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Squeezed middle - the future of UK farming, post Brexit

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The picture of the future UK farming sector looks something like an hourglass.

One strong possibility, in reduced agricultural subsidies, and one near-certainty, in a weaker pound, look key factors determining the future of the UK sector.

They suggest that small farmers, particularly those in picturesque areas, and big-time peers will fare relatively well, compared with a squeezed middle.

Big is best

Breaking the UK's link with the European Union would damage country's subsidy prospects by taking the tie with the bloc's stronger farm lobbies with it.

It is the cultural strength of agriculture sectors in the likes of France and Germany which have ensured that UK farmers received the E3.1bn ($3.5bn), according to Bloomberg, in direct payments from Brussels that they did last year.

For the UK - where farming employs less than 480,000 people, out of a total workforce of more than 31m – the sector ranks low as a priority for politicians more likely to lavish funds on bigger vote-winners such as health and education.

Still, big, high-tech UK farms, would at least be able to find some offset to smaller subsidy cheques, exploiting freedom from red tape implied with smaller handouts.

They could - without, for instance, being forced to comply with EU strictures on crop allocation – focus on maximising productivity.

And their extra output would, assuming a weak pound, sell for more in sterling terms, allowing farmers to exploit their firmer grip on their cost of production.

Too small to fail

The case for thinking smaller farmers will come out relatively well from an EU fallout is different.

There is a strong case to make - from sectors outside agriculture, such as tourism - for making sure agriculture remains alive in some form, underpinning broader rural economies.

That will mean sweeteners for farmers operating in areas, such as upland areas, where agriculture is barely profitable, but desirable, to ensure the UK landscape, and the tourism industry which depends on it, is conserved.

Squeezed middle

It is the farmers in the middle whose prospects look more uncertain – too small to exploit reduced red tape, but too large to meet more stringent subsidy qualification.

While the cost of their produce would too be swollen by a likely weaker pound, which would boost the affordability of UK exports, the drop in sterling would swell their input costs too.

And, unlike larger peers, they lack the scale to be able to divide over so many acres the extra cost of, say, an imported tractor or combine.

Borrowed time

Nor too should they think that through borrowing lies a way out of the squeeze.

While interest rates might drop for now, as the Bank of England avoids adding any further stress to jittery markets, the inflationary pressure implied by a weaker outlook for sterling speaks of higher borrowing costs to come.

The past, outside of the EU, that the UK has voted to return too was one, after all, of structurally higher interest rates than the Continent too.

Farmers able to fix their borrowings should probably consider doing so before the end of the year.

Indeed, certainties as a whole look likely to be prized in the journey into the unknown that the UK, including its farmers, has just embarked upon.

By Mike Verdin

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