely only slowly reveal itself as Britain begins to disentangle itself from the European Union structures and recreate its own. Although the vote is not yet legally binding, it seems likely that the next leader will take next steps to continue the process of leaving the EU. If Britain should leave, it will be the responsibility of the new administration to ensure that British farmers will be supported and that the sector continues to receive necessary investment.

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Tiffany Agard

Stay tuned for GAI News’ continual coverage of the impact of the Brexit on agriculture.