Long term policy outlook for UK agriculture

Friday, 29 January 2021

By David Swales

This article discusses recent changes to policy which will impact agriculture and horticulture over the coming months and years. With the UK now outside the EU single market and customs union the start of 2021 has signalled change in areas such as trade and migration policy. There is also the small matter agriculture policy itself which has started to change in England, with changes expected elsewhere in the UK.

Trade - continuity now and change later?        

With regard to trade policy I should start by acknowledging that the dreaded no deal Brexit many were fearing has been avoided. This means there is actually a fair degree of continuity in the short term. The UK-EU deal should be celebrated as it ensured tariff and quota-free trade for goods, albeit with new customs requirements – some of which are attracting a fair few news headlines at the moment.

My take on the customs challenges is that there was always going to be added trade friction and additional cost of trading with the EU whatever type of deal we reached. AHDB published two impact assessments on EU exit, in 2017 and 2019, and this was discussed at length in both studies. Some might accuse me of being optimistic, but whilst I don’t expect the issues to go away, I do expect things will get easier as teething issues are addressed as businesses and Government get familiar with the new requirements.

The UK Government has also secured a host of continuity trade agreements covering 60 countries which aim replicate the preferential terms which we benefited from as part of the EU. There are only a few countries, including Albania, Algeria, Bosnia and Herzegovina, where continuity terms have not been agreed.

So the once feared ‘cliff edge’ has been avoided, and during 2020 there has also been a great deal of discussion about new trade deals. The UK is already taking advantage of the opportunity to negotiate its own free trade agreements. Negotiations are underway with the US, New Zealand and Australia, all being major agricultural exporters. UK farmers are right to be concerned about their defensive trade interests. I believe that we will see increased competition in our marketplace over the coming years.

However we need to be mindful we have offensive as well as defensive interests. We need to work out how to best access a global market, particularly the Asia Pacific region, with its expanding middle class consumers. There appear to be significant opportunities for the red meat and dairy sectors here, which AHDB assessed as part of its Horizon series of reports. 

Agriculture policy - less generous?   

Agriculture policy is now being shaped by the desire to deliver public benefits, notably environmental goods, rather than income support. In England, the phasing out of direct payment over the 7 year agricultural transition and introduction of the new Environmental Land Management (ELM) scheme presents many challenges. Farmers will be alive to the opportunities the new scheme will offer. I feel the industry will need to be realistic about the extent to which ELM payments will offset direct payment loses. If business do what they have always done, I feel it is unlikely they will find themselves better off under the new policy framework. Not least, ELM payments should not be considered as profits as businesses will incur costs to deliver the benefits Government are seeking.

While change will be slower in other parts of the UK it looks like it can’t be avoided. In Wales, the Brexit and our land consultation has resulted in a scheme based on boosting productivity and rewarding provision of certain public goods by the industry. The Scottish Government set out the overall aims and principals for the future for rural funding in the consultation document Stability and simplicity its overall proposal is that support schemes will fundamentally stay for next few years, but suggest changes may occur after this. In Northern Ireland, direct payments will continue until ministers are in a position to make decisions regarding rural policy. The bottom line is that the changes to the farming policy frameworks will impact tens of thousands of farming businesses.

The loss of direct payments will leave many farm businesses under financial pressure unless they evolve. Defra’s Farm business survey data suggests that the grazing livestock and cereal sectors are most vulnerable, with a high proportion of their profits coming from support payments. However I would not underestimate the ability of UK farming to shift to more viable methods of production. Whether it’s lower input systems on more marginal land or specialised systems that operate at the level of top performers, farming’s resilience and responsiveness should not be underestimated.

At a time when so much appears out of our control our focus has to be on our own businesses. Focus on what you can change rather than worry about what you can’t. Whilst every farm is unique, AHDB analysis shows that a staggering 70% of variations in business performance are down to the decisions farmers make. Just 5% of the variation in business performance is down to geographic factors like soil and climate. For more information about the characteristics of top performers, please read our Horizon report here.

Labour - costs set to rise?

Free movement of labour between the UK and the EU ended on 31 December, leaving the industry exposed to a significant future recruitment challenge. In a normal year we’d expect about 95 per cent plus of the 60-70,000 seasonal, casual and gang labour jobs across agriculture and horticulture to be filled by EU nationals. High numbers are also found in the food manufacturing sector, with migrant workers making up about 40 per cent of the workforce.

The UK Government has now introduced a new points-based system for workers. I explore this in more detail in a recent article. In summary, a key problem for the food industry is that many roles that we would view as skilled will not be viewed as skilled by Government within the new system. 

That leaves a lot of horticulture growers, as well as other parts of the industry like abattoirs for example, with limited options. The Government has recognised this to some extent with a Seasonal Workers Pilot announced for 2021, with an increased quota of 30,000, though it admits there will still be a shortfall.

With these changes it looks like the industry will need to compete with other sectors to recruit domestic workers. In the medium to long-term this is likely to provide upward pressure to wages, so now seems like a good time for businesses to think through how they will approach these challenges. AHDB have published resources on recruiting domestic workers and retaining current employees, some of which are flagged in the section below:

We’re here to help 

Whatever happens in these three policy areas, there are a number of AHDB tools available to help navigate the uncertain waters ahead.