Farming subsidies post-Brexit

The Common Agricultural Policy will be replaced by new UK policies from 2019 onwards. With Department of Environmental Food & Rural Affairs (DEFRA) talking of a need to ‘earn’ support, farming subsidies are forecast to fall.

Support for agriculture has been directed by the Common Agricultural Policy (CAP) since the UK joined what was then the European Economic Community in 1973.

However, the vote to leave the EU means the UK will effectively have a ‘blank sheet of paper’ with which to set its future farm policy. But until ‘Brexit’ formally occurs, the CAP still applies, which means farmers will continue to receive support under all the existing policies, including the Basic Payment Scheme and the Rural Development Programme.

Article 50 of the EU’s Lisbon Treaty was invoked by the UK government on 29 March 2017 commencing a two-year period of negotiations between the EU and the UK. This means that BPS payments are certain for 2018. The government has also announced support for agriculture will remain at the same level of funding until the end of the current Parliament, scheduled for 2022 (but an earlier general election is quite possible).

However, while funding has been guaranteed, this does not mean the ‘system’ cannot be changed. Nevertheless, it is doubtful that DEFRA and the devolved administrations would be able to draw up a new system in such a short timeframe, making it likely that a scheme similar to the BPS will be rolled over until a new policy can be drawn up, possibly in 2021.

Although there have been ‘positive’ comments by Theresa May and the DEFRA Secretary Michael Gove with regard to future farm policy, there has been little detail. Future trade talks are also likely to have a bearing on policy, as there may be more political backing for farm support if agriculture receives a ‘bad deal’.

Going forward, any new farm policy will have to be set within the UK budget and with other sectors such as education and the NHS competing for the same money, most people expect the level of support to be cut. Any reduction is likely to be phased, but by 2025 some commentators believe it is plausible that the level of support to agriculture may have reduced by 50%.

Once the UK has left the EU, there are many options open to policy makers; Michael Gove has said that subsidies will need to be ‘earned’. Some options that have been talked about include:

• More emphasis on agri-environmental schemes, including more support for natural resources such as flood management and irrigation measures.
• Incentives such as payments to farmers who are willing to allocate farm ecosystems or natural resources to help alleviate challenges to society, such as flooding.
• Targeted support for sectors that are deemed to be more at risk, such as hill farms, small family farms and suckler cow farming.
• Support to increase the productivity of farming, including training and knowledge transfer.
• Insurance schemes to help farmers cope with volatility in the markets.
• Possible support for the industry to promote the British food brand to new export destinations. Support like this might not
  be seen in farmers’ bank accounts but if it helps secure business, it is good for every producer.

[insert image: Projected range of support payments for Lowland English holdings]

Whatever the total amount of funds allocated for agricultural policy, if it is allocated according to a new policy with different objectives, the amount received by each farm will inevitably vary.

The concept of earning the subsidy suggests some effort in exchange for the support too, so changes to the farming landscape or practices might be expected. In the future it is quite feasible that there will be a range of support for farmers, some even getting a little more in per hectare terms, others much less (or even nothing) depending on what ‘public good’ hoops they are prepared to jump through.

All current recipients of farm support should be examining their management accounts to understand just how important the subsidy receipts are for the farm business and whether they could survive profitably if they were halved. It’s a sensible preparation for the future.

Through our Land and Farming series, we will keep readers updated regarding key CAP announcements.

Support is likely to fall, that much is clear, though there may well be new opportunities if the focus for support changes.

In the meantime, businesses must plan accordingly for a reduction in support, through development of existing and new income streams, improving efficiency, as well as finding ways to add value to their produce wherever possible.

With interest rates forecast to begin to rise in the near future and inflation gathering pace, time may be running out to secure the lowest-cost longer term borrowings, which might enable businesses to invest now to increase diversification and establish new income sources ahead of the forecast reducing BPS income.

DISCLAIMER
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.