In or Out? Welsh farming's case for and against Brexit
At the outset of the referendum debate, the default position for many Welsh farmers was to vote Remain, and for good reason.
Not only is there the potential loss of direct payments, Brexit could expose UK farming to more competition from the world’s lowest cost exporters.
Yet as the debate has widened, it appears many more Welsh farmers have opened their minds to the possibilities that might exist if Britain were to leave the EU.
With prices on the floor, particularly in the dairy sector, producers are fed up and there is a feeling things couldn’t get any worse.
Free of red tape and unshackled by restrictive trade agreements, pro-Brexiteers believe hard-nosed Welsh agriculture could carve out a vibrant new future that is less dependent on state subsidy.
In Wales, the agri vote is thought to be evenly split, with many still undecided despite at least one farming union campaigning vigorously for the status quo.
Non-agricultural issues, such as immigration and sovereignty, are likely to impact the farming vote, but the FUW’s current leadership has focused on the financial arguments.
Its HQ is in Ceredigion which, according to a YouGov poll, is Britain’s most Europe-friendly county – reflecting its reliance not just on CAP payments but also EU structural funds.
For the union these are the two key issues affecting rural Wales, along with exports.
EU farm support payments are likely to decline in future years irrespective of the referendum vote
Reliance on EU farm payments
The average Welsh farmer receives around £15,000-a-year from the EU, equivalent to four-fifths of their incomes. Some analysts suspect Britain’s CAP receipts could drop from £3bn per year to as little at £1bn: Agra Europe believes Brexit would leave many UK farmers in a downward spiral of collapsing incomes and declining asset values, predicting “only the super-efficient, top 10%, could survive”.
This week the Leave campaign insisted there would be no net loss in UK farm payments. Yet the UK Government has made its position clear, favouring a more market-orientated policy to prepare farmers for a future without support.
Loss of EU cash may also prompt the UK and Welsh Governments to place more emphasis on the on-farm delivery of “public goods”, such as carbon capture and water management, to justify future payments.
Skewing the picture has been Cardiff’s decision to move EU money “up hill”, both through its revised direct payments regime and via maximum modulation, which supports agri-environment policies through the Rural Development Programme.
Will this be enough to drive a sector divide, with the “productive” lowlands favouring a Brexit, and the uplands opposing it?
Whatever the case, maintenance of a sufficient budget to compensate for the loss of both Pillars of the CAP will be critical for Wales, particularly in the uplands which deliver a range of public goods as well as food.
Five chefs from Hong Kong and Macau toured Wales this spring to get an insight into Welsh Lamb production. Hybu Cig Cymru, the Welsh meat promotion body, is keen to boost exports to the Far East but Europe remains Welsh farming’s key market
Options for post-Brexit trade
The Welsh food and drink sector is heavily reliant on the EU: in 2014, sector exports were worth more than £302m, of which over 90% went across the Channel.
The same year, Wales exported 35%-40% of its sheep meat and 13%-15% of its beef. Nearly all went to the EU – the market accounted for 93% of Welsh Beef exports (£52.3m) and 92% of Welsh Lamb exports (£122m).
While processed Welsh products have a case for building their UK markets, the position is more tricky for primary produce, particularly Welsh hill lamb. Every farmer wants to sell on their doorstep but the lack of processing facilities in Wales may be a barrier for the dairy and beef sectors.
In her report, “The Impact of Brexit on Farming in Wales”, agri consultant Rhian Nowell Phillip, a former FUW policy officer, cites four options for post-Brexit trade.
- The Norwegian model: Join the European Economic Area to maintain tariff-free trading. This would mean paying about 83% as much into the EU budget as the UK currently does. It would also mean keeping current EU regulations, such as sheep EID and the Nitrates Directive – without having a seat at the negotiating table.
- The Swiss model: Negotiate bilateral deals with the EU without having to adopt EU regulations. But equivalent rules would be needed, again without representation. It would also require continued contributions to the EU budget – the Swiss pay around 40% of the UK’s current contribution.
- The Norway “light” model: Single market rules would only apply to exports to the EU.
The free trade option: Go it alone as a member of the World Trade Organisation (WTO). This would give the UK more sovereignty but farmers may have to forego some or all support to comply with WTO rules.
We’re all in it together – rural businesses highlighted their dependence on farming by gathering at John Yeomans’ Llwyn y Brain farm, Adfa, near Newtown
Short-term uplift followed by uncertainty and restructuring
The Brexit report was commissioned by William Powell when he served as the Welsh Lib Dem’s shadow rural affairs minister. Its author, Rhian Nowell Phillip, concluded: “What is clear is the volatility that Brexit would have on farming in Wales at least in the short term.
“It is likely that the pound will take an initial hit, and this could benefit farmers over the short term as export demand increases.
“Over the longer term, the effects are less clear, but it is likely that given UK government policy, domestic resources are likely to be focused on environmental programmes and making farms more efficient.
“Whether this would compensate for current EU support is unclear…. there is likely to be acceleration in the restructuring of the industry which will have its own knock-on effects on the rural economy in Wales.”
This last point is critical, as the withdrawal of subsidies and loss of exports could undermine the whole rural economy. Recent on-farm events organised by NFU Cymru and the FUW have graphically illustrated this: at one, Powys farmer John Yeomans worked out his business indirectly supported 2,347 jobs in Wales.
Two out of every five businesses in the Welsh countryside depend on its farms, each of which contribute around £100,000-a-year to the rural economy. In other words, without agriculture, the rural economy would collapse.
For rural Wales, the stakes could not be higher.
OUT: Reasons for leaving the EU
- Promised streamlining of bureaucracy and regulation. European schemes and rules are often seen as inflexible, cumbersome and, in some cases, entirely inappropriate. A classic example is the ban on the burial of fallen stock, while the introduction of sheep EID has brought cost and opposition.
- Levels of bureaucracy in the latest CAP appear to have increased whilst the value of payments is decreasing.
- Europe is often seen as stifling technological advancement in UK agriculture.
- Brexit might bring long-term economic benefits as the UK could negotiate bilateral trade deals with countries outside the EU.
- Such arrangements could also be struck with EU countries, though this may be resisted by protectionist economies such as France and Spain.
- Britain’s farmers would have more flexibility on pricing.
- Support for agri-environment schemes in Wales is likely to continue, given the Welsh Government’s support for sustainability.
- UK withdrawal from the EU is unlikely before 2020, coinciding with the end of the EU’s current budget period. This would allow farmers in Wales to discharge any RDP obligations such as Glastir, and also give the Welsh Government time to consider alternative support mechanisms.
- The next EU CAP budget is likely to be significantly reduced, mitigating the financial impact on UK farmers of foregoing EU support.
- A Brexit is likely to hit Sterling, potentially benefiting farmers over the short term as demand for exports increase.
- Short-term pain may result in a leaner, greener and more resilient farm sector in Wales.
IN: Reasons to stay in the EU
- Loss of CAP funding. No solid commitments have been made by the UK Government for a post-Brexit farm support policy.
- Loss of EU structural funds. EU figures for 2008/2009 show that Wales received £163 per head, while England received £52. Farming was a significant beneficiary of these funds. Withdrawal from the EU will leave a significant funding vacuum which the UK and Welsh Governments will have to fill to avoid certain regions and sectors losing out.
- Loss of UK’s preferential access to the European market. Currently, more than 90% of Welsh Lamb and Welsh Beef exports go to other countries in the EU. Brexit may mean EU trade tariffs, currently averaging 14%, with higher rates for dairy (36%).
- Loss of preferential access to 53 non-EU countries secured by EU trade agreements. America, China and India may also come on board with the EU soon.
- Likely loss of PGI status for Welsh Lamb and Welsh Beef, a significant selling point in overseas markets
- Leaving the EU may result in little change. In order to continue trading with the EU, contributions to the EU budget may be retained (around 83% of current levels) without a seat at the negotiating table – the so-called Norway model.
- As farm sizes in Wales are smaller than in the rest of UK in general, moves to reduce or remove farm support are likely to have a disproportionate impact on farm incomes.
- According to the the World Trade Organization, British farmers may have to forego some or all subsidy support in order to secure full free trade with the rest of the world.