Carter Jonas
Carter Jonas

What next following Brexit for rural economy

Whether you voted “Leave” or “Remain” the die is cast; the rhetoric over to be replaced by the reality of what this decision will actually mean going forward. 

As predicted, the vote to leave has already brought significant turbulence on the foreign exchange and stock markets. However, it is the impact it will have on the wider economy and real people’s lives over the coming months and years which will ultimately be used to judge the wisdom of this decision.

But whether the vote is right or wrong in your eyes, it is now critical that the deep divisions of the past are healed as quickly as possible and all our efforts are focussed on negotiating the best deal possible for our exit from the EU in parallel with building relationships with the rest of the world. This is clearly no mean feat and in the rural context this translates in to focussing on the following areas very quickly:

•    Trade - We need to secure tariff-free access to the EU for all UK agricultural and other products of our rural economy. We also need to replace all trade agreements that currently exist between the EU and other nations before the UK exits, and attempt to develop new opportunities worldwide. We will also need to protect ourselves against cheap imports from outside the EU, particularly where standards of production do not match our own.

•    Agricultural Support – We need immediate clarification on how and when the current CAP payments which farmers receive will be phased out – currently these represent approximately 55% of an “average” farmer’s income and thus even if they are replaced by UK-based support the timing and nature of this support needs urgent clarification, as does the government’s “UK Agricultural and Land Use Policy” which has hitherto largely been devolved to the EU. This will need to be in place before we leave the EU because the agricultural industry cannot cope with a pregnant pause between the abolition of one system and the introduction of another which in my experience very often seems to happen.

•    Labour – We need to ensure that farmers can continue to employ the critically important labour force that is drawn predominately from EU member states. It is understood that 65 per cent of agricultural workers are currently non-UK EU citizens and this rises to 80 per cent for seasonal workers. This workforce could simply not be replaced by UK citizens and its loss would have a profound impact on many farms.

It will be a huge task to sort out this short rural focused “wish list” alongside all the other wider ramifications that this vote will have on our economy and society at large and what is for certain is that if this is to be achieved it will need a leadership team who can both unite what is clearly a deeply divided society at home and at the same time fight tirelessly for our best interests abroad.

On the upside, following the referendum the pound has weakened which has helped protect UK farmers from recent falls in wheat prices on world markets as UK wheat has become comparatively cheap.
 
This weakening of Sterling on the foreign exchange markets is generally good news for farmers because it makes imports more expensive and UK exports more competitive. This has generally helped UK commodity prices whether that be beef, lamb or cereal prices.

Indeed the exchange rate is probably the single most important factor impacting on the profitability of farmers in the UK and so, in the short term at least, the impact of the referendum is good news although the longer term impact of an exit from the EU is far more difficult to predict.

Early indications are that Brexit has had little, if any, immediate impact on the land market. Having seen a surge in land values over the last decade, farmland prices had started to ease a little over the last six months or so as the massive slump in commodity prices affected farm incomes. But with commodity prices firming a little and concern that other commercial and residential asset values are likely to slip, farmland may once again become a more attractive investment for farmers and investors alike.

So, in the short term the outlook for farming has perhaps become a little brighter even if the weather remains stubbornly overcast.

James Stephen

James Stephen

Partner

James is a partner who heads up Carter Jonas’ South West rural operation, managing the teams in the four offices of Marlborough, Bath, Taunton and Truro.  He primarily works out of the Taun...

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