The UK remains largely in the dark about what the impact of
Brexit will be.
Whether you take the optimistic view that it is a great
opportunity for self-determination, or the pessimistic view that it threatens
political and economic disaster, the simple fact is - no one really knows.
However, unlike most of the nation, those in the
agricultural sector can talk with a certain degree of certainty about the
changes that will befall them when the country leaves the European Union in
spring 2019. For upon leaving the EU, the UK will also exit the Common
Agricultural Policy (CAP), the financial support mechanism for farmers and
agri-businesses across all member states.
The CAP has dominated agricultural finance in the UK for
nearly half a century, since it joined the then European Economic Community
(EEC) in 1973. Leaving the CAP will therefore represent the biggest shake up in
a generation, ending around £4bn in subsidies at current levels.
However, even under the CAP, financial upheaval is nothing
new to farmers. Perhaps the biggest change the industry will face come the end
of CAP is the loss of direct subsidies based on acreage, but that scheme was
only introduced in 2003. Many farmers still remember the days of quotas, and
before that even, subsidised market prices.
Agricultural business owners are already having to adjust to
the most recent changes in CAP policies. In 2015, British farmers received
around £2.4bn in direct payments under the scheme. Following reforms agreed in
2013, last year the UK received an overall pot worth £4bn, but less than half
of that was available as direct subsidies. The rest was allocated to the
so-called 'second pillar' of the CAP, rural development subsidies.
So a shifting financial landscape is already par for the
course of British farmers. But come 2019, what exactly can they expect?
The UK government has always been a vocal critic of direct
subsidies within the EU, so the likelihood is they will not be replaced. This
will impact more sharply on certain sectors, such as upland sheep farming, than
others. By contrast, the UK has always argued in favour of the 'second-pillar'
funding offering better value, and indeed opted to reallocate some of its
direct subsidies to rural development funds under the current CAP settlement.
So given that as an indication, UK farmers can perhaps
expect more funding available for business development and diversification,
environmental projects and work in areas such as forestry and rural
No one knows for certain, but again the government's past
positions suggest a move to market liberalisation of some form. Much will
depend on the sort of trade deals the UK will be able to negotiate abroad, but
none of the likely scenarios paint a very positive picture for farmers. An NFU study into three likely trade arrangements post-Brexit suggests that the
average farmer will be between €17,000 and €36,000 a year worse off.
The extent to which development subsidies could offset this
kind of financial hit is open to debate, especially in sectors such as cereals
and dairy which would still be competing in EU markets, now against their
former CAP-backed colleagues.
Finally, leaving the CAP is expected to have a detrimental
effect on land prices. This would be a blow for asset financing, leaving
farmers in a weaker position to secure loans. The message therefore is, if you
have capital investment projects to carry out, do it now while the conditions
for obtaining finance are still good.
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