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The Impact of BREXIT on the Agricultural Sector

There will be far reaching impacts on the agricultural sector due to the United Kingdom’s decision to leave the European Union. Questions have already been asked surrounding subsidy payments, stewardship arrangements, land prices and the value of British produce and the resulting impact that this will have on consumers.

The country awoke on that Friday morning to hear the announcement that the UK had narrowly voted for Brexit. We now have considerable turmoil with a leaderless Government, following the resignation of the Prime Minister, and a rudderless opposition. When we trigger Article 50 is not known.  There is no plan for the country let alone UK agriculture. There are calls for a General Election to elect a new Government. The incumbent, right of centre, Government will likely view the industry very differently to those left wing if only for the votes that they perceive to be available.

The NFU have already urged the Government to ensure that a comparable level and form of support should continue to be allocated for farmers. The current Common Agricultural Policy (CAP) represents 40% of the EU budget and it is questionable whether any future Government would commit to an amount of this equivalence being spent on agricultural subsidies. The Royal Institution of Chartered Surveyors has provided figures which state that 55% of farm income currently comes from CAP and 70% of farm profitability is dependent on EU support. Given current commodity prices this will have understated the case.

Farmer and cowsThe current Basic Payment Scheme (BPS) should not be influenced by Brexit, whilst the UK is still within the EU, but it will be the responsibility of Government to ensure that British agriculture is competitive and financially sustainable particularly if there is pressure on reducing subsidy levels. EU subsidies contribute towards environmental improvement, through Countryside Stewardship Schemes and it is expected that Natural England will provide clarification before expecting farmers to enter into the next 5 year agreement.

The value of farmland is expected to be maintained and it is possible that more land will come to the market with some landowners wishing to clear their hand in a time of some uncertainty.

The NFU President, Meurig Raymond, has warned that consumers in the UK should expect to see food prices increasing, due to the dependency the country has on imports with some 70% of food imports coming from the EU. The impact of this will be dependent on whether or not a deal can be struck for the UK to remain within the Single Market, but participation of the Single Market requires the free movement of people, so this might be hard to swallow for some in the ‘Vote Leave’ camp. British farming produces 61% of the food that is consumed in the UK, therefore new trade deals relating to imports will need to be agreed, with no realistic prospect of the nation becoming self-sufficient. The NFU have stated that restrictions should be placed on imports that do not comply with UK standards and that a tariff for imports outside of the EU should be maintained.

James Walton Partner and Registered RICS Valuer
James Walton, Partner, Sheldon Bosley

The export market could also be influenced by the Brexit decision due to 60% of all food exports going to the EU. However the impact that has already been seen on the exchange rate and resulting weaker pound could enable UK produce to be viewed as more affordable, at least in the short term.

The future for the entire agricultural industry will be uncertain in a post EU world. Plans are still to be drawn up which will formally indicate and advise the way in which the industry will be shaped and will move. It will be the responsibility of the UK Government to create a strategic plan and the sector will look towards DEFRA to ensure interests are safeguarded and prioritised at Westminster.

For more information contact James Walton or other members of the Rural Land Agency department on 01789 292310.

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The Future for Farming

muddy wellies

James Walton Partner and Registered RICS ValuerGiven current commodity prices, a collapse in the dairy industry and poor returns through the principal beef, sheep and pig livestock sectors, it may seem surprising to suggest that prospects for farming look promising.

There have been reasonably good harvests around the world, to the extent that basic commodities are over supplied and the laws of supply and demand apply to see a falling price.  Nevertheless the same laws can only help agriculture in the future.  There are a number of factors which will give rise to either an increasing demand, or a problem supply including;

  • Population is expected it to increase from 7.3 billion people to 9 billion by 2050 and 11 billion by 2100.
  • More people are adopting a western diet, generally including pig and poultry meat.  These animals are inefficient in that they convert grain to meat with poor conversion rate.
  • In various parts of the world there are wars, problems with infrastructure and corruption, all of which limit or have the potential to limit food production.
  • Rainforest clearance continues at a pace which on the basis of recent experience not only gives rise to climate control problems but soil erosion, to the extent that much of the former forest is now unproductive.
  • Climate change itself.
  • Increase in plant pest and disease resistance and with more limited access to chemicals is going to put pressure on our ability to increase productivity.
  • Other uses of land such as for housing or infrastructure projects, solar farms and AD plants, all reduce the area of land capable of producing food.

All of these issues reduce the chances of food supply being able to keep pace with demand. We will need to produce as much food in the next 50 years as we have produced in the last 10,000 years.  Whilst science may produce some of the answers, with no alternative other than to adopt GM technology, but with advances in other plant and animal breeding too, some increase in yield and productivity can be anticipated.  However, food will in all likelihood become in short supply and this should give rise to a higher price, although still with significant crests and troughs in the supply curve, so affecting price.  The hope is that the crests will be higher and the troughs less deep.

muddy welliesFor arable commodities in particular, there is a further influencing factor which governs the price paid.  Given that these commodities are traded on a world market, and that we generally produce more in this country than we consume, the price taken is generally the price that we can find for our exports.  For those of us farming in the Midlands the value is proportionally less due to the cost of transporting this product to the port.  There is a further negative effect with a strong pound against other currencies, particularly the euro.  With a change in climate the prospect for of being able to grow economically some of the types of food that we currently import will increase.  One might expect then the dynamic of the export effect to reverse to the benefit of farmers in the Midlands.

Article by James Walton FRICS FAAV, Partner & Registered RICS Valuer, based in our Stratford upon Avon office.