AGRICULTURE in Scotland goes back a very, very long way. People have been cultivating grain and milking cows here for 6,000 years and unsurprisingly, farming has since seen a series of dramatic changes on the way to becoming a diverse industry that includes cereals, pigs, poultry, dairy, cattle and sheep.

According to the National Farmers Union, in Scotland, some 80% of our land is under agricultural production with one in 10 jobs dependent on the sector, while agri-food has literally blossomed to become the UK’s largest manufacturing sector.

HeraldScotland: Clive has an in depth knowledge of the rural sector as a specialist in agricultural law at Brodies LLPClive has an in depth knowledge of the rural sector as a specialist in agricultural law at Brodies LLP

What, though, will be the Brexit effect? Agriculture, Clive Phillips, a partner at Brodies LLP points out has always been exposed to the vagaries of weather, output and demand – and politics. It now faces a new raft of challenges.

“Because of these fluctuating factors many countries have systems of protection and intervention because otherwise the sector – which provides our food – would be subject to continuous boom and bust situations,” he says.

The UK, he points out, is not self-sufficient in food, and that is a long standing position. “It imports a lot and as part of the European Union one of the key elements for the sector’s success has been the Common Agricultural Policy, a major reason for the EU’s birth and still a major part of its budget. “For the past 50 years agriculture in the UK has evolved within that framework and a framework will be required when we come out of the EU.”

There are, he concedes, conflicting views about the potential result of Brexit. “Some elements in the industry regard Brexit as yielding an enormous opportunity for change, pointing to New Zealand which effectively abolished its governmental agricultural support overnight and adopted a free market approach. “Others believe agriculture in Scotland is vulnerable because of its climate, geography and relative remoteness.

HeraldScotland:

“However, whatever the end result, there will be a period of transition and that has been recognised throughout the UK.” There is, he adds, a slight difference of emphasis depending on where farmers are operating. “In England that is about moving away from direct support toward public payments for public goods – natural capital – and stressing environmental factors that may include farmers being responsible for measures that help improve wildlife habitat or to avoid flooding for example. When you put a value on that, arguably farmers should be rewarded for delivering these natural capital public benefits,” he says.

In Scotland, while environmental concerns are still key, the weight of the argument is on the viability of agricultural businesses as fundamental to people and rural communities – in the Scottish environment – and the major risk that diminution would pose to many of these rural areas.

While it is difficult to predict how the prevailing climate of Brexit will resolve, it seems likely that there will be a managed transition from the status quo. “However that is achieved, and assuming we do leave the EU, the UK has committed to the existing level of funding for the lifetime of the current parliament.”

That, of course, was projected to be until 2022 and strictly that is all the assurance there is but he says: “It is not unreasonable to expect that a new government in a new parliament would repeat such assurances to take it forward to 2022 to avoid massive market disruption.”

What we don’t know is what will transpire during that period. “The Scottish Government is more aligned with the CAP programme and thus aims for a gradual transition and we expect to see a report around the time of the Royal Highland Show next year (in June) which will influence what will happen after that ‘steady as she goes’ period,” says Phillips. With these – even optimistic – caveats in place, would the consequences of a no-deal exit from the EU be as dramatic as in other sectors?

HeraldScotland:

Phillips thinks so. “The effect of no-deal could be massive. Take the market for lamb: the majority is exported to the EU and if that market closes in a no-deal situation that lamb has to find a new home. If it is exported to the EU that will likely involve tariffs and otherwise it must find a market in third countries or be used domestically. That leaves sheep farmers particularly vulnerable to a no-deal situation.”

He adds that for grain producers there has been a reported rush to export wheat and barley from the UK before October 31 to avoid the potential market uncertainty of a no-deal Brexit.

As in all sectors, staffing is an area of significant concern, says Phillips. “One of the greatest success stories in recent years in Scotland has been the soft fruit sector.”

HeraldScotland:

In the past, farmers would bus workers from local cities out to pick raspberries and strawberries during the summer but the proliferation of polytunnels has massively extended the growing season in a sector that is heavily reliant on workers from other EU member states. “This creates challenges. A weaker pound means these workers’ wages aren’t going so far, and the ongoing Brexit debate risks the UK being seen as a less attractive and welcoming destination than before.

There are, of course, things that forward-thinking businesses can do, says Phillips. “They can ensure that they are properly structured and are building good relationships with their supply chain. There remains great value in the traditional auction system across all sectors – but businesses need to consider who is going to buy their product, how are they going to react – and increasingly these contractual relationships are important, whether it’s in grain, soft fruit or red meat. And Brodies has a number of clients who employ workers from throughout the EU to whom we are giving advice on how to retain that workforce.”

HeraldScotland:

After 6,000 years, farming in Scotland is not all about the bottom line. “Yes, there are commercial opportunities to be seized by potential changes that Brexit may throw up but there is also the value of family farms and communities in Scotland to consider,” says Phillips. “What’s important is to identify the balance between encouraging efficient, commercial production and maintaining a social, sustainable fabric in the community that provides jobs.”

Subsidies look set to remain agriculture’s hottest potato

ALTHOUGH many farmers supported Brexit in the 2016 referendum, it is also widely recognised that the immediate impact of a no-deal Brexit on farming would be significant.

HeraldScotland: Funding for farmers is likely to continue for a number of years.Funding for farmers is likely to continue for a number of years.

The first area of particular exposure, as well as supply chain exposure, is Agricultural Support. Many farm businesses are not profitable without public support, which has been delivered primarily through the EU Common Agricultural Policy.

There are different views as to whether that has had a restraining effect on farm businesses, and allowed inefficient businesses to develop, or whether it has been an effective socio-economic policy in terms of keeping people in rural areas and there is no doubt that the CAP has had both successes and failures.

Responsibility for agriculture is devolved in Scotland. The Scottish Government has delivered CAP payments for a number of years and there are some differences in the CAP systems within the devolved regions of the UK. However, EU legislation created the framework and budget around which these regional systems were built, and potentially allows recourse to the European Court of Justice.

In the event of the UK leaving the EU, the UK will face new choices in terms of public support and delivery.

We can make some reasonable predictions in relation to public support for agriculture. Among these is that public funding will continue for a number of years – at least at current levels.

Basis of payments may change – with greater public benefit focus – and possible divergence between Scotland and the rest of the UK. Scotland may remain more aligned with CAP position (although the farmers’ unions throughout UK accept some differences but also do not want too much divergence which may impact UK internal market trade) and it is likely that Scotland will retain some direct payments.

Ultimately, though, public funding is likely to reduce and there is a debate coming about the purpose of these payments involving economics versus social policy.

This means, of course, that farm businesses will have to adapt. Some may not survive without the current levels of support. While there will be opportunities for some it may pose serious questions about viability for others.

In future, climate change policy will have an increasing impact on agriculture and may drive how support is targeted.

The  Scottish Government has acknowledged that farmers may require support to deliver some of these policy objectives.

HeraldScotland:

Disparities in foreign welfare standards among concerns

THE other aspect of Brexit which may have a significant impact on agriculture is trade. The first challenge facing the sector is that it is characterised by many small producers in a primary market. Individually, and even collectively, they have very little ability to influence supply chains – farmers are fundamentally “price takers”.

The second challenge is a practical one: there is a long production time with very little opportunity to change tack at short notice. Dairy production, for example, is dependent upon the breeding cycle; the sheep sector is exposed because of its heavy reliance on the EU export market; while grain markets are already reacting with exports being pushed through prior to October 31. Much will depend on whether access to markets is preserved, and on what terms. 

Another concern regarding trade focuses on the third countries which have expressed an interest in a free trade agreement with the UK – but which also have extensive agricultural interests. These include New Zealand, Australia and the US. They are looking for access to the UK’s food markets and the farming unions have sought legal assurance that food imports would be subject to the same welfare and other conditions as UK farmers operate under – but this has not been given in unequivocal terms.

There are concerns that access to UK food markets may be “traded” as part of a wider deal, and the debate continues over genetically modified foods, hormone-treated cattle and chlorine-washed chicken.

In the event of a no-deal Brexit, one thing that the UK Government could do is drop UK tariffs on imports. Meanwhile, agriculture and the food processing supply chains in Scotland have been major beneficiaries of the freedom of movement of people within the EU.

The concern is that not only will freedom of movement be restricted, but the weakened pound has made the UK less attractive to workers, which has already presented a particular challenge to some farm and processing businesses.

This article appeared in The Herald on the 12th October 2019

for more information on how Brodies LLP can advise, please visit www.brodies.com

HeraldScotland: