A tale of subsidies and regulation: Britain’s farmers and Brexit

shutterstock_177010643Brexit is the hot topic in Brussels, especially since last week’s plan from European Council President Donald Tusk on how to avoid it. While much time and effort has been spent lobbying the British public, one influential group has yet to officially make up its mind: British farmers. While British farmers as an electorate will not decide the UK’s EU fate, as a well-organised industry group with significant lobbying heft, their arguments either way will certainly be influential in the debate, should they choose to speak up. For now, however, the National Farmers Union (NFU) has not given an official recommendation either for or against Brexit.

The idea of doing away with cumbersome EU regulation in the farming sector is very appealing to many UK agronomists: nitrate levels for example are a sore topic for farmers in the UK (and possibly elsewhere) as quantities allowed in water were reduced significantly by Brussels. Some argue to no benefit to human health or the environment.

But, say those in favour of remaining, what about the subsidies? Direct payments from the Common Agricultural Policy (CAP) make up 30% of agricultural incomes on average at EU level. In times of increased pressure on prices and changing weather patterns they can even account for up to 60% of a farmer’s income.

So is the question for farmers on the referendum ballot simply “EU regulation and subsidies” vs “no EU regulation and no subsidies”? Not quite. There are not many scenarios in which it would be conceivable for the UK government to leave its farmers completely on their own in the face of floods and other natural disasters, and farmers were subsidised before Britain’s EU accession in 1973. Chances are that the government would use at least some of the funds it now pays into the EU to support its own farmers.

The UK is also not the Wild West. Regulation would still impact many of the day-to-day aspects of farming, especially if the UK wants to continue trading its agricultural commodities, in which case it must apply WTO global rules on trade. The UK’s biggest trading partner in agrifood products are in fact other EU countries: in 2014, 73% of all produce exported from the UK went to EU partners.

Why, then, has the NFU not clearly recommended to leave the EU? Firstly, the EU may choose to start raising duties and tariffs on any goods imported from the UK. Although this is unlikely – tariffs go both ways and over 17% of Germany’s EU exports go to the UK – it is still a possibility.

Secondly, the EU imposes very high standards on its imports. Norway is an oft-cited example of not being in the EU but having to apply the same standards for food and agriculture as the Union does. Standards also apply to food imported from further afield, such as the more than 7m tonnes of grapes imported from Morocco every year. Should British farmers wish to continue to sell their products to Europe, they would effectively still have to implement all EU regulation, without having the possibility to influence it.

In the end, an NFU recommendation will depend mainly on the terms in which the farmers would be able to access the EU market, but negotiations on this would only start after the vote to leave. For the moment, a recent study by the University of Warwick says that farmers would fare better if Britain remained, as the level of subsidies would likely be higher and the regulatory burden exactly the same – which would be good news for those European players that agree with the UK’s position on some of the issues currently being debated in the EU, from GMOs to Endocrine Disruptors. But given the uncertainties, the likelihood of a decisive NFU ‘yes’ or ‘no’ is small: British farmers may not be a force to be reckoned with after all.

Caroline Vogt is Senior Consultant in FTI Consulting’s agri-food team. 

 

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