The UK has finally detached from the EU, and although we avoided a No Deal Brexit, there is a different future ahead for rural and estate landowners and farmers. There is the prospect of better trading deals with the rest of the world than we have had before.
Climate change has been widely accepted as a man-made phenomenon, and our Government is heavily committed to achieving Carbon Zero by 2050. Environmental incentives are being devised by DEFRA for landowners.
Peter Snodgrass, Head of Agriculture at Shakespeare Martineau, is in conversation with Jason Beedell, Research Director of Strutt & Parker about the economic outlook, including the latest position on:
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Webinar transcript
(Please note this is auto-generated and un-edited)
0:11
Good morning. I'm Peter Snodgrass, Head of Agriculture here, Shakespeare Martineau, I welcome to today's Webinar on the impacts of Brexit on Farmers and landowners on your screen. You'll see the chat icon. And please use this to ask your questions during the webinar And we'll respond after the session.
0:29
So as all of us involved in this industry, in a farming, is in a state of flux, there are many questions about the future of farming. Some wild questions are being thrown around. Food production is under scrutiny. Where will our food come from? Natural capital, a nice phrase, but what is it and how would it translate into money, money, capital, or income?
0:52
However, the focus of this webinar is the economic impact of Brexit on the farm sector.
0:59
UK has, as we all know, finally detached from the EU. And although we avoided a no deal Brexit, there's a different future head for rural inter-state landowners and farmers. There is the prospect of Brett has better trading deals with the rest of the world and we've had before. Climate change has been widely accepted as a man-made phenomenon, and our government is heavily committed to achieving carbon 0 by 2050. Environmental incentives are being devised by defra as we speak.
1:29
I'd like to always welcome Jason Beetle, Research Director at ... Parker who joins me today to talk about these issues. Good morning, Jason. Very pleased to have you on this weapon.
1:42
Good to be here, Peter.
1:44
My name's Jason Bedel, I work in stroke and talk as research team.
1:49
I'm responsible for helping our rural team, which is about 350 people, operating in England, Scotland Wales, to keep them up to date, to help identify trends and emerging emerging thinking, and also help develop new services like natural capital accounting.
2:09
Right. So, Brexit has been dreaded, phrygia's, all, look forward to with great excitement for years, depending on your point of view. But it has happened, and we have a deal.
2:21
So, Jason, what an outline do you think has happened, because the result of this deal? Well, the good news picture is that the UK came to an agreement with the EU.
2:32
Right at the last moment, we've got a deal, and that means that we've left the single market and the customs union. And we now have what's called a trade and co-operation Agreement.
2:44
And a key element of that, which is the good news, is that there are no tariffs imposed on either sides imports and exports.
2:53
So that's good, it means no additional amounts add to the added to the price of goods.
2:58
We know that many businesses are prepared as much as they can for the change.
3:03
one of the more predictable changes was being to free movement of labor, and I think we might talk about that a bit later. And that's quite significant for our sector, because food and farming relies heavily on overseas workers, And some businesses, anticipating that fall in workers have already changed how they operate, and, and some are reported to have stopped certain operations altogether.
3:30
So, good news in terms of no tariffs.
3:34
But I think the challenge fit, a lot of people have thought about for awhile are the non tariff barriers.
3:42
And this means paperwork, or certification, or checks or processes that are required to be able to import or export goods.
3:51
And there's already a bit of evidence of disruption in some sectors, including ours.
3:58
Right, so more hassell at borders, even if they're on tariffs. And he's been particularly evident for a couple of sector so far.
4:11
Most notably the seafood sector, and they're struggling with Customs documents Export Health Certificate, and that's meant that lorries are being delayed or stopped even once they cross the channel.
4:25
So that the seafood they're exporting is being spoiled, and that's that's been a real challenge and every protest in London.
4:33
There is a support package to try and address, it, but I think it's, it's not going to be quite enough, and I think the hope is that the paperwork, barriers get resolved as soon as possible. That's the only way that the sector's going to thrive.
4:52
OK, Jason, picking up on one of the points you mentioned, which with changes to labor, regulations, and the movement of labor, because obviously that's a mainstay of being in the EU Free Movement of labor and goods. And last year, the CLI and others were calling for British workforce to make up for the shortfall in workers which were coming from abroad and that we're talking about a new land army.
5:17
And then later, I heard a representative of the CLA saying that possibly this was never going to happen because the British person is just not used to the kinds of working conditions that people have to undergo working on horticultural farms, for example. And if they have the chance of working in cost to us as a barista or working in our field, in the wind and rain, it probably go for cost.
5:44
So it does look as if foreign labor is going to continue to be an absolute requirement, or very key requirement. For many of our farm businesses, What is happening on that front? I think you're right.
5:59
And funnily enough, it was the issue that the National Farmers Union picked out is probably going to be the most significant issue for our sector.
6:09
And they said that back in 20 16, 2017.
6:15
The challenge is, I think, twofold for us.
6:18
As a sector, we've got some really excellent, permanent overseas workers.
6:25
They need to make sure that if they want to continue working here, if there's a job for them as well, that they've got settled status.
6:34
So that really needs a serious discussion now between them and their businesses and if they both want the worker to stay then they need to get that certain sectors settled.
6:49
And the second issue, which is the one that hits the press probably more, is about, um, seasonal workers. And as a sector, we we need about 150,000 seasonal agricultural workers to pick the fruit, vegetables process, as you say. There is a seasonal workers pilot scheme and there has been for a couple of years, it started very small, 2.5 thousand people.
7:20
It's grown last year It was 10000 people, It's been extended again to 30,000, but on it's not 70,000. Center is going to be a shortage and we're seeing it in some of the businesses that we advise.
7:36
We know that other businesses, already changing what they're doing to reduce their reliance on that, that workforce, and some businesses, particularly in the soft fruit sector, have decided to stop doing what they were doing.
7:54
So it's a really big issue.
7:56
Right. OK, I think that's a question for after the webinar. Maybe, if you could come back to This is, I mean, it seems like a case of common sense, being frustrated, that we need the workers. And there's very little immigration danger from such as the source scheme in just, it would be interesting to have your thoughts about whether common sense is going to prevail over what is perhaps a political, if I can use the word fostering because of the need to show that we have achieved Brexit but, you know, we don't want to cut off on this is to spite our face.
8:35
I'd hope I hope so Peter.
8:38
No Net net immigration from the EU plummeted after, the referendum in 20 16, and it went down from 200,000 people roughly a year to last year about 50,000. So it works.
8:54
It's already had one of the effects that people had hoped for if they wanted it.
9:01
So increasing that 50,000 a little bit, and as you say, you know, perhaps just issuing temporary visas for people to stay.
9:12
Should satisfy both both parties or sector and the people had hoped for lower integration due to Brexit.
9:21
Well, let's hope so. Thank you. If we can move on now to farm profitability, the government does seem quite committed to food production within the UK.
9:35
And the Agriculture Act bears that out, to some degree, and there's a whole agricultural transition plan, which the government has put forward.
9:45
Of course, The detailing, well not really detailing, but outlining how the way that the government relates and supports to the agriculture relates to and supports the agricultural. Industry is going to change over the next 7 to 8 years. And I suppose my initial question is, what is your feeling, about how profitability is going to change for farmers as a result of this agricultural transition?
10:18
I think it's really clear, and you can be definitive about it. But for most people, sadly, profits are going to fall.
10:26
And that's because during the transition, basic payments will get phased out in England.
10:32
We don't really know what Scotland or Wales are going to do, but it's probably going to be a less quick process for them. But in England, basic payments will get phased out to 0 by 2028.
10:45
And if you look at all the data, for most followers, basic payments, or a large proportion of the profits.
10:56
We have had agri environment schemes for a long time so that that's not, You will probably have something that's called something different, but it will probably do something very similar to what we've had in the past.
11:07
But the fact is that the profits you make from agri environment schemes are much lower, then the profit you make from basic payment. Basic payment is roughly 80% profit.
11:21
An agri environment scheme money is roughly 20%, 10 to 20% profit, right? So, profits are going to fall really significantly.
11:32
The modeling we've done for all sectors and across the industry as a whole, is that, for the middle, 50% of farmers, profits might fall by about 50%.
11:46
Wow! so is that from 25, in the middle section? You're talking about, you know, as regards, benchmarking, between 20 near the top.
11:57
Well, under the top quarter, but above the bottom, quarter, it's those middle ones, that, they're going to lose, around 50% of their profit. Yep, yep. That's what, That's what we think. So, that's what, we think the bottom 25% will lose about the same. What's interesting, though, is the, the top 25%.
12:19
We think profits might only drop by 10% and that's because they're much less reliant on profits from basic payments.
12:28
And then the rest of the farmers, that they make a lot of their profits from actual agricultural production, they tend to have a bit more diversification.
12:38
So that they're insulated to some degree.
12:41
Right?
12:43
Right. Sobering, Predictive statistics. That.
12:50
It is, yeah. And maybe that sort of has influenced in some ways. Another initiative or other initiatives by the government, which we'll come onto now, which are incentives, you could say for people to stop farming.
13:10
So you've got to, at the moment, which have been put forward, forward, one is a lump sum to encourage farmers to retire, quite what retire will mean. We don't know, we have to wait until 20 22 for that. And then there's a separate element. There's this deep linking proposal, isn't the app, which has to do with removing the necessity to farm or to manage the land from claiming the basic payment slightly. Confusingly they sometimes, will also talk about de, linking as enabling a lump sum to be paid. There's a one-off, rather than an ongoing claim, and so that de linking is due to start in 20 24.
13:56
And it'll, it'll introduce very interesting discussions, and, maybe, decisions amongst many of our clients, into JSON. Because I think So, yeah.
14:09
Any initial comments about I think you've got to separate the two.
14:18
The the lump sum payment is is interesting. I think.
14:22
There's going to be consultation this year with a view to it being introduced quite quickly, possibly even in 20 22. And the government ambition seems to be that it's quite a short-lived scheme, maybe only, for a couple of years.
14:39
Yeah. So, what we need, I think, is, an, it will appeal to some types of, for some types of pharma.
14:47
Those who, perhaps thinking of retirement have done the maths over the next eight years or so, and realize that their profits might not be what they have been in the past. And so, they're looking looking for an exit.
15:02
But as you, as you say, we need a lot of detail quickly.
15:06
Because if you're planning that kind of really significant change, it takes at least a year of you, you'll know as a lawyer how long it takes to work with clients.
15:16
I don't know how long you would suggest you'd recommend before making that kind of substantive change.
15:23
Well, I think the main thing, or a principal thing is just that he thought through really thoroughly. It's not done, and I'm sure that the great majority of our clients will not make this decision. That's all likely. And so, of course, until you have the details of the ski, it's difficult to plan. Because, for example, will be, all right to, for, example, stopped farming yourself. But hold the farm and, to Grant tenancies may be over the land. Would that be deemed proper retirement?
16:01
I think, just another really significant issue, which is a circle that she'll have to be squared, or vice versa, is the taxation point, because that is, at the moment, a very powerful reason, not only for farmers not selling their farms, but also, in many cases, not passing on the farm to the next generation during their lives. Because of the very favorable tax regime that we have at the moment. Now, if that favorable tax regime for farmers and all of the other business owners were to be removed, maybe that would trigger the beat, that would be a really significant element, enabling, or encouraging people to move out of the industry, if they don't really want to stay in it.
16:57
But as you and I know farming is so much, a, part of our clients way of life, it's not just to deal with the business case, is to do with the personal case, and be fully respect, that what we do, what I suppose, I would hope is that calculations, such as tax and so on. I'm not gonna get in the way of enabling our farm land to be used efficiently for production, or that would be a tremendous shade. So a fatalist that, from the agricultural perspective, that's a really important part of the jigsaw.
17:39
Yeah, I agree.
17:41
I think they need to be really clear policy objectives, if the government is going to introduce this kind of lump sum, what is the purpose, is it to, to get younger farmers involved?
17:54
So, a little bit like a retirement and entry scheme, or is it about efficiency?
17:59
Yeah, getting cotton production down, Environmental management, quality, up, in which case, you probably have very different requirements for the scheme.
18:14
Yeah, we met that clarity yet heavily from death. I don't know. We haven't got anything like that, that clarity. And I think another really interesting thing, is whether the shift is going to be in towards larger businesses, taking over the farming of farms, where there has been a retirement in quotes and new entrance, which is quite a thrust.
18:39
Certain parts of defra thinking. You know, how far that is going to be encouraged? But we wait and see. So also the final head of our webinar, Jason, regulatory changes. Could you outline your thoughts about how that the regulations are going to change now that we're out of that now that we're after the EU?
19:08
Well, this this was always one of the big wins of Brexit.
19:12
We'd be able to set our own rules, regulations, and without the constraints of, in particular, the common agricultural policy for our sector.
19:22
But, I mean, for me, this is one of the, one of the areas where there's probably least clarity.
19:30
The, the agreement with the EU many means that we've got to largely maintain equivalent, a level playing field, which I think restricts to some extent. How much change in regulation that can be. So we wait and see. But interestingly, I think the, the two first moves in farming, in terms of setting our regulations have been one to give a temporary derogation to use neonicotinoids, pesticides on sugar beet, which didn't go down very well with many conservation organizations. And there's going to be a legal challenge, frosts. Exactly, so, it depends, you know, which, which side you're bread's buttered on for farmers.
20:19
It's a very positive, strong move by defra for environmental groups who are promised the greenest government ever and leaving the environment in the best, you know, a better state than we inherited it in.
20:34
Struggling to see the logic is probably a polite way of putting it.
20:37
Yeah.
20:38
And then the second piece of I suppose deregulation is the consultation that was issued on gene editing just after Christmas.
20:48
Interesting, because there has been such a long history on this regulation in the EU.
20:56
Yeah, I know. Gene editing is, is quite different to genetic modification, although they're all questions about GM in the consultation Right. I've got to confess. a little bit of ignorance here. A great deal of ignorance here, Jason.
21:11
And then, if you'd be able to just explain what the difference between the two is, if that can be done briefly, if it can then do, leave it until afterwards, if others are interested, that it can be done briefly, versus someone who's a scientist, OK, fine. But as I understand it, gene editing isn't introducing new genes into a species, right? It could have been achieved by traditional plant breeding, but it's it's being done more quickly.
21:40
OK, and I think one of the patient is, is introducing new G, OK? So, it does seem to be quite different.
21:49
And, there are some research organizations I trust, probably more than others.
21:56
one of them is Rothamsted research, and they are, they're very, they see a lot of benefits from gene editing, which makes me feel slightly more comfortable with it.
22:06
Right, right, OK.
22:11
I think the other thing to say, picture is, um, but also after Christmas, the government built in a lot of business leaders to talk about deregulation.
22:22
Um, 250 of them, I think the prime minister addressed them.
22:28
What, what was interesting was the reaction of those business leaders, which wasn't about needing large amounts of deregulation.
22:36
It was about needing better regulation, No, regret reducing paperwork, where it's possible.
22:45
We are slowly seeing at the moment with just did this agricultural farm business leaders, or more generally is across the nation. Yeah, go on. Yeah, OK, fine. Yep. Yep. Yep, Better regulation.
23:02
Yes, exactly, And I think that kind of that makes sense for us, as well, Yeah, we do.
23:08
We've got examples of regulations that are very paperwork intensive.
23:16
You know, it feels like there are probably good ways of dealing with it, with less paperwork.
23:25
Right, well, I just don't notice that I'm in the government policy leading up to the Agricultural Act. one of the things which they said they were going to relax or remove, was the penalty system for over declaration on the countryside stewardship schemes. And they would just do it, according to you, would get the credit according to the actual area. But, there wouldn't be a penalty imposed in a negligence or fraud Misstatement, so, yeah, that's sort of a less threatening regime, Maybe a more common sense one, it was long speech deliberately being fraudulent.
24:07
Well, that doesn't it.
24:09
Yeah, yeah.
24:10
I really liked the stacey's report from a few years ago, one regulation inspection. And also providing incentives.
24:20
It made a lot of sense to me, so I was, I was really Chuffed when she got appointed as the new chair of the Office for Environmental Protection Right. Right.
24:31
If she can do what she put in that report, you know, which is, like you said, probably a lighter touch regulation that's not just about penalties, but about improvement that feels like a sensible approach to me. She's got enough people in the budget to do it.
24:49
Yes, Yeah.
24:52
Well, purse strings may be tight. So going back to your purse strings, performance of businesses, Jason, just in brief, we looked at several different areas. So laid by the economic situation regulation. If you're running your farm business, what is, what are the key things to have in mind as you steer through this quite choppy sea?
25:24
Well, I mean, it's not going to sound tremendously exciting, I'm afraid. But it works. Well, exactly. That's right.
25:34
I think, from what we see of the best phone businesses, it's really clear what they do.
25:44
And number one, people are really important, Having the right people doing the right thing.
25:52
I know.
25:52
It sounds terribly trite, but but there is no question that that's one of the main drivers of the difference in performance. And we said secondly, if at all possible, you've got to try and strive for top 25% performance.
26:11
I've already said that they're less reliant on direct payments.
26:15
They're much more resilient to volatility.
26:18
And it's not about having the best soil or the highest performing livestock. It's about people and farming up here. I think.
26:29
Right, and thirdly, I think, given the changes that we're going to have with the new environmental land management scheme, greater emphasis on public money for public goods, you've got to make sure that your environment, environmental management, is as good as your crop or your livestock management, right. Yeah, yeah. And then the vision. Yeah, yeah I think so.
26:58
And then you know, finally, what you touched on in terms of restructuring perhaps some farmers retiring, some new entrants.
27:10
I think collaboration and that doesn't just mean things like machinery sharing but it means, start off sharing, sharing ideas, it could be key to it as well and that doesn't necessarily mean really big firms.
27:27
Farming, farming, large areas, it just means using the best of what, you know, people, skills, locally, people's equipment locally, to try and farm as efficiently as possible.
27:40
And by efficiently, I mean, profits, profitably, and also environmentally.
27:46
Mmm hmm, hmm, thank you, Jason. I've recently had ..., president of the NFU doing high desert Island disks and one of the one of the questions put was getting me teaching and so on is is under is under attack, and there's a growing band.
28:12
What do you think about that minute? And in her response, she simply said, this country is a wonderful country for producing vegetables and fruit. It's a great it's a great opportunity. If vegetarians and vegans increase. Then, you know, we just need to make sure that our produce is being is is the supply. It's not coming from outside The country actually said nothing negative about meat production or as also started about vegetarianism. In the way that need it might've happened a few years ago and it's that sort of shift of focus to what is happening and going with it, which is probably going to be key to farms which make a success of their businesses.
29:00
Maybe they can look what's happening and go with it, not stick, necessarily, So, what did work in the past? But it has to change. Anyway, that that brings us to the end of this seminar, this webinar. And thank you very much, Jason, and we hope to all the who have been listening to us, Find it useful and relevant. If there is something you'd like further information on what have a specific query, do let us know, and we'll be happy to help.
29:27
Recording of this webinar will be posted on our SHMA On Demand page, on our website, along with the podcast version, which you can download. So, you can listen to your tractor. Finally, a short survey will appear on your screen after this, and we would be grateful if you could give us your feedback. Because we might be able to improve our events for the future. Thank you very much for joining us.
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