What does Brexit mean for the North’s farmers?

In 2013 63% of our food exports went to the EU, whilst 70% of the UK’s imports came from the EU. This means that, once the UK has formally left the European Union, we will immediately become its single largest export and import market.

The pressure to secure a deal that protects that trade will therefore be intense, but equally the challenges that face the British negotiators should not be underestimated.

The precise mechanism for agreeing the terms of our departure has yet to be decided. The most likely route is that the next Prime Minister will trigger Article 50 of the Treaty on European Union.

Once the UK has served notice on the European Council of its intention to leave, the parties will have two years in which to negotiate an orderly withdrawal.

The various European treaties will cease to apply after that date and Article 50 does not permit any extensions to the two year period without the unanimous consent of all member states.

Farmers in the North will no doubt be keeping a close eye on the negotiations. They will be particularly concerned about four key areas:

1. Financial support for the agricultural sector.

2. Trade with the EU.

3. The regulatory framework.

4. The labour market.

Replacing the Common Agricultural Policy

The fiercely fought debates which preceded the referendum provided little insight into what Brexit would mean for the rural sector and, even within the ranks of the Leave campaign, there were disagreements about how Britain’s farmers would fare outside of the Common Agricultural Policy (CAP).

Former Defra Minister Owen Paterson pointed out that, at nearly £10 billion, Britain’s net contribution to the European budget dwarfed the EU’s contribution of £3.8 billion to UK agriculture through CAP and related subsidies. He therefore reassured farmers that leaving the EU should give the UK government the ability to actually increase rural payments.

On the other hand, the prominent Business for Britain campaign group said Britain should seize the opportunity to move away from protectionism “and gradually adopt a less subsidised model”.

Many farming businesses are reliant on support payments, with EU farm subsidies currently making up around 50% to 60% of farm income. The Tenant Farmers Association will therefore not be alone in calling for the current budget allocation of £3.8 billion to be maintained.

However, there will no doubt be disagreements between larger landowners and tenant farmers as to how that budget should be allocated. The rural sector will also need to be alert to attempts to divert funds to meet other spending priorities. At the very least, farmers will expect the Government to respect the commitments made for the current CAP period, which is due to expire in 2020.

Securing existing levels of support is important not just for our farmers but for the wider rural community and UK economy. Research undertaken on behalf of the Country Land and Business Association suggested that the CAP payment of £3.8 billion secured over 350,000 jobs, generated £3.5 billion in tax revenues and resulted in an overall contribution of £10 billion to our GDP.

Trading places

Trade with the member states of the EU is vital to UK farming and to our wider economy. Food and drink is now Britain’s fourth largest exporting sector, with UK exports of food and non-alcoholic drinks worth £12.3 billion annually.

Securing continued access to European markets will therefore be vital to the future prosperity of the agricultural sector. However, it is impossible at present to determine what form our future trade relationship with the EU will take.

We could adopt the Norwegian model in which, as members of the European Economic Area, the UK would have access to the single market, although we would have to agree to implement all EU laws relating to the EU market and allow the free movement of EU citizens into the UK.

Or we could adopt the Swiss model, in which free movement of people is also a requirement, although compliance with EU law can be agreed on a case by case basis.

Crucially, however, neither the Norwegians nor the Swiss enjoy free market access within the EU for their agricultural products. There is therefore a concern that protectionist farmers on the Continent will pressurize their politicians to impose customs controls and import tariffs, both of which would increase trade costs and make British food and drink exports less competitive.

The Leave campaigners are confident, however, that the sheer size of the UK market will result in us being able to secure an improved trading relationship with the EU. They also suggest that the UK will be in a position to secure better bilateral trade agreements with countries outside of the EU.

Again, farmers will be looking to ensure that the interests of their industry will not be sacrificed to secure greater benefits for other sectors of the economy. As a minimum, they will be looking to ministers to secure tariff-free access to the EU and to replace all existing trade deals between the EU and other countries.

Bonfire of the regulations?

Agriculture is one of the most heavily regulated sectors of the economy and EU bureaucracy has long been a source of frustration to UK farmers, many of whom will hope that the regulatory burden will now be reduced.

However, European law is deeply integrated into the UK’s legal framework. Where EU legislation already forms part of UK law through Acts of Parliament, the UK Government will have to consider these on a case by case basis and identify which laws will be amended or repealed.

In doing so, ministers may be constrained by the terms of any trade deal with the EU.

If, for example, we adopt the Norwegian model, we will remain directly bound by EU laws. There is also a concern that the UK will have little say over reforming or crafting new legislation which could ultimately affect the UK’s farming sector and natural environment. This may be significant given that many environmental issues are inherently cross-border, such as pollution, carbon emissions, biodiversity and animal and plant diseases.

Farmers will hope that leaving the EU will result in the abolition of excessive regulations and directives. However, this is likely to take time and it is essential that UK farming businesses closely monitor the new legal and regulatory framework in which they will be operating in the future.

A new labour market

The opportunity to control levels of immigration was seen by Leave voters as one of the main advantages of leaving the EU. Now that the country has voted for Brexit, immigration will be one of the key issues in the negotiations.

The UK’s borders will not close after Brexit, but there are likely to be new rules about who can enter. Whilst it is possible that the UK will agree to maintain free movement of labour in return for access to the EU’s single market, this outcome is unlikely given that ending the free movement of people was a red line for many Leave campaigners. The alternative may be an Australian-style points system, which would allow the UK to admit migrants based on characteristics such as their language skills, qualifications and work capabilities.

In Australia, the government sets limits on the number of people it will admit in different professions. The question is whether any such system adopted by the UK would allow for the admittance of low-skilled workers, such as fruit pickers.

Our existing immigration policy regarding non-EU migrants does not and three quarters of EU citizens now working in the UK would not meet the current visa requirements for non-EU workers.

Farmers in the North will perhaps be less concerned about seasonal workers than their counterparts in other areas of the country. Given that negotiations over immigration will also have an impact on key issues such as access to the single market, however, the region’s farmers will be keeping a close watch on developments in this area.

How Ward Hadaway can help

As of now, many questions about the legal consequences of the UK leaving the EU remain unanswered.

The Rural Land and Estates Team at Ward Hadaway will continue to monitor the situation and will provide updates on significant developments affecting the rural sector as they arise.

If you or your contacts have any queries relating to this, please do not hesitate to contact us.

For more information on Brexit, check out our guide to the essentials.