Brexit - what’s on the horizon for the Rural Sector?

  • Insight

11 January 2019

What are the main Brexit concerns and opportunities for Scotland’s farms and rural estates? Farmers unions have welcomed the progress made on reaching a deal. However, certainty is in short supply as we await the next stages of the parliamentary process for the UK Government’s Withdrawal Agreement.

On the assumption that the UK leaves the EU, we’ve considered the possible impact on some key areas for the Rural Sector:

• Market barriers
• Farm support
• Migrant labour
• Regulation

Market barriers for UK land and farms

Leaving the single market will introduce trade barriers for agricultural commodities and exports by our farms and rural estates. It will also bring existing barriers with other markets into sharper focus.

Around two-thirds of the agricultural exports and imports across the UK go to or come from the EU. Within this total Scotland is less reliant on EU trade, but it still plays a significant part. There will be opportunities for domestic consumption of domestic produce to increase, but not without some imbalance.

As well as possible trade tariffs presenting a market barrier, any future differences between EU and UK regulations will present non-tariff barriers (such as labelling, border checks, and quotas). Frictionless trade and the efficient movement of goods are crucial business factors for the Rural Sector, which we talk about in more detail in our article just-in-time to prepare for Brexit.

Farm support and the Common Agricultural Policy

We know that the existing model of payments, under the Common Agricultural Policy, is to continue until the end of the current UK Parliament in 2022.

The Agriculture Bill, currently going through the House of Commons, gives a sense of the direction of travel for England. Similar powers have been granted to Welsh Ministers, with the finer details expected to be given in future legislation. Currently, there is no conferral of powers on Scottish Ministers because they have not yet reached agreement with the UK Government.

The new Bill moves the underlying priorities towards environmental protection and the concept of ‘public goods’ (such as clean water, clean air, productivity, and public access). Direct payments in England will be phased out over seven years from 2021, with no direct payments after 2027.

The Bill includes powers to phase out the Basic Payment Scheme and to ‘de-link’ payments from the requirement to farm. There is also provision to make de-linked payments as a lump sum. This means they could be used for diversification or retirement, for example, but any eligibility requirements are, of course, not yet known.

To what extent this approach will be followed in Scotland remains to be seen. But protection of the environment, conservation and public goods are likely to feature in the Scottish plan as well.

The Scottish Affairs Committee has launched the future of Scottish agriculture post-Brexit inquiry. This seeks to investigate the funding requirements for Scotland’s agricultural sector post-Brexit, amongst other key issues. As a leading Scottish law firm specialising in the Rural Sector, we will be responding via the Law Society of Scotland.

What we can say for now is that eventually the overall budget is expected to reduce. Rural businesses will need to adapt to make the most of payments available in the future, which will likely entail some degree of transformation towards provision of public goods. A positive consequence of this may be that payments are available for areas of land previously excluded, such as forestry.

Migrant labour

EU workers play a significant role in Scotland’s labour market, particularly in farm jobs and the production of vegetables and soft fruits.

However, following the Brexit referendum, the pound weakened making the UK less attractive to EU workers. For this and other reasons, the number of migrant workers from the EU reduced. The reduction has been partly met by an increase in non-EU migrant workers but there is still a deficit. If the pound weakens further after Brexit, this deficit could increase.

Another variable is the nature of immigration rules, which could improve or worsen the problem, although they cannot compensate for an unattractive exchange rate. Our article Immigration – are we Brexit ready? gives a useful insight into the issues surrounding immigration and the new settlement scheme.

Issues surrounding rising costs and short supply of labour can be solved partly by mechanisation, but this is to some extent reliant on economies of scale and also on the appropriate technology actually existing. Mechanisation currently cannot fix all problems arising from changes to the availability of labour from the EU.

Regulation

Changes to domestic law, moving it away from EU law, are not expected in the short-term. If a Brexit deal is reached, the UK has agreed to be bound by EU rules until the end of 2020 (although there is some flexibility regarding domestic agricultural policy). This also means that any changes to EU regulation would have to be matched by domestic legislation.

In the event of no deal, the legislative preparation that is being done is designed effectively to keep EU law in force in the first instance.

Post-Brexit, the UK may seek to access new markets outside the EU (as a member of the World Trade Organisation). This could entail changes in regulatory standards, which may have a further impact on our trade relationship with the EU. If the regulatory changes were perceived as a reduction in standards, there could be a negative effect on domestic market confidence.

We’ll continue to track these issues and others as they develop for our Rural Sector. You can sign up to receive our Brexit updates here.