Agriculture and Landed Estates

Whether we get a deal or no deal Brexit will have a huge variety of affects on the UK Agricultural industry.  Many of these are still unknown and will only become clear in the weeks months and years ahead.

What do we know so far?

There are two major considerations around how Brexit will affect the industry:

Support Payments

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 become 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. The crucial point for farming businesses from this bill is that the 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 do something to earn the support. The production of food is not mentioned as a ‘public good’ in the draft bill. It is very likely that the support paid to farming businesses under the new regime after Brexit will decrease dramatically.

Overseas Trading and Tariffs

The second major consequence of Brexit for Farming and Land businesses 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 trade tariffs. This would have a massive impact on the export of, for example, lamb and cheese to the EU and make our product much less profitable or attractive to buyers in the EU. Also, much of the supplies to the farming industry - such as machinery and fertiliser - are manufactured in the EU etc. and the outcome of trade negotiations will impact this. Other factors in addition to the two above are the impact of the currency exchange rates and the freedom of movement of people. Many farmers in the dairy, fruit and veg sectors (especially) rely on Eastern European labour at peak times. If these people are not available how does this effect businesses?

What should farming and land business being doing now in preparation?

Although there may be numerous consequences of Brexit deal or no deal, there is absolutely no certainty, so first and foremost 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:

  • Do you know how much cash flow a year your business requires to service debt and owners drawings?
  • What would a 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 (i.e. per lamb, KG 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?

If you don’t know your business position inside out now I encourage you to do so, as it will give you the best chance to make the right decisions and survive whatever outcome we get.