There is a significant challenge facing the UK farming industry. As we try to recover from the impact of Covid-19, we need to get ready for more uncertainty.
Brexit happened. The UK officially left the European Union on 31 January, after 47 years of being a member state of the EU and its predecessor, the European Communities.
The full impact of Brexit will not be known for some time, but the UK has already suffered. The economy has slowed1, and many businesses have moved to the EU2.
This will be the most significant change the farming communities have faced for generations. Previous systems around free movement, workforces, imports and exports, trade deals, animal welfare standards and logistics won’t apply. Everything will need to be reworked to fit the new status quo. The concern for most is that many things are still entirely uncertain. It’s difficult to plan in a period of uncertainty.
Impact on imports and exports
Exports plummeted in January3. The Food and Drink Federation showed that dairy farming was hit the hardest, with milk and cream exports falling by a massive 96% on the previous year’s figures. Overall, product exports were down by more than a fifth in February 2021 a drop of nearly £400m. Cheese, meanwhile, fell by 64% when compared to February of the previous year4.
Meat and dairy products are subject to the most stringent of checks, and increased paperwork, higher trading costs and transportation delays have made this process even more complicated. The Office of National Statistics (ONS) Business Insights and Conditions Survey (BICS)5, states that additional paperwork and higher transportation costs are the biggest challenges currently facing UK importers and exporters.
The National Pig Association says processors and producers face “unprecedented challenges” due to difficulties exporting goods to the continent and Northern Ireland6. These challenges have, of course, been compounded by the impact of Covid-19. The beef sector will see the same border struggles with export. According to the National Beef Association, more people cooked at home during the pandemic, and as the supermarkets stock UK beef, this did mean healthy sales in the short term7: 35-40% of sheep sales are exported8, and 95% of those exports were to the EU, so clarity is needed on how these sales will be impacted.
Supply and demand
However, it’s not all doom and gloom. Export concerns have been countered by reduced imports, which has led to higher than regular commodity prices. For example, lambs have almost doubled in price9. Similarly, grain and wheat prices have increased – partly due to the poor 2020 harvest10. There is demand, but there is less supply.
The government is seeking to make new trade deals. The US, Canada, Australia and New Zealand have been identified as growth opportunities11. This brings fresh concerns, however. While the UK has strict food safety regulations, other countries have different standards. The US, for example, has fewer animal welfare and food safety rules, which could mean UK farmers are under threat thanks to inferior, cheaper products being imported to the UK.
The Agriculture Bill
A new Agriculture Bill12 was passed in 2020 with an annual budget for farming support. However, it did not include requested amendments to protect UK food standards. The farming community breathed a sigh of relief when the UK did agree to a new trade deal with the EU at the last minute. It means that UK farmers can continue to export produce and products to the EU without tariffs or quotas, which is good news. The fact that the UK is not in the EU does mean that it is trading with the EU as a third country13, however. This will inevitably have an impact on paperwork and logistics. Food security remains a big issue.
Time is money, and this does not just impact the farmers themselves. It will impact everyone else in the supply chain, from seasonal staff to seed suppliers, machinery providers, hauliers, and abattoirs. Products being imported to the UK from the EU such as seeds, machinery parts and ingredients will also be subject to more complex processes, potentially driving up costs and delays even more.
Farmers need to know that new trade deals will not squeeze their margins further in new, as yet unclear trade deals - and they need to know that they will still have customers, both in the UK and the EU. If commodity prices remain high, that bodes well for the short term – but these trade deals and other variables such as the weather could all yet potentially impact farmers’ profits. There is also the concern that consumers will at some point simply stop paying the higher commodity costs, and look for cheaper options.
It’s vital to look after your assets in times of uncertainty. Existing equipment, income, staff and produce will need to be protected. We spoke to farmers up and down the UK to discuss their concerns around Brexit and provide advice where possible. Download our Managing Risks in Farming Report here.
1. https://commonslibrary.parliament.uk/slowing-economic-growth-brexit-and-the-productivity-challenge/
2. https://www.theneweuropean.co.uk/brexit-news/uk-companies-relocate-eu-brexit-7872324
3. https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/uktrade/january2021
7. https://www.farmersguide.co.uk/brexit-deal-how-are-farmers-affected/
12. https://commonslibrary.parliament.uk/research-briefings/cbp-8702/
