Change the only certainty of Brexit

As March 2019 approaches, many crops harvested and livestock purchased are likely to be sold to market after the UK has officially left the EU.

Agricultural businesses should take the opportunity to review their financial position to understand the impact of change on their ability to operate sustainably.

Few sectors in our economy will be as deeply affected by Brexit as agriculture.

As March approaches, change seems to be the only certainty.

A Briefing Paper on the future UK Agriculture Policy was issued in the middle of September and included the transition of rural funding for Scotland.

This is welcome news for the farming sector.

However, the industry will be very aware that this is not the final position and there are many rounds of negotiation still to come.

It’s difficult to predict how commodity prices will react to changes in tariffs and trade deals.

Under a no-deal scenario, the sector could be faced with the prospect of high tariffs, onerous customs procedures and the loss of EU subsidies.

Brexit could also open the UK market to lower-cost, more competitive producers such as the US, Australia and New Zealand, which could seriously impact the UK farming sector.

However, Britain is not self-sufficient in its food production and an alternative scenario is that Brexit could boost prices for anything home grown.

Either way, increasing volatility and unpredictability in prices is probably the most likely outcome.

Unless we face a no-deal scenario, the transition period until December 2020 will delay any potential significant changes, but beyond 2020, the picture remains unclear.

Now is a good time for agricultural businesses to review their financial resilience based on three scenarios over the next five years.

This should provide a good indication of what break-even positions are.

A 5-10% reduction in sales (output) prices: Prices could reduce if UK producers are faced with added competition from cheaper imports, for example.

A 5-10% increase in costs (input) prices: Farmers could face higher labour costs and higher import costs for raw materials, as many goods are traded in euros.

A reduction to agricultural support schemes: Some form of subsidy is likely to continue, but in what form, and how much support will be given, is unclear.

In the meantime, the UK Government has stated that farmers will continue to receive the same level of subsidy as they do under the CAP until the end of 2022.

Brexit aside, the conditions of the CAP were scheduled for review by Brussels in 2020 anyway.

The UK Government’s Briefing Paper sets out its vision for a better functioning CAP policy that will focus on improved environmental outcomes and improve agricultural productivity.

The shape and design of the support will be closely watched – we know that many farmers would not be able to survive without some form of support.

Ready access to labour is another area that is top-of-mind for the sector.

The British Summer Fruits trade body warned recently that its members are seeing a 10-15% shortfall in labour and expect this to increase to 30%.

In reaction to the White Paper, farming unions have repeated their call for an immigration policy to be designed based on what businesses need.

As March 29 draws closer, farmers face a balancing act between addressing immediate problems and planning for the future. Robin Dandie is head of agriculture at Johnstone Carmichael.

Picture: Kris Miller. Many crops that will be marketed after the UK leaves the EU have already been harvested.