The impact of Brexit on Dairy Farming. What do we know?

 

Over a year since the vote and we know nothing more about the impact of Brexit on dairy farming. Indeed we know nothing more about the impact on farming in general.  A whole host of conjecture in the form of reports, articles and conferences have been produced but the truth of the matter is that we have few tangible facts to go on.  We have even had our national farming press editors demanding to know the answers immediately. This I’m afraid is a little delusional in relation to the relative importance of UK farming in the Brexit negotiations.

I doubt whether we will know much more for at least another year and probably two.  It brings back memories of dairy farmers altering their businesses for what might happen to milk quotas on several occasions throughout their 30-year life.  My experience is that it is always best to manage a farming business for known facts, not “ifs, buts and maybes”. Second-guessing policymakers is essentially a form of gambling. It is,  therefore, down to luck as to whether it makes you more or less money.

The impact of Brexit on Dairy Farming

 

The impact of Brexit on Dairy Farming can be seen through three and a bit fundamentals.

  1. The price of what is produced.

 

  1. The costs of producing it.

 

  1. The availability of labour.

 

  1. Farming subsidies (the “bit”).

Back to basic economics. The price of milk will be impacted by supply and demand of dairy products on a global level for all producers that do not sell wholly into the UK fresh liquid market.  Brexit will have no impact on world supply and demand for dairy products.

After supply and demand, exchange rates will be the next major impact.  For example, all the products we produce from farming in this country are produced by member countries of the Euro currency group.  If the pound devalues against the Euro, our exports become more competitive. Conversely imports of food into this country become more expensive – thus improving domestic prices.

It would probably be dangerous to rely on a long-term weaker pound to improve UK farm prices. The costs of farming are sadly impacted the wrong way in that the devalued pound causes imported goods (protein feed, oil, machinery) to be more expensive.

More and more of the UK farming workforce consists of immigrant EU labour that generally does an excellent job.  Many farms would simply not operate if we lost access to these willing and able workers.  It would be one of the greatest Brexit challenges to manage if this resource was restricted.

Subsidies

Then comes “the bit” – subsidies.  I think it safe to assume that the Basic Payment Scheme will disappear at the first possible opportunity. This could be 2022  (if this parliament lasts the distance). I would recommend that any lowland farmer prepares for that eventuality. This is, perhaps this is one of the impacts of Brexit on dairy farming it is safe to account for.   Michael Gove has made it clear that he wants future subsidies to be almost entirely directed to environmental impact, not commercial farming.

The importance of subsidies was overplayed in the pre-Brexit debate in that it is not just the subsidies, it is the much wider political influence that farmers and farming have in the EU compared to the UK.  For many years, UK farmers have benefitted from the lobbying influence of EU farmers in diluting the far less supportive stance repeatedly taken by UK governments towards our farmers.  This will be the real (albeit intangible) loss for UK farming after Brexit.

Food security or cheaper food?

Of course, if the UK government did protect UK farmers from the threat of cheaper, potentially lower quality food imports produced with the benefit of significant subsidies then we could as a result probably live without the Basic Farm Payment.  My fear is that we will end up with no protection from such imports and no subsidies. Cheap food in the UK will remain the preferred strategic objective over the security of food supply and support of domestic production.

This does appear to be quite a morose picture for UK farming but of course, nothing has been decided.  I was comforted on a client’s farm (500 dairy cows) recently when we worked out that if the exchange rate impact was sustained and fully translated into milk price then income would improve by £95,000. As the Basic Farm Payment was £60,000  there could be a net benefit of £35,000.

 

My hope list for UK dairy farming post Brexit:

 

  1. Continued full access to all EU markets and more non-EU markets for all our products.

 

  1. A long-term devalued pound.

 

  1. Transparent pricing for what our farms produce to fully reflect market forces and exchange rate movements.

 

  1. Continued access to EU immigrant labour.

 

  1. A UK government that recognises and steers policy away from the dangers to UK farming of removing subsidies, while contemporaneously making our farmers compete on a different playing field for the same markets and the same products.

 

Time will tell what the impact of Brexit on dairy farming will be. The safety message is to make decisions based on what you currently know about, what may or may not happen.

 

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