Brexit offers unique opportunity to revitalise UK farming

55ed8e04c361884e758b4608The National Farmers Union of England and Wales (NFU) in April 2016 published the findings of a report written by Wageningen University and sponsored by the NFU regarding the impact of three possible post-Brexit trade scenarios. The report presented a relatively favourable outcome for UK farmers under two of these potential trade models, with the third offering a more mixed outcome, particularly for farmers in sectors highly dependent on subsidies such as upland hill farmers.  However, the publicity surrounding the report largely focussed on the potential negative outcomes for consumers in terms of price rises and uncertainty. Whilst any Brexit will inevitably initiate a change from the status quo and therefore present challenges, this paper argues that trade scenarios other than a common market also present opportunities.

The cost of doing business 

Any trade agreement other than a single market imposes import transaction costs, because there has to be some import process at the border. The Wageningen report estimated these to be at about 5% on average. This means that all fresh produce imported into the UK would be subject to a 5% price increase, which will have the consequential effect of raising UK farm gate prices by the same amount. The UK is a net importer in nearly all sectors, so the additional import cost has a beneficial effect on farm incomes across the board. There are of course multiple adjustment uncertainties to contend with after such barriers are introduced. For example, a price rise may result in a decrease in consumption, or a switch to alternative products. It may also result in changing cropping patterns or livestock stocking rates, as livestock feed becomes more expensive. In reality, many of these scenarios will present change to UK farming, but quite possibly opportunities too.

The cost of food

The increased farm gate price or import cost will result in food becoming more expensive by the same amount. However, the argument that food price rises are necessarily a bad thing must also be approached with caution. British consumers have never paid so little for their food, yet there is an ongoing stream of criticism in environmental and health circles in particular that food is too cheap.  Cheap food encourages over-consumption and wastage. Equally, farmers are suffering from an unequal trading relationship with food retailers, fuelled by competition law rules that only act in the purchasing interests of the consumer. The unequal extraction of value from the system results in a poorly remunerated and consequently unattractive farming profession, which then struggles to recruit the calibre of new entrants needed to drive a progressive and economically beneficial industry. Farm gate price rises may actually bring multiple positives.  

The cost to the EU

Critics of Brexit frequently point to historic Treasury statements indicating a long standing support of trade liberalisation. As a trading nation, the UK has founded its wealth on trade and have pursued this agenda within the EU as well. The third potential model presented in the Wageningen study focusses on what impact increasing trade liberalisation would have on farm businesses, and finds that it would be the most disruptive to farm business cash flows. However, the criticism of this approach to trade fails to note what is acknowledged in the report, in the impact that UK trade liberalisation will have on EU exporters. The prohibitive trade barriers around the EU border, for example 42% on dairy produce, would have the effect of making the EU an uncompetitive exporter to the UK. Again, this would have a revitalising effect on UK fresh produce sectors in particular, and protect UK dairy farmers from cheap Irish milk imports. Globally traded products would more readily access British markets, bringing down prices to consumers, and UK farmers would no doubt adjust to finding the best market scenario to suit their businesses. 

The poverty trap

The Wageningen report says more about the models used than the reality of the scenarios that could exist post-Brexit. The presentation of the report has sought to draw conclusions from the models, but the only conclusion that can be drawn is that there is a chronic case of benefit dependency amongst the leadership in the farming industry. This has been confirmed by the subsequent decision of the NFU to support the Remain campaign, albeit on a non-campaigning basis: “The NFU Council resolves that on the balance of existing evidence available to us at present, the interests of farmers are best served by our continuing membership of the European Union”; or benefit dependency, to give it its proper name. 

Many coherent arguments can be made as to why agriculture deserves taxpayers support, and protection from full trade liberalisation. These arguments include national food security reasons, the failure to account for the full natural capital cost of food production in retail pricing, and maintaining and enhancing rural vibrancy. It is vital however that the message being presented by industry as to the necessity or otherwise of support needs to be consistent and considered to be successful.

In the current Brexit debates, the security of ongoing Government support for the industry is somehow presented as being out of the control of our industry leaders. This is deeply concerning. Arguing “stay in the EU because otherwise they might take our benefits away” is defeatist and unnecessarily risks an outcome that says “I told you so”. If the industry needs taxpayer subsidy to survive, it better start arguing why in order to counter the perfectly rational arguments of many that it does not. 

Out of the frying pan…?

There are unknown risks of leaving the EU, but known consequences of staying in. Proposed EU trade deals with north and south America in TTIP and Mercosur are likely to have significant impacts on many vulnerable farming sectors, particularly beef and sugar. Membership of the EU means that the UK does not have the ability to negotiate these deals on its own behalf in order to be able to fully analyse the impact on UK business. Ironically, it may actually be easier for the UK to agree a deal with the US or Mercosur group on its own than as part of a disparate and generally anti-capitalist group of 28. One can envisage a scenario where US beef gains preferential access to the UK market, squeezing out Irish suppliers. 

Within the EU, anti-corporate sentiment is likely to drive a restriction or a complete ban on the use of Glyphosate. An ongoing Luddite approach to essential biotechnology and precision plant breeding is certain, as the application of the ‘precautionary principle’ shackles the whole industry to the paranoia of the few. 

Anti-corporate sentiment is also driving the forthcoming control of market trading in the Markets in Financial Directive II (MIFID II) – a properly functioning futures market helps farmers to manage the risk of volatility, but this is going to be made extremely difficult under this legislation (to be brought into effect 2018). The London wheat futures exchange has stood the test of time and would be an unlikely target for zealous regulation in an independent UK. 

Looking further ahead, it is unknown what the next round of CAP reform in 2020 will bring, but the co-decision legislative procedure is likely to result in legislation as poorly drafted as the current regime. It is also likely to shift support further towards environmental payments and away from perceived negative ‘industrial’ forms of farming. A compulsory cap on payments and a tighter definition of ‘active farmer’ are on the cards. 

Fundamentally, the CAP budget will need to incorporate additional eastern European accession states and also Turkey, creating enormous fiscal and administrative pressures. Universal broadband and online reporting creates direct accountability to Brussels, bypassing variable implementation standards and inefficient national paying agencies. Punitive fines imposed on national governments by Brussels bureaucrats continue to create a culture of kowtowing compliance, stifling innovation in localism and service delivery. Is this the future our farming industry deserves? We are business people, not slaves to foreign bureaucracy. 

State benefits as a safety net

Under all three trade scenarios in the Wageningen report, the traditionally unsupported sector of horticulture thrives. This sector has never received generous production subsidies like grain, dairy and beef producers, and only with the progressive move to decoupled support in the 2003 CAP reform would any land-based payment be given to horticultural businesses. It is a viable and dynamic sector, but not without its own challenges. These include supermarket price pressure, the attitude of the EU to pesticide regulation particularly with regards to recovery of investment costs for use on minor crops, and minimum wage issues. Nonetheless, it is very capable of standing on its own two feet. Is this a model that other sectors could and should aspire to?

Undoubtedly, not all farming businesses in the UK operate on a level playing field, or even a level field. Those facing natural production constraints as a result of altitude, distance or topography could never expect to be as financially productive as an intensive lowland arable enterprise. The role of Government should be to create a policy environment where all businesses have equal chance of survival, and for numerous social and environmental reasons it is essential that our more vulnerable producers are protected. Hill farmers should be particularly angry with an industry elite that plays fast and loose with the long term necessity of farm support payments. Adequate protections for vulnerable and socially and environmentally beneficial agriculture should be a prerequisite.  The Government of a crowded island of 70 million people is running an irresponsible risk if it believes that all food should be imported if the price is right. The vulnerability of such a policy to terrorist acts at ports of entry is not far-fetched in the age we live in. Ensuring a thriving home production base that can be rapidly expanded if required is a fundamental duty of any Government to those it governs.

An opportunity too good to miss

Bringing agriculture back under UK control offers the best opportunity we have in a generation to make sense of these variables. Free from the EU and the protectionist shackles of the Common Agricultural Policy , the UK can seek to incentivise the types of farming that benefit both health and the environment, bringing overall benefit to society at large. This type of cohesive food policy could not be achieved for many years at EU level, due to the vested interests of the agricultural lobby in France and Germany in particular, and not without ceding control of the National Health Service to Brussels as well.

Uncertainty in the post-Brexit food world can be countered by a clear objective to achieve a progressive and responsible trade policy with all trading partners based on need and existing trade flows, whilst taking the opportunity to incentivise beneficial domestic production and recognising our position in a global food market. Short term volatility is no doubt to be expected and farmers are coping admirably with extreme market volatility already for reasons entirely unrelated to Brexit. We can ride out the short term bumps through conventional farm support, and nobody in the Out campaign is arguing for anything but ongoing support for British farmers. However, Brexit brings the unique opportunity to re-define the British system of food production so that it benefits health, the environment and society at large.  It should not be disregarded in a hurry.

Stuart Agnew MEP, is a farmer by trade, the UK Independence Party’s spokesman on agriculture and a member of the European Parliament’s Agriculture Committee.

Stuart Agnew MEP, is a farmer by trade, the UK Independence Party’s spokesman on agriculture and a member of the European Parliament’s Agriculture Committee.

Emily Norton is both his EP Accredited Parliamentary Assistant and a working farm entrepreneur.

Emily Norton is both his EP Accredited Parliamentary Assistant and a working farm entrepreneur.

 

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