UK Agriculture Industry - Planning for the Unknown
At the time of writing, we are no nearer to knowing when the Brexit uncertainty will be resolved. The details of any eventual deal (or no deal) will have a huge impact on the UK Agriculture industry in the weeks, months and years ahead.
What do we know so far?
As I see it there are two major considerations around how Brexit will affect the industry:
- The first is how will support payments to farmers and landowners work, and what will regulations look like going forward? These will not be affected by a deal or no deal with the EU, as these support payments will be under the control of the UK parliament. The first drafts of the new UK Agricultural Bill were announced earlier this year and have been working their way slowly through parliament but have not yet become law. The crucial points for farming businesses from this bill is that direct area payment, currently the Basic Payment Scheme, will be phased out by 2027 and support will be paid for farmers doing things for the public good. This is going to be much more environmental and sustainability based than now and a farming business will have to be seen to do something to earn the support. The production of food is not mentioned as a public good in the draft bill.The one certainty as I see it is that the support paid to farming businesses under the new regime after Brexit will decrease dramatically.
- The second major consequence of Brexit for Farming and Land business is how trade will work. Will we get a deal or no deal and what will any trade barriers of tariffs look like? If there is no deal we will start trading with other countries on the basis of the World Trade Organisation rules. This would have a massive impact on the export of for example lamb and cheese to the EU and make our product much less competitive or attractive to the buyers in the EU. Also much of the supplies to the farming industry such as machinery and fertiliser are manufactured in the EU etc. so the outcome of trade negotiations will impact this.
Other factors on top of the two above are the effect of the currency exchange rates and the freedom of movement of people. Many farmers in the diary, fruit and veg sectors especially rely on eastern European labour at peak times. If these people are not available how does this affect businesses?
What should farmers be doing now in preparation?
As I have detailed above there may be numerous consequences of Brexit, but there is absolutely no certainty, so my first piece of advice is don’t do anything drastic as it is impossible to second guess what will happen.
But what you can do is get a detailed understanding of your business. What do I mean by this?
- Do you know how much cash flow a year your business requires to service debt and owners drawings?
- What would your profit and cash flow look like with no support payments?
- What is the gross margin for each enterprise?
- What is your cost of production for each product, e.g. cost per lamb, kilogram of beef, ton of grain or litre of milk?
- What are your tenancy agreements and how long are they?
- Who owns the land and the terms of any lending?
Why are all of the above important? As stated things will change regardless of the Brexit scenario we end up with. Farming businesses will need to make very quick robust decisions to deal with the challenges and opportunities
The only way a business can do this is by knowing in detail all of the above, how can you make a decision about a particular enterprise or asset sale if you don’t know what it is costing or generating?
If farming incomes drop it is vital you know what cash is required to meet liabilities and the breakeven point etc.
If you don’t know your business position inside out now I encourage you to do so very quickly as it will give you the best chance to make the right decisions and survive whatever outcome we get.
Even if we get a relatively benign outcome, there will still be plenty of challenges around the corner. Climate change, increased environmental pressures and changing consumer tastes are all certain to impact UK Agriculture in the coming years. The successful farmers will be those who understand their businesses and are able to adapt to these challenges.