Wednesday, 3 August 2016

Brexit and agriculture – what now?

Wyn Grant is Professor of Politics at the University of Warwick. He carries out research into comparative public policy with particular reference to the European Union (including the Common Agricultural Policy) and the United States. 

With the Common Agricultural Policy (CAP) accounting for around 40 per cent of the EU budget, Brexit poses special challenges for agriculture and the food chain more generally.   We tried to identify and assess some of these challenges in the report of a working party I chaired for the Yorkshire Agricultural Society.  The working party is going to continue its activities, focusing on the Brexit negotiations and what a domestic agricultural policy should contain.

There has been much speculation about how farmers voted in the referendum and a Farmers Weekly poll that showed 70 per cent of farmers favouring Brexit has become established in the public mind.  However, it should be noted that this was based on self-selected respondents, rather than a representative sample.  

Our own equally unscientific straw polls taken at the end of a series of well-attended talks on the referendum I gave throughout the North of England showed a majority in favour of ‘Remain’ at every venue, although quite a few were undecided.    Talking to members of the farming community at the Great Yorkshire Show, there was a view that arable farmers had tended to vote ‘Remain’ and livestock farmers had tended to vote ‘Leave’. 

Brexit presents an opportunity as well as a threat, a chance to create a domestic agricultural policy that is more attuned to British challenges.   However, it should be noted that this will not be a UK policy for the most part, although there are exceptions such as the reduced tax levied on ‘red’ diesel used by farmers.  

Up to now, however, the devolved administrations have been constrained in their policy initiatives by the presence of the CAP framework.   The last CAP reform did, however, give more opportunities to regional governments to develop their own initiatives.   In particular, while CAP support is now generally ‘decoupled’ from production, they are permitted to introduce ‘coupled’ initiatives.   For example, Scotland has recently introduced a support scheme for sheep on rough grazing which pays €78 per ewe.   On a recent visit to the Orkney Islands, I was interested to note an increase in sheep numbers relative to traditional beef cattle.

The National Farmers’ Union (NFU) has launched a major consultation with its members about the future direction of agricultural policy in England.  It is also working closely with the farming organisations in Scotland, Wales and Northern Ireland. 

 As far as possible it is seeking to build a coalition with other representative organisations such as the Country Landowners and Businesses Association (CLA) and the Tenant Farmers’ Association (TFA).   The TFA was the first out of the blocks with its own set of proposals which necessarily reflected the particular concerns of its members.

What is clear is that the so-called Pillar 1 or Basic Payment subsidies are unlikely to continue in their present form.   For many farming businesses these payments make the difference between running at a profit and at a loss.   For that reason, they are unlikely to be withdrawn overnight, as the result would be the collapse of some farm businesses and a further reduction in the UK’s ability to supply its temperate foodstuff requirements.    This has been falling for some time and does represent a food security issue.

However, the Treasury has long held to the view that the current subsidies are market distorting and represent an undue burden on public expenditure.    If one wanted an imaginative way of phasing out the subsidies, one could resort to an idea advanced some years ago by the agricultural economist Alan Swinbank among others.   He suggested that farmers could be issued with a bond that would have a status equivalent to gilt edged stock.   Farmers would then receive an income from this bond for, say, ten years which would amount to a proportion of the subsidies they had hitherto received.   Alternatively, they could sell the bond on the market and use the capital released to invest in the farm business.

Other ideas have been floated by Defra such as some form of crop insurance or helping farmers to use the future markets.   These ideas merit further investigation, but are not without their challenges.   However, the Pillar 2 or agri-environmental payments are likely to be continued in some form or even be enhanced.   They address a sustainability agenda and have a coalition of support that extends beyond farming.

There are some very complex issues that arise in terms of agricultural trade, both in terms of relations with the EU and with other parts of the world which have had trade agreements with the EU which will lapse in relation to the UK after Brexit.   Fortunately, we have two trade lawyers on our working party.    Another major issue is the future of the plant protection regime, as is migrant labour.   We shall plenty of work to test us.

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