Brexit and the agricultural sector
Agriculture briefing: while we cannot yet know the consequences for the sector of the vote to leave the European Union, certain issues can be clearly identified
The UK electorate has voted to leave the European Union. What effect does this have on the agricultural sector? Until withdrawal, nothing changes and we remain part of the EU as previously. The future is uncertain. Questions on the procedure for, and timing of, the withdrawal process at EU level remain open. The differing political agendas of the UK and Scottish Governments add to a developing constitutional narrative. A significant factor will be the nature of the UK’s (and Scotland’s) relationship with the EU after withdrawal. But even if exact consequences cannot yet be known, issues for the agricultural sector can be identified.
The Common Agricultural Policy (“CAP”)
This applies to full members of the EU only. Therefore, whatever the relationship between the EU and the UK following withdrawal, the EU’s CAP will not apply. It is anticipated that payments under the CAP will be replaced by a domestic scheme. It is expected that the overall size of any domestic fund would be smaller than at present due to budget pressures.
The CAP includes a Basic Payment Scheme (BPS), under which direct payments are made to farmers, including a “greening”, or environmentally-conscious practices, component. This makes up around 30% of the total fund. In order to receive the payment in full, certain obligations must be met on crop diversification, maintenance of permanent grassland, and the establishment of ecological focus areas on 5% of arable land.
On one view, owing at least in part to a reduction in the size of the payments fund following withdrawal, the balance between environmental obligations and size of payment received would shift towards the former. Possibly, such a change would reduce the incentive to comply, leading to a depression in regulation. However, a significant number of Scottish farms would not be viable, in the present economic context, without Government subsidy. Therefore, for some, a reduction in the size of the carrot would correspond to an increase in the size of the stick. But the picture is yet more complex, not least because of the (unknown and disputed) effect of withdrawal on food prices, which will be affected by any trade deal negotiated, and the Government and market responses to that.
The administration of the CAP is devolved; some divergence already exists within the UK. Early predictions are that this divergence under a domestic scheme will increase post-Brexit, and that in the context of a UK which remains unified.
Assuming no inordinate delay in withdrawing, some agri-environment agreements will end after Brexit. These are contracts between a private party and the Government. As such, they will continue to be enforceable, and the UK Treasury has announced that those agreed before the Autumn Statement will be fully funded, but the content of these should be reviewed and variation to include any domestic CAP replacement considered.
Workers and trade
According to one estimate, around 65% of the full-time non-UK workers in the agricultural sector come from the EU. Temporary, seasonal workers also form a numerically and economically significant group. Movement of persons was a highly political part of the campaign.
There will be a trade-off between border control and access to the single market. In principle, Brexit will put border control back into the hands of domestic Government. However, the UK will seek to retain favourable trading terms with the EU (particularly important as around 70% of agricultural exports are destined for the EU). Current members of the EEA and EFTA, for example, are subject to EU law on free movement of persons. In practice, therefore, regaining full border control will be tempered by trade agreements.
Clearly, there would be a negative effect on the agricultural sector if availability of workers is adversely impacted.
Continued trade with the EU will also mean continued adherence to EU standards, such as relative to genetically modified organisms (GMO) and traceability of meat; but member state influence on the development of these standards will be lost for the future.
Legislation and environmental policy
The agricultural sector is affected by both regulations, which have direct effect, and directives, which must be implemented by domestic legislation. A number of EU directives concern environmental policy, such as the GMO Release Directive, the Nitrates Directive, the Waste Framework Directive, parts of the Water Framework Directive, the Birds Directive, and the Habitats Directive. In principle, the UK implementing legislation could be amended or repealed post-Brexit, but as with other areas, that power is likely to be fettered. For example, the first four of these directives would continue to apply if Brexit involves staying in the EEA. An alternative deal may well involve similar imperatives or restrictions.
In short, a complex picture emerges of influencing factors and their possible effects, the results of which will only become apparent following determination of the terms of withdrawal, both from an external and a domestic perspective.
Adèle Nicol, partner, Anderson Strathern LLP