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The Brexit headache - biggest shake up in farming for a generation

We are now discussing the third topic from our Managing Risk in Farming eBook, as we explore the biggest shake up in farming for a generation – Brexit. Chris Smith, Account Executive from our Inverness branch, gives his insurance perspective on protecting revenue in the face of uncertainty.

The UK is now in a 'transition period' until midnight on 31st December, 2020. During this time, all laws and trading arrangements remain the same. At the beginning of 2021, the departure will become complete unless the Prime Minister chooses to extend the transition. He has, however, pledged not to do this and codified his promise in law.

Along with the introduction of the Agriculture Bill, the industry must respond to import controls from the EU, seed and animal export market issues, and future international trade deals – including tariffs and competition issues. Combined with the availability of seasonal labour and potential animal welfare standards, there is considerable uncertainty and concern in the countryside.

At any other time, the impact of the UK’s withdrawal from the EU would likely be the most talked about topic at Young Farmers events, at the mart and in the pub.

But with all that’s happened in the countryside (and the wider economy) with coronavirus, it’s an issue that’s gone off the boil – at least for now. But it will come back. Brexit promises (or threatens) to be one of the biggest shake-ups in farming in a generation. Prior to the UK’s official exit in January 2020, approximately 60% of farm’s income came from direct (Common Agricultural Policy) payments from the European Union1.

While action has been promised to limit any losses in revenue, the loss of any, or all, subsidies will have a seismic and ongoing impact across the sector.

How this massive revenue gap can be bridged in a post-Brexit world is still a matter of considerable debate. As we touched on in Lynne Owbridge’s climate change article, the government’s upcoming Agriculture Bill certainly promises payments for environmental management and for productivity increases. But significant questions still remain.

Recent figures show that approximately 80% of agricultural exports head to the EU2. It looks very likely that these exports (and indeed imports of seed, farm machinery, etc.) will be subject to tariffs of some form3. Other markets may open up as the UK looks to trade deals outside the EU. But here again, there’s little clarity and this will remain so until the UK has agreed its EU withdrawal package.

As with all farming’s biggest issues, it is uncertainty that causes the most concern. The revenue issue is, of course, the key question. But associated questions around the import controls from EU, seed and animal exports, future international trade deals, competition issues, seasonal labour availability post-2020, and animal welfare standards all continue to cause sleepless nights for estate managers, farm owners, agri-business and others across the agricultural sector.

‘We won’t know until we know’ is the reality, which, of course, stops businesses from actively planning.

91% of UK dairy exports are destined for the EU4. While tariffs are likely to impact farming businesses in the export market, import tariffs on foodstuffs (and resulting higher prices) from outside the UK may help the farming community – possibly encouraging consumers to switch to locally grown / reared produce5.

The insurance perspective: Protecting revenue in uncertainty

So what can farms do to protect themselves when it’s unclear what they are protecting themselves from? This is a tough question. The answer, at least in the uncertain short term, is to protect what you have today.

This will be farm machinery if, as expected, tariffs on machinery or spare parts come into force. Farm buildings and homes need to be protected against flooding and weather events. Perhaps more significantly though, the need to protect revenues (and livelihoods) is most critical.

Recent falls in lamb and beef prices illustrate the revenue impact unforeseen events can have on UK farming – in this case due to the coronavirus pandemic. But unexpected pest or disease outbreaks can have significant impacts, as can the state of the wider economy as we move towards Brexit. It certainly pays to have up to date revenue protection insurance. Here, if revenues are down (perhaps from closed farm shops or a drop in tourism revenue) you could be paying more than you should. If revenues (or risks) have increased – due to expansion, new asset purchasing or diversification, for example, your cover may need to be upgraded. Either way, being prepared for the unexpected in today’s uncertain world is always a good idea.

Our next topic we look at the growing organisation of rural crime and the issue for landowners and businesses across the UK. To read more from our eBook you can download the full copy here.

Sources:

  1. https://publications.parliament.uk/pa/ld201617/ldselect/ldeucom/169/16908.htm
  2. Agriculture & Horticulture Development Board, Brexit: implications for agriculture and trade (January 2017): http://www.ahdb.org.uk/brexit/documents/SAOSBrexit26Jan17.pdf
  3. https://www.nfuonline.com/assets/61142
  4. https://www.mintecglobal.com/blog/negotiation-in-food-commodity-procurement-brexit-dairy
  5. Agriculture & Horticulture Development Board, Brexit: implications for agriculture and trade (January 2017): http://www.ahdb.org.uk/brexit/documents/SAOSBrexit26Jan17.pdf
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