The changing landscape of the UK's farming sector
It’s hard enough being a farmer without EU uncertainty making funding more complicated.
After the global agri-commodities shortages of 2011 we now have overcapacity on a global scale and prices are at rock bottom.
This dearth-to-surplus phenomenon is simply part of farming, but this year’s down cycle is particularly badly timed as it coincides with two other crises, namely the uncertainty surrounding the “Brexit” referendum and the disastrously muddled introduction – in the UK at least – of the European Union’s Common Agricultural Policy (CAP) reforms.
From 2015 the “basic payment scheme” (BPS), backed up by rural development funding, replaced the old “single farm payment” model. BPS is area-based, and while the rest of the UK had already moved to this basis, Scotland, up until last year, operated a “historic” basis calculated by reference to claims made through 2000-2002.
Mark Wilken CA, a Partner at EQ Accountants, noted there are three major issues:
- The application process for BPS is much more complicated than for the previous system.
- Payments, by and large, are reduced under the new system and businesses that received the most support in the past (namely beef farms) are being hit hardest.
- The computer systems that were designed to handle applications have manifested glitch after glitch. In Scotland, this has resulted in payments being delayed and some farmers facing serious cashflow problems.
Although there is now very little time left to get applications in for the 2016/17 CAP deadline of 15 May, many farmers have not yet even had a response to their 2015 applications.
This matters, Mark pointed out, because mistakes in the application can be hugely costly, so people want to see where they’ve gone wrong the first go round before they submit their current applications. As things stand, many of them are going to have to submit their application “blind”, perhaps doubling up on last year’s mistakes.
He said: “The old system was based on your historic claims. So what you claimed in the benchmark period from 2000 to 2002, averaged over the three years, formed the basis for your single farm payment.
"Farmers took this base figure and divided it by their land area to give their support figure per hectare. In addition there were various categories of other specialist support payments that could be applied for."
Under the new system, payment relates to area, dividing land into three categories, attracting diminishing payments as you go down the ranking.
New land categories
- Good arable land and pasture
- Permanent pasture
- Rough grazing
Added complexity comes from the fact that, initially, the new payment scheme will be based partly on area and partly on the historic basis, in a transitional period going up to 2019. There are also a number of new rules about “greening” (environmental) requirements.
Clarke Willis, President of the Anglia Farmers group, pointed out that, so far, between 40% and 50% of the larger claims made by English farmers under the new CAP system were incorrect.
He commented: “People really do want to see where they went wrong in their prior claim before they submit their 2016 claim.
"Honest errors can carry severe penalties. The total failure of government to manage these claims in a professional way has been catastrophic."
However, Clarke also conceded that the kinds of problems that have beset the UK government’s IT support systems for implementing the new CAP system are comparable with the kinds of issues that big organisations generally run into when implementing complex IT.
His staff participated in a number of seminars with Liz Truss, UK Secretary of State for The Environment, Food and Rural Affairs, who gave many assurances that the system was working, only to find it was withdrawn at the last moment and farmers were asked to go back to paper submissions.
He said: “The problem is, when you put in your 2016 application, you have just 35 days from the date you submit to make any necessary changes.
"England is sending out 22,000 paper documentary forms for submission as we speak. This is a shambles."
Impact of Brexit
Brodies Partner Clive Phillips reckons that the agri-foods sector in the UK has two major issues of concern: the support the sector currently gets from CAP and what might happen to Britain’s agriculture exports and imports in a post-EU world.
He said: “The issue for many farmers, north and south of the border, is that with global commodity prices being so low across almost all farming sectors, most farm businesses in the UK rely on CAP, not only for profitability but also, in some cases, for their very survival."
Politicians in the Brexit camp have, by and large, been making reassuring noises that farmers would find the UK government prepared to be supportive post-Brexit.
However, with Chancellor George Osborne still committed to austerity, and with all kinds of pressures on the public purse, no-one can be confident that farming will come out on top when it competes with other interests, such as schools and hospitals, for scarce government cash.
CAP support itself has been shrinking and is now around half of what it was when it was first introduced – with Britain leading the way on moves to rein CAP in and to transform it to a more policy led approach.
Nevertheless, Clive points out that CAP, rather like a large oil tanker, takes a considerable time to shift course. In some respects, farmers may draw comfort from this because a change in policy takes time to implement and requires the agreement of EU member states.
In context, a shift in agricultural policy in the event of a vote in favour of Brexit may come at a much faster pace and be more vulnerable to the domestic policies of the day.
Alan Matthews, Professor Emeritus at Trinity College Dublin, says it is important to recognise there are two strands to the Brexit camp.
The first group are reacting against what they see as over-regulation by Brussels. Under this argument, the logical implication from an agri-policy perspective, would be free trade, reducing all border tariffs to zero. This would potentially benefit consumers by allowing cheaper food imports, at the expense of UK producers.
This group also tends to argue that the UK could replace any lost trade with Europe by forming free trade links with Anglophile countries such as Canada, New Zealand and Australia. Such agreements would be likely to see those countries demanding access to the UK’s agricultural produce markets.
The second group of Brexit supporters takes the opposite view. They tend to believe that farming and country living are part of the British character and identity, and that rural lifestyles – and farming – should be given every protection in order to flourish.
Alan surmised: “This line of thinking would suggest firm support for the sector, with hefty tariffs for foreign competitive products. So you have a real contradiction of views there that would have to be resolved post-Brexit, and which add significantly to the uncertainties that Brexit would bring."
In Alan's view, probably the most likely outcome post-Brexit, should that happen, is that the UK would adopt a tariff structure that is very similar to the current EU structure.
He said: “We may see some softening on sugar tariffs, given Britain’s historic connection with many of the sugar-growing nations, but otherwise tariffs would probably be pretty similar."
Clive added: “Agriculture in New Zealand is often held out as a shining example of a sector that thrives on the world stage on its own merits, without state support. However, people tend to forget that New Zealand farming was not without casualties in the first decade after support was withdrawn."
There is no doubt that the Scottish and English agriculture sectors would look very different if we went down that road. Small farmers might survive in niche areas and the trend to large-scale farming would continue.
However, those farmers in the middle tier would find themselves massively squeezed and many could be expected to exit, selling to larger competitors, which would accelerate the move towards more scale in farming.
This would, of course, have an impact at both the environmental and cultural levels, but that is another debate entirely.
The full version of this article appears in the May 2016 edition of CA magazine.