Thursday, July 12, 2018

Will it be all right on the night?

The Future Farmers of Yorkshire event at the Great Yorkshire Show

What follows is the text of my talk to the Future Farmers on Yorkshire on Wednesday 11th July.

For a long time farmers have had to deal with uncertainty about what Brexit will mean for their businesses. The Government has set out a direction of travel for domestic agricultural policy after Brexit in their admittedly somewhat vague Green Paper and this will be made firmer in the forthcoming Agriculture Bill. There hasn’t been much time to digest the 44,000 responses that were made to the consultation, including the detailed response made by the Farmer-Scientist Network of the YAS.

What is clear is that the Government intends to direct future funding towards the provision of public goods and that direct payments will be phased out. Whatever one thinks of Michael Gove, he does have a clear strategic vision, albeit one designed to appeal to urban electorates. If he had replaced David Davies as Brexit secretary, we would have had a further period of instability at Defra.

Unfortunately, Defra lost a lot of its experienced staff and although it has recently made new hirings, they are generally relatively junior and inexperienced in agricultural matters.

What we do not know is the shape of the final settlement between the UK and the EU which could have profound implications for farms. The Chequers compromise seemed to provide a basis for moving forward, but now looks shaky as arguments continue within the Conservative Party, although I think it would command a Parliamentary majority.

Broadly speaking, one may suggest three scenarios:

  • 1. A failure to reach any agreement which would lead to trade being conducted on WTO terms. This would be highly disruptive. Last week, the British Retail Consortium warned, ‘'[The] supply chain is fragile. Failure to reach a Brexit deal – the cliff edge scenario – will mean new border controls and multiple "non-tariff barriers" through regulatory checks, creating delays, waste and failed deliveries. This could lead to dramatic consequences, with food rotting at ports, reducing choice and quality for UK consumers.’
  • 2. ‘It will be all right on the night’. Both the UK and the EU have an incentive to reach an agreement, although the incentive is stronger for the UK with its 64 million population than the EU with 500 million. There would be some kind of initial compromise and then the real negotiations would take place during the transition or implementation period which could be extended.
  • 3. A comprehensive agreement. Whatever happens Britain is not going to have access to the single market on the same terms as at present. One cannot leave a club and continue to receive its benefits. The EU is resistant to the UK to having its cake and eating it. Apart from anything else, it does not want to encourage other member states to think that they might secure the benefits of the EU without staying as members.

It seems to me that a comprehensive agreement will not be achievable given the political constraints in the UK and the EU. Even getting some sort of interim arrangement is not going to be easy. Time is running out and the UK Government has spent a lot of time negotiating with itself. Too often the result of these negotiations is a position that is not acceptable in Brussels. For its part the EU has been distracted by a number of other problems, most notably the migration crisis.

No one has really come up with a feasible solution to the problem of Ireland which has a successful integrated agri-food economy. The technological means of tracking the movement of goods do not exist and would take a long time to put in place and made to work properly. However, some sort of temporary arrangement might be possible. The declared intention to have a common rule book with the EU for agri-foods is a step in the right direction. It may be possible to buy time on this issue through a fudge, but Ireland will not be easily satisfied.

Some of the biggest challenges for farmers arise from future trading relationships, both with the EU and the rest of the world. Under the worst case scenario, sheepmeat producers would face substantial tariffs at the EU border. These would effectively deny them competitive access to the EU market which accounts for around 40 per cent of UK production. This would be devastating for sheep farmers. However, I remain reasonably confident that we can avoid this worst case scenario and that sheepmeat exports will continue much as they do at the moment.

What is perhaps of greater concern is the trade treaties that the UK intends to subsequently negotiate with third countries such as the United States. It should be noted that the intention to align with EU rules on agriculture and food after Brexit will make securing a trade deal with the US much more difficult, given the US interest in having access for chlorine rinsed chicken and hormone treated beef which are banned under EU rules. Nevertheless, my concern would be that agriculture would not be high up the list of government priorities and would be used as a bargaining chip to obtain concessions on manufactured goods or services. For example, Australia would like greater access for sheepmeat to UK markets.

However, I do think that these treaties will take some time to secure and probably will not be possible until after the implementation period. This will at least give farmers a breathing space. The risk in the longer run is that cheap food imports will arrive in the UK market, having not been produced in accordance with the exacting animal welfare standards required in the UK. Price is a big driver for consumers.

It should also be noted that farmers in France, Germany and elsewhere in Europe will continue to receive direct payments, albeit at a somewhat reduced rate because of the loss of UK funds. British farmers will not be competing on a level playing field. The total sum made available to farmers in support payments will surely be reduced. Public goods payments may be more complicated to access and will certainly be distributed in a different way.

Hopefully, post Brexit, there will be more opportunities for a decentralised agricultural policy for England, not just for the devolved administrations. Yorkshire needs more opportunities to develop its distinctive agri-food offer of which we can see many splendid examples round the showground today.

How can farm businesses succeed post Brexit? Each farm business is different and faces its own challenges and potential. What is certainly worth doing at the very least is a SWOT analysis in terms of strengths, weaknesses, opportunities and threats. Some types of activity may no longer be viable and new opportunities may open up. For some farms, the efficient production of commodities securing economies of scale may be the best way forward. For others, there may be opportunities for niche forms of production which add value and involve direct relationships with consumers.

These different approaches require different management skills. Above all, there has to be an openness to new ways of doing business which is an area in which Future Farmers have much to contribute.

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