The date is set. Prime Minister David Cameron is to hold a referendum on the future of Britain’s EU membership on 23 June 2016.
The influence of the EU on British farming is enormous. Opinions whether Britain should stay in or get out of the EU are divided amongst farmers and even the Government’s farming ministers, with Defra Secretary Liz Truss declaring she’s ‘in’, and Junior Minister George Eustice joining the ‘out’ camp.
There are some important questions for the government to answer if we were to exit - including the level of domestic farming support (subsidies), the terms and tariffs of access to the EU and overseas markets, and the effect on employment of non-UK born workers. Before these are clarified it’s impossible to evaluate how an out vote will effect UK farm businesses.
Farm payment support
At the top of our list for consideration is farming support. If Britain were to leave the EU, where would this leave the BPS and other support schemes? These subsidies compensate for market failure and a downturn in prices, help to manage market volatility and reward environmental standards of farming. Will the UK government match the current level of support provided by Brussels?
EU subsidies currently account for 35-50% of farm gross incomes. For a majority of farms, these subsidies represent the difference between profit and loss. Only the super-efficient, top 10% of farm businesses could survive without them.
In his speech at the recent NFU Conference, George Eustice, reassured farmers they would continue to receive subsidies from an independent UK. The minister said that leaving the EU would pay an £18 billion a year “Brexit dividend” which would allow the UK to spend £2 billion on farming and the environment. But details on how this would be managed and the level of regulation this would involve are yet to be communicated.
Export markets and trade
There are concerns that Brexit would prevent or limit access for UK farmers to the EU export markets. The EU is a big export market for British produce. In 2014 the UK exported £12.8 billion worth of products with approximately 73% of this destined for EU countries. For some sectors the EU market is crucial – for example, 38% of British lamb was exported to the EU in 2014. (Source: NFU – UK Farming's Relationship with the EU)
Speaking on the second day of the NFU Conference, Liz Truss stressed that she thought it would be wrong to take “a leap into the dark” at a time of volatile prices and global market uncertainty, putting the food and farming export trade to the EU at risk. If we remain in the EU, she believes the UK can work to reduce EU bureaucracy and secure further reform while still enjoying the significant benefits of the single market.
Without or with more limits on trading to EU markets, UK farmers would become dependent on their returns from the world market and would have much less protection from lower priced imports. Yet, the regulation, bureaucracy and red tape associated with being in the EU is often criticised as holding back the UK farming industry and its competitiveness. Will an exit from the EU reduce or increase the red tape further?
UK farmers, especially seasonal producers, rely heavily on non-UK born workers. This is particularly important for R&BS South East fruit growing clients, for example. Citizens of EU member states and their families may live and work anywhere within the EU. If the UK were to leave the EU what level of restrictions on recruiting non-UK workers would this bring? New, tight measures or quotas could be detrimental to the sector.
With no country having left the EU before, some speculators predict that a UK exit will throw EU institutions into confusion and the EU will break up. An alternative approach for the UK could be to join Norway, Iceland and Liechtenstein in the European Economic Area (EAA). This agreement grants the states access to the EU single market if they comply with EU competition law, consumer protection and environmental policy. But, British officials would have no power in shaping these laws or policies.
The current impact of uncertainty
Fear of the unknown impact of Brexit has caused the recent falls in sterling. Whilst a fall in sterling usually provides a welcome relief for farmers in terms of greater export opportunities, in the current times of low prices this effect isn’t really being seen.
If the UK votes to stay in the EU, then it’s highly likely that sterling will rise again. But that will only happen once votes have been cast and in the meantime, there is probably more sterling falls to come. With such volatility it might be prudent for farmers to protect the BPS payment against currency movement. However, if we exit the EU will farmers get their BPS or any form of subsidy in 2017 and beyond?
The current downturn in commodity prices, the drive out of casual labour caused by the living wage, the political climate against immigration and a potential exit of the EU all pave the way for an uncertain future for UK farmers.
What should farmers be doing?
We suggest that farmers look to their financial provider now for assurances of support through potentially harder times, review their budgets more often and make sure their cashflow can see them through the next 12-18 months. Farmers can consider restructuring any debt or rescheduling it over a longer period to ease current repayment pressures.
In any uncertainty and movement in markets, opportunities are often presented. It will be the well-prepared businesses which can adapt to the challenges ahead that will be the strongest in the future.