Brexit and VAT

About a year ago I predicted there would be lots of articles written and hot air expended about Brexit this year – and encouraged that not too much time or emotion be used up on conjecture. However, if we focus on the facts, there are very few indeed to base our thoughts, analysis or plans on, even though it is now dangerously close to “B-day” – yet most arable farmers will already have their cropping plans in place for the first post Brexit harvest and cows are now being served to calve in a post Brexit world.

Health and Harmony

Since I last wrote anything on Brexit, DEFRA has produced its “Health and Harmony” consultation document and 40,000 people have responded to it. Most of those 40,000 responses will have minimal tangible impact on what appears to be a very determined, skilled and politically astute secretary of state in charge of this process. I am sure that given so many responses were received, there will be one in support of every decision that will be taken and so the consultation process will inevitably be the justification for every unpopular decision. It is tempting when reading such documents or listening to the politicians, to subscribe to the view that farming is politically important in the UK – that fact that it is not has been one of the biggest benefits of our farming policy being effectively agreed by other EU countries where farming is higher up the political agenda.

I attended a breakfast that George Eustice spoke at recently – it is clear that for a politician he does have a better than average experience and understanding of UK farming. Apart from the usual unerring ability of a politician to answer questions with points he/she wanted to make, whether or not they directly answered the questions posed, there were a couple of interesting snippets.

One that certainly pricked my ears was his objective for a “highly profitable farming sector” in the post Brexit era – great words and hopefully that will mean making at least as much profit as in the pre EU era. In real terms UK farming made nearly twice as much profit in 1973 as it did in 2017 – so there is certainly plenty of scope to improve UK farming’s profit beyond current levels.

Health and harmony had a couple of very clear themes. Direct subsidies will reduce and then disappear and in the meantime, some farms will be able to benefit from enhanced environment based payments. This is bad news for the many lowland farms that do not have any specific environmental features to enhance above and beyond what is already achieved by good agricultural practice.

The Cost of Quality

Also it is clear that the government will not allow UK farmers to produce anything other than the highest quality food in terms of animal and environmental welfare as well as consumer traceability. It is acknowledged that this comes at a cost and so UK produced food is going to be more expensive than imported products – the government cleverly promotes this as a way to finding more export markets for our high quality food; what it omits to say is that there is a large number of consumers in the UK (each with one vote) that simply cannot afford the highest quality
food. These consumers (voters) will demand lower priced food and so tariff free imports of lower quality food will inevitably be allowed to avoid the political risk of an unhappy population. (Interesting to note that the cost of UK direct farm subsidies is less than £3 per week on the household shop).

That brings me to trade. Simplistically we should be encouraged by the fact that the UK is so reliant on imported food at the moment – that should give us some bargaining power in the trade talks. Food is but a small part of international trade and given my previous point on affordability, I worry that food will be sacrificed in trade negotiations for the perceived bigger prizes.

This isn’t a very cheery article is it? The fact is that I do not trust the politicians to have the real desire (or practical ability) to deliver a good answer for UK farming when there is so much more at stake for the wider UK economy. The best we can hope for is a slow change so that farmers can adapt, not fall off the cliff like New Zealanders had to in the late 1980s when their subsidies were stopped “overnight”.

So if we are to focus on facts, it is a fact that farm subsidies will reduce and in many cases, severely so. If your farm business isn’t strong enough to face such a change then the sooner that challenge is addressed the better. At best over a long period of time a substantial amount of premium export markets will be identified which will allow UK farming to be more profitable – but
I doubt that the level of profit will be as great as the last time the UK was out of the EU.

In the short run it seems perverse to hope that the impact of Brexit is so bad for the UK economy that sterling remains weak and interest rates remain low – both of which UK farming currently benefits from. Privately, I still have a hope and a hunch that Brexit will not happen, but I think that for now such thoughts fall into the “conjecture” bracket if not pure fantasy.


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