The Common Agricultural Policy (“CAP”) accounted for 39% of EU expenditure at the last count. One might therefore be forgiven for thinking that such an important element of expenditure would have featured in David Cameron’s renegotiation of our terms of EU membership. But it didn’t.
Instead we got a brake on closer integration, a red card if 55% of EU parliaments want to block or veto a Commission proposal, a phased delay before migrant workers can claim benefits and the ability to index child benefit payments according to the country in which the children live.
This will leave agricultural investors pondering the outlook post-Brexit. There is little to go on and the informed summary seems to boil down to this: we just don’t know, there are too many variables, we’d better stay.
Land market commentary
According to Savills, the prospect of Brexit could dampen market enthusiasm over the next year or so.
Knight Frank (“KF”) noted the 2% drop in prices in the quarter to last December – the first quarterly drop to December since 2012. KF’s Andrew Shirley insists that this does not presage further falls. Shirley even predicts that 2016 could see a modest rise in farmland prices assuming an “in” vote.
Savills does not expect to see many more farms coming to the market unless there is a direct threat to EU farm subsidies, where the effect is likely to be felt much more keenly on smaller livestock and marginal land farms.
KF and Savills agree that localised demand will continue to be extremely important. Top farmers will continue to look for good opportunities to expand, and this will be coupled with continuing strength in the properties where amenity is the greater part of their interest. Rollover money will return to the market as development gains begin to feed through as well.
The tenant view
George Dunn of the Tenant Farmers’ Association (“TFA”) likens Brexit to “walking through a door into a darkened room and hearing the door being closed and locked behind you”. In practice, Dunn sees no need for alarm over current rent reviews as nothing very much will have happened in their three-year timescale whether we stay or leave. Of more concern to the TFA is the difficulty of setting up soundly-based longer farm tenancies. Ultimately, Dunn argues that this should not prevent landlords and tenants doing long-term deals – emerging problems can be solved.
The economists
Dunn’s short- and medium-term distinction is echoed by economists. Speaking at the Agricultural Industries Confederation last November, Sean Rickard highlighted the trilemma facing agricultural policy: food security, depletion of natural resources and climate change. Rickard is a noted exponent of free trade in agriculture, and a longstanding critic of the CAP for the way in which it supports inefficient and uncompetitive production.
The way forward for Rickard is sustainable intensification. This requires considerable capital and it tells us that the future lies with larger farms. UK agriculture outside the EU would benefit from a more positive attitude towards biotechnology (including GM crops) and a less precautionary approach to the approval of new pesticides. Expect public disquiet.
Rickard says it is too easy to assume that the UK’s trade deficit (£16.4bn in 2014) would ensure favourable trading arrangements post-Brexit. The existing agreements which cover the European Economic Area and the European Free Trade Area are all based on commitment to the four freedoms of movement: goods, capital, services and people. Rickard concludes that even with a preferential regional trading agreement, the UK’s unfettered access to the single market is extremely unlikely.
Allan Buckwell is the latest economic heavyweight to enter the debate with his report for the Worshipful Company of Farmers, published last month. Reflecting Dunn and Rickard, he predicts at least two years of negotiations on the terms under which the UK would leave the EU after an “out” vote, perhaps longer, to establish the new order for our trade relations with the EU and the rest of the world. There is absolutely no indication of what future British Agricultural Policy (“BAP”) would be, although support for farming and production is certainly not going to be any higher under BAP than CAP. If anything, it could be substantially lower.
Short-term pain
Buckwell predicts that rents, land prices and bank lending to agriculture will all be lower immediately after a referendum “out” vote pending the restoration of some clarity a few years down the line. In the short term, this will lead to disruption and hardship, especially for those farmers who are most dependent on CAP payments – those on the hills and in the marginal livestock areas. It also includes farmers who are not regularly in the top 20% or so of performance economically, as farm business income surveys clearly demonstrate.
The best may prosper
However, Buckwell points out that processors and retailers would be keen to maintain supplies. There would be adjustments throughout the industry – appraising the impact of CAP withdrawal is much more than simply deducting the basic farm payment cheque from the current profit and loss account.
The broader countryside and environment may face a bigger threat depending on how a new UK rural policy would look. England in particular is likely to be more favourable to advances in agricultural technology than the devolved administrations in Scotland, Wales and Northern Ireland.
The way forward for agricultural investment for now: stick with quality. Rickard told conference delegates they would be “barking mad” to leave the EU. Quality will count whether we stay or go. If we go, quality – of farm and farmer – will be the deciding factor between the winners and the losers of Brexit.
Charles Cowap is a rural practice chartered surveyor
