Brexit and the uncertain road ahead
PUBLISHED: 06:27 03 December 2016
Many farmers will need to make some radical changes if they are to survive in a post-Brexit world, and some smaller ones may need to get another job to supplement their incomes, according to the experts. SARAH CHAMBERS was at Anglia Rural Consultants’ seminar at Newmarket this week to find out what might be in store for the industry.
When the Treasury promised farmers it would support them until 2020, that “wasn’t really a big shout on (Chancellor of the Exchequer) Philip Hammond’s part”, according to East Anglian farmer Kit Papworth.
Kit, the keynote speaker at a post-Brexit farming seminar in Newmarket on Wednesday, pulled no punches in his stark assessment of the sector, and the changes necessary to secure its future now that Brexit is on the cards.
Every year borrowings are going up, and more than half of farmers make less than £20,000 a year “which would lead us to believe there’s an awful lot of lifestyle farming going on here”, he told farmers at the event, which took place at the National Farmers’ Union’s offices in Newmarket.
Around 50 leaders of rural businesses, including farmers and agricultural specialists, attended the event, entitled Business for Change, to gain insight into the future of the rural economy, post-Brexit and in light of the Government’s recent Autumn Statement.
Event organisers Anglia Rural Consultants (ARC), a new consultancy group formed from farming professionals, said it wanted to provide a sharp focus on the impact and implications of Government policies surrounding our imminent departure from the European Union.
Kit, a director of L F Papworth Ltd, a leading contract farming business in north Norfolk, grows potatoes, wheat, barley, peas, beans, sugar beet and onions, as well as producing beef and lamb for a family butchery business.
He makes no bones about the fact he believes the UK would have been better off voting ‘yes’ to staying in the European Union, and he sees problems ahead for the industry.
“I joined the industry in 1995. Since then, prices have been volatile but actually yields haven’t really gone up at all. We haven’t really improved our production and costs have gone up,” he said. “We are no more self-sufficient either than we were back in the 1980s.”
The idea that prices are kept down by the Common Agricultural Policy is a fallacy, he believes, and by comparison with world markets, our prices are high.
On the other hand, with the advent of ever larger combines and other machinery, our labour productivity is much higher, although there must come a point where it can be improved no further.
And, according to the State of Nature report published recently, “we are not great at looking after the environment either”, he pointed out.
No more than about a sixth of seasonal work on farms is undertaken by British workers, yet farmers were now coming up to the point where five fifths of such labour may not be welcome here.
“We need to do something different here, and people might lose their jobs as a result,” he said.
His father’s generation arguably saw the biggest change in farming’s history with the mechanisation of farming and the phasing out of horse-drawn ploughs. But today, there was less research and development to help farming enjoy such major advances, he argued.
The younger generation of farmers preferred business loans to subsidy, he said, and there were many future competing demands on the public purse, including hospitals. The Department for the Environment, Food and Rural Affairs had so many cuts that “I don’t think it can change anything”, and staff in any case were now focused on Brexit, he said.
In his view, the farming industry will not keep its £3.1bn in Government support in the future, and it was likely it would be cut to something like £2.5bn, given the state of the economy.
“Why don’t we work with what we’ve got? Why don’t we tell farmers right now there’s going to be no more BPS (Basic Payment Scheme)? You are not going to get paid for owning land any more,” he said.
“Yields of many of our main arable crops are static at best. Costs continue to rise and commodity prices are more volatile than ever.
“Meanwhile, according to NGOs, the environment is in rapid decline and the public finances of the UK are under significant pressure. However, farmers are now enjoying huge support from the general public. So, we must grasp the opportunity that Brexit has delivered. It’s time to think differently, create some new ideas and fresh thinking, to help invest in our future.
He argued in favour of ‘profit bonds’ to iron out the price volatility that farmers naturally face, and help secure their future, and they could then make profits in the manner of ‘normal’ companies. He predicted that modulation would go up dramatically post-Brexit and would reach 100% by 2025, with no more BPS.
“Farmers should create a ‘profit bond’; a tax free pot of cash created through profits and held by Government to help fund new projects, retirement plans and protect us from future market volatility,” he said.
“Environmental stewardship is important and compulsory at a basic level. However, there should be a higher tier of environmental management which could be rewarded.”
Maybe it was time to join forces with the farmer next door, he suggested, especially for the smaller players. “We cannot pay people to have a three day a week job,” he reasoned. £2bn could be spent on modulation, while the remaining half a billion pounds could go into research and development.
Surveyor and European policy consultant Peter Fane, an ARC member, looked at some of the policy implications of Brexit.
It was possible to narrow down the area of uncertainty in a number of ways, he said. The Brexit negotiations, in his opinion, could not be extended beyond two years, The most likely possibility, he suggested, was that a trade agreement would be negotiated afterwards. A bonfire of regulations as a result of Brexit was unlikely, and it was “dangerous” to start making government decisions by exit poll and assuming that citizens had voted for Brexit to leave the single market or NATO. At the same time, access to labour was a “crucial issue” for agriculture, horticulture and the food processing sector.
Tariffs could also pose a “serious problem” to agriculture, which traded predominantly within the EU. There was talk of a “transitional” deal to remove the ‘cliff-edge’ scenario presented by some of the very high tariffs which could be imposed on particular products such as dairy.
“I think I would be confident in saying it won’t be easy and it won’t be quick,” he said of the talks over trade agreements.
ARC member Emma Powlett examined the impact of the Autumn Statement on the rural economy, and the achievements of the LEADER grant funding programme, which continues.
Businesses needed to plan, she said, and it was important to build on the success of such programmes over the last decades. However, there had been a drop-off in application for LEADER funding following the Brexit vote, despite the fact that the boundaries set were wider than those who could be eligible might expect, she added.
“We have been told by the Chancellor in the Autumn Statement that “Growth and Productivity” is at the forefront of Government Policy,” she said.
“This is nothing new for those of us who have been working in the rural arena for the last 25 years. Between 1993 and 2013 more than £180m of rural economic development in the East of England has been delivered. We have been working together to create jobs and develop rural business, from the niche, to the more traditional.
“As we enter a new, uncertain period, the only certainty is change. That is why we must look forward to create a sustainable rural economy for all. We must ensure that rural businesses will be firmly placed to stimulate growth and be at the forefront of Research and Development initiatives, support our own economy through food and drink security and stimulate opportunities for niche ventures.”
Rural business consultant Jamie Gwatkin, also an ARC member, looked at the implications of Brexit and what businesses should be looking at in order to combat any potential impact on them.
With the talks not yet started, there was much posturing, and people were positioning themselves for the negotiations, he said.
When it came to future support, farming was up against health, defence and education and “is not high on the government’s agenda”, he said.
Jamie produced a farm model which looked at possible future economic conditions for farmers, including a 30% cut in direct support, increased costs for machinery and inputs and varying tariffs on exports to Europe.
His projected figures pointed to a dramatic cut in profits and a sizeable cashflow deficit.
“This is something we need to concentrate on now because if we get to that we are going to have businesses in real hardship,” he said.
A change in mindset would be needed, and farmers would need to look at diversification possibiltites, collaboration, intensification and external working to keep their heads above water, he suggested.
“The model is a farmer who just concentrates on farming. That cannot continue in the future. We have to have from farming businesses anad change of mindset,” he said. But in every business he had been involved in there were “tremendous opportunities”. On poorer, marginal land there might be opportunities for schemes such as ‘making space for water’ or other environmental measures which yielded better returns than cropping.
“We need to be thinking what else can we do with those fields,” he said.
“For small farmers it may be an opportunity to go out and get a part-time job. Small farmers may have to become part-time farmers.”
But while there were challenges, and the industry needed to get its house in order, there were also opportunities, he said.
ARC founder Richard Rampton, of consultancy Rural Advice Ltd, told delegates that ARC was a consortium which he had helped form in response to a perceived need.
“It occurred to me that we have this tremendous breadth of experience, knowledge and skill among a number of independent consultants that are in the region. Providing they are all happy to work collaboratively then it seemed to me there woudl be an opportunity to form a consortium,” he said.
Farmers were faced with a “tsunami of change”. “That’s coming, and we think we are a resource there. We are complementary to each other,” he said.
“We are going to have to be very light on our feet. It’s a confused situation. We don’t know what the future holds. We need to react quickly.”