On 23 June 2016 the UK will vote in the biggest event in a generation: should the UK remain in the European Union (EU) or leave the EU?
David Cameron set out his four aims for a new agreement, namely:
- Single Market protection for the UK & Non-Euro zone.
- Exemption from an “ever closer union".
- Boosting competitiveness.
- Restrictions on in-work benefits for EU migrants.
The Prime Minister returned from his negotiations in Brussels last month with a deal, in his opinion, to keep us within the current arrangement.
The out campaigners are basing their arguments on being able to:
- Reduce red tape.
- Negotiate our own trade agreements.
- More secure borders with less benefit tourism.
- Complete control of the £18.2bn contribution to the EU.
Impact on Agriculture
But to date neither campaign has outlined how agriculture will be affected by a potential Brexit. So what are the relevant issues as far as the sector is concerned?
The obvious starting point is the subsidy. The subsidy helps to create stability across Europe and the UK currently receives £3.3bn in subsidy from the EU. So far only UKIP have declared their hand and announced that they would implement a similar system with similar funding. However there are more attractive areas that the government may look at, such as defence, border control, health and education, rather than supporting agriculture to the same extent.
Closer controls on immigration would also have a potential negative effect on farming, particularly on fruit farmers who rely on this labour market to fill a role that local people seem less inclined to undertake. How would this issue be addressed in the event of a Brexit?
In terms of trade, currently within the EU we have access to open borders with no duties imposed. In 2014 UK agriculture had exports of £19.6bn; split 61% to the EU and 39% outside the EU. The largest contribution came from the beef supply, which accounted for £400m, and broiler meat, which accounted for £353m. Incidentally, neither of these account for large subsidy receipts. The largest destination within the EU for our produce is Ireland, the only land border that the UK has with a fellow EU member.
It would appear that opinion within the UK at the moment is roughly split 50/50. However with campaigning only just starting the uncertainty in international markets is already showing. Uncertainty can create a weaker pound and currency markets have already witnessed a downward trend over the last few weeks. However, in the short term, this can create opportunities for the agricultural sector as there is a close correlation between a weak pound and improved UK farm profitability, due to cheaper commodity prices on the EU market.
So what will the UK agricultural policy look like post 23 June 2016?
If the vote is to stay “in” then little would change.
If the vote is “out” then we would have to renegotiate our relationship with Europe. Several existing relationships have already been identified as potential models on which the UK could base its negotiations, the most popular of which is the Norwegian relationship with the EU.
Norway is not a member of the EU but has access to the open market, something that sounds too good to be true. However the price of this market access is that they are required to follow many EU regulations with little influence over them and contribute to the EU financially. The Norwegian government has historically provided a safe environment for its farmers to succeed by restricting imports and imposing high tariffs on what does get imported, allowing small farmers to be competitive. However, this would depend on political will from the UK government.
Free Trade Deal
A second option could be a “Free trade Deal”. The UK already has many of these in place, negotiated with individual countries. They would provide access to the market place, but would depend on political desire from both parties and be legislatively difficult given the number that would be required. This option would allow the UK to limit the impact of EU regulations on itself.
World Trade Organisation
Finally, and the most likely option, given that the UK would only have a two year window to negotiate any deals, is that the UK would be faced with the rules set out by the World Trade Organisation, which would see subsidies restricted and some EU regulations enforceable.
Whilst, in reality, the likely outcome will be a half way house, whichever way the decision goes, hopefully as we approach the referendum both sides of the argument will clarify the situation so that the UK is able to make the right decision, whatever that is!
Many thanks to the Anderson Centre for allowing use of their statistics and graphs in this article.
Gary Brockway, Director and Agricultural Specialist, HSKS Greenhalgh. This article was first published 11 March on the HSKS Greenhalgh blog.
Farming and Rural Business Group, April 2016
The views expressed are the author’s and not ICAEW’s.
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