For those of us old enough to remember that British applications to join the European Economic Community (EEC) were rejected during the 1960s, the outcome of the 2016 referendum feels like a surreal sort of role reversal. Until this week, no member state has chosen to withdraw during more than four decades as the ‘European project’ expanded to encompass 28 countries, with others in line for consideration.
When membership applications from the UK, Ireland and Denmark were eventually accepted and ‘accession’ to the EEC occurred on 1 January 1973, the ‘Common Market’ expanded from six to nine member states.
Pig farm cull
It was the beginning of the end of a relatively large pig farming business on the Campbell family farm in Co Down. Like other such enterprises in Northern Ireland (NI), it had been built up on grain and soya shipped into Belfast port from North America as cheaply as into any other part of the UK or Ireland. But pig production here didn’t appear to be a good option under the protected high-priced cereals regime of the EEC, which imposed tariffs on imported grain.
Plenty of pig farmers took the same view. The sow herd in NI dropped from 112,000 in 1973 to just over 70,000 in 1974. That was a huge and swift reaction by farmers in a sector that has always been more exposed to ‘the market’ than beef, sheep or dairy farming. It prompts me to wonder if there could be similar ‘seismic shifts’ in the fortunes for some of our farming enterprises if or when the UK cuts its ties with the European Union.
I say ‘if’ the ties are severed because in the immediate aftermath of the ‘Brexit’ vote, no-one knows what the extent of future ties will be.
Don’t panic
The immediate advice must be – don’t panic! The first effects of the ‘Brexit’ vote are almost certainly positive for prices of farm produce in Northern Ireland in terms of sterling pounds if the dramatic 24 June weakening of the sterling exchange rate holds. Improved prices should be seen first in the markets for finished lambs and can spread to other sectors at varying rates depending on how long the period of weak sterling lasts.
This isn’t anything new. Since December 2008, the euro has been valued at figures above 97p and below 70p, with the exchange rate for most of 2009 hovering between 85 and 95p. This delivered a boost to prices for farm produce and the Single Farm Payment in sterling terms. As I write this shortly after the Brexit vote, we are nowhere near that sort of extreme.
No one can say for sure what the exchange rate will be but we do know that it is one of the biggest factors affecting farm incomes. It affects the prices obtainable for farm products, the costs of all sorts of farm inputs and the returns available from various EU support schemes such as intervention buying and basic payments.
EU supports remain in place
These EU supports remain in place for the time being. Negotiation of the UK exit from the European Union will take some considerable time – perhaps more than the two years that have been suggested in the run-up to the referendum. If sterling remains weak relative to the euro through the month of September 2016, this year’s Basic Payments will be higher than they might have been following a ‘remain’ vote.
But no-one can be sure that the euro will hold up or what the euro-sterling rate will be. That was the case before the referendum too, so we continue in blissful ignorance of what currency markets, including speculative trading, might bring.
Apart from the currency, there are many other unknowns after 2018. We don’t know what the exit terms will be or the future trade deals that the UK will negotiate. We don’t know how long it will take to settle trade deals, what the export/import quotas or tariffs will be (if any) nor do we know the animal health and other conditions that may be attached to trading.
I am sure that there will be increased regulation of anti-microbial medicines and additional moves on environmental protection
I feel confident in predicting that the regulations on animal identification and movement, use of medicines and keeping of records, veterinary inspections of meat and all sorts of farm inspections and environmental conditions won’t be reduced as a result of the Brexit decision. In fact, I am sure that there will be increased regulation of anti-microbial medicines and additional moves on environmental protection.
The UK has a track record of ‘gold-plating’ regulations, while the word put about was that these regulations had been ‘imposed’ by the EU. The UK government won’t change its attitude to the policing of its own regulations, the vast majority of which will be international regulations related to trade in food products. We might even continue to hear the blame directed at ‘Brussels’ if the regulations are part of the requirement to gain access to EU markets!
Cheap food policy
The key issues for farmers in Northern Ireland and elsewhere in the UK will be the extent to which the British government wishes to operate a ‘cheap food’ policy and the extent of any official policy to ensure ‘security of supply’ from home produced sources. Past experience suggests that Conservative Party governments are likely to expose farming to a more brutal market-related policy of ‘devil take the hindmost’ but Labour is more likely to listen to well-argued cases to support and sustain farm businesses and rural areas.
The EU, with its much smaller farm size than the UK average, has been regarded as more socialist in outlook than the UK. But I learned a long time ago, in my first encounter with a German Secretary for Agriculture, that it is not the case that the EU wants to keep farmers in business but more that they want the average farm size to increase and the number of farmers to reduce ‘at a politically acceptable rate’ (a direct quote). That has been the policy for many decades, so far as I can see.
There are many examples where the farming sector has been a pawn in the bigger political game
It’s not long since the UK government was happily professing that Britain could import all of its food requirements while selling goods and services to other parts of the world. There are many examples where the farming sector has been a pawn in the bigger political game, such as happened with the pig sector in NI at the time the UK joined the EEC.
Advantages to some economically important sectors through a bilateral deal with the USA, outside or alongside a Trans-Atlantic Trade and Investment Partnership (TTIP), won’t necessarily see disadvantages for UK farming as an impediment to agreeing a deal. An opening of opportunities to sell financial services to the Mercusor Group of countries in South America in return for the opening of the British market to South American beef could put serious pressure on the beef sector here. The food exporters of New Zealand and Australia will be welcomed.
What farm supports for the UK outside the EU?
But there will be a case to sustain beef and other sectors of farming at some level within the UK. Before entry to the EEC, the UK supported farmers by a system of ‘deficiency payments’ that at least partly made up for the prices of farm produce being below the cost of production. Something similar could return but it won’t be set at levels to maintain inefficient farming.
More recently, the notion of ‘sustainable intensification’ of food production has gained traction as a means of ensuring that a reasonable portion of the food to be consumed in the UK should be produced in the UK. And the drive to promote products with a ‘local’ label or a ‘Red Tractor’ British farm-assured identity hasat least opened opportunities for produce from farms in Northern Ireland to be sold in the British market of near 60 million consumers. Labelling and ‘traceability’ could be powerful tools in a market where a proportion of consumers value attributes other than the lowest available price for food.
Looking back over the decades, I can recall tremendous ups and downs in different farm enterprises
The years since 1973 have seen much change within ‘the European project’ and in the fortunes for agriculture within Ireland, North and South. Looking back over the decades, I can recall tremendous ups and downs in different farm enterprises – beginning with those pig farms back in 1973. And while pig farming looked like it might disappear, the very best producers have survived and prospered.
The same applied to egg production, while Moy Park’s vertically integrated business in poultry meat bucked the trend. Ironically, the latter company is one that was strongly in favour of remaining within the EU as mainland Europe is a key market for tariff-free sales of the ‘brown meat’ and employees from other parts of the EU are a major part of the Moy Park workforce. Being the European headquarters of their South American parent business JBS, they will be keenly interested in the exit negotiations.
Political decisions and volatility
The swings in fortune have often been related to world market conditions of supply and demand, where volatility has always been present. But the ups and downs have also had clear links to political decisions in many cases.
Until the weakening of EU intervention supports following the McSharry reforms in the 1990s, the European price support systems tended to smooth out that volatility. When world price surges co-incided with the new support systems introduced by McSharry, fortunes were made such as by the ‘grain barons’ of the EU including the UK.
More recently, the political decision by the EU to impose sanctions on Russia in relation its activities in the Ukraine is an example, with the knock-on effects of Russian import ban hitting sales of hundreds of thousands of tonnes of pigmeat and dairy products from the EU to Russia.
Closer to home, political decisions have created opportunities such as the French market opening up for Irish lamb, which included lamb from North of the Border, while UK lamb was excluded from that market and the sector enjoyed direct support through a sheep premium payment.
Unintended consequences
The ‘transition period’ to full EEC membership over the period from 1973 to 1978 turned out to be an amazingly good time for farming in Northern Ireland, largely due to prices being stepped up each year of the transition but also related to currency. There were unintended consequences when the Republic of Ireland, for good reasons, took a historic decision to end the exchange rate parity between the Irish punt and the pound sterling. With the farm price support system operating intervention prices at ‘green’ exchange rates, the policy in the Republic was to keep green rates at the actual value of the punt, while the radically different UK policy was to maintain green rates at a level that kept food prices down.
A system of monetary compensatory amounts (MCAs) applied at the border, the aim being to ensure that products going (legally) into the Republic incurred a levy and products coming from the Republic qualified for a compensatory payment as they were being exported into a lower priced region of the EEC. By some means or other, grain and pigs and cattle were transported from North to South of the Irish Border along unapproved roads but similar lorry loads being brought from South to North managed to obtain all of the paperwork necessary for the MCA payments to be claimed on them.
Often it was the same lorry load going across in different directions at differing times of the day, and sometimes more than once per day – the so-called grain carousel. But the traffic in cattle and pigs going south, without incurring the MCA levy, was such that it was hitting throughput in slaughter plants in NI.
While the UK declined to allow its green exchange rates to be moved in a way that would increase prices and put a stop to the abuse of the MCA system, the ‘direct rule’ government in Northern Ireland introduced a ‘Meat Industry Employment Scheme’ which paid a direct subsidy on all cattle and pigs slaughtered in NI. That subsidy was paid directly to the farmers, providing prices as good as the ones available in the South while Northern farming had the additional benefit of inputs at lower prices in sterling terms. Suddenly there were happy days for those who stayed in pig farming then in NI.
Read more
Full coverage: Brexit
For those of us old enough to remember that British applications to join the European Economic Community (EEC) were rejected during the 1960s, the outcome of the 2016 referendum feels like a surreal sort of role reversal. Until this week, no member state has chosen to withdraw during more than four decades as the ‘European project’ expanded to encompass 28 countries, with others in line for consideration.
When membership applications from the UK, Ireland and Denmark were eventually accepted and ‘accession’ to the EEC occurred on 1 January 1973, the ‘Common Market’ expanded from six to nine member states.
Pig farm cull
It was the beginning of the end of a relatively large pig farming business on the Campbell family farm in Co Down. Like other such enterprises in Northern Ireland (NI), it had been built up on grain and soya shipped into Belfast port from North America as cheaply as into any other part of the UK or Ireland. But pig production here didn’t appear to be a good option under the protected high-priced cereals regime of the EEC, which imposed tariffs on imported grain.
Plenty of pig farmers took the same view. The sow herd in NI dropped from 112,000 in 1973 to just over 70,000 in 1974. That was a huge and swift reaction by farmers in a sector that has always been more exposed to ‘the market’ than beef, sheep or dairy farming. It prompts me to wonder if there could be similar ‘seismic shifts’ in the fortunes for some of our farming enterprises if or when the UK cuts its ties with the European Union.
I say ‘if’ the ties are severed because in the immediate aftermath of the ‘Brexit’ vote, no-one knows what the extent of future ties will be.
Don’t panic
The immediate advice must be – don’t panic! The first effects of the ‘Brexit’ vote are almost certainly positive for prices of farm produce in Northern Ireland in terms of sterling pounds if the dramatic 24 June weakening of the sterling exchange rate holds. Improved prices should be seen first in the markets for finished lambs and can spread to other sectors at varying rates depending on how long the period of weak sterling lasts.
This isn’t anything new. Since December 2008, the euro has been valued at figures above 97p and below 70p, with the exchange rate for most of 2009 hovering between 85 and 95p. This delivered a boost to prices for farm produce and the Single Farm Payment in sterling terms. As I write this shortly after the Brexit vote, we are nowhere near that sort of extreme.
No one can say for sure what the exchange rate will be but we do know that it is one of the biggest factors affecting farm incomes. It affects the prices obtainable for farm products, the costs of all sorts of farm inputs and the returns available from various EU support schemes such as intervention buying and basic payments.
EU supports remain in place
These EU supports remain in place for the time being. Negotiation of the UK exit from the European Union will take some considerable time – perhaps more than the two years that have been suggested in the run-up to the referendum. If sterling remains weak relative to the euro through the month of September 2016, this year’s Basic Payments will be higher than they might have been following a ‘remain’ vote.
But no-one can be sure that the euro will hold up or what the euro-sterling rate will be. That was the case before the referendum too, so we continue in blissful ignorance of what currency markets, including speculative trading, might bring.
Apart from the currency, there are many other unknowns after 2018. We don’t know what the exit terms will be or the future trade deals that the UK will negotiate. We don’t know how long it will take to settle trade deals, what the export/import quotas or tariffs will be (if any) nor do we know the animal health and other conditions that may be attached to trading.
I am sure that there will be increased regulation of anti-microbial medicines and additional moves on environmental protection
I feel confident in predicting that the regulations on animal identification and movement, use of medicines and keeping of records, veterinary inspections of meat and all sorts of farm inspections and environmental conditions won’t be reduced as a result of the Brexit decision. In fact, I am sure that there will be increased regulation of anti-microbial medicines and additional moves on environmental protection.
The UK has a track record of ‘gold-plating’ regulations, while the word put about was that these regulations had been ‘imposed’ by the EU. The UK government won’t change its attitude to the policing of its own regulations, the vast majority of which will be international regulations related to trade in food products. We might even continue to hear the blame directed at ‘Brussels’ if the regulations are part of the requirement to gain access to EU markets!
Cheap food policy
The key issues for farmers in Northern Ireland and elsewhere in the UK will be the extent to which the British government wishes to operate a ‘cheap food’ policy and the extent of any official policy to ensure ‘security of supply’ from home produced sources. Past experience suggests that Conservative Party governments are likely to expose farming to a more brutal market-related policy of ‘devil take the hindmost’ but Labour is more likely to listen to well-argued cases to support and sustain farm businesses and rural areas.
The EU, with its much smaller farm size than the UK average, has been regarded as more socialist in outlook than the UK. But I learned a long time ago, in my first encounter with a German Secretary for Agriculture, that it is not the case that the EU wants to keep farmers in business but more that they want the average farm size to increase and the number of farmers to reduce ‘at a politically acceptable rate’ (a direct quote). That has been the policy for many decades, so far as I can see.
There are many examples where the farming sector has been a pawn in the bigger political game
It’s not long since the UK government was happily professing that Britain could import all of its food requirements while selling goods and services to other parts of the world. There are many examples where the farming sector has been a pawn in the bigger political game, such as happened with the pig sector in NI at the time the UK joined the EEC.
Advantages to some economically important sectors through a bilateral deal with the USA, outside or alongside a Trans-Atlantic Trade and Investment Partnership (TTIP), won’t necessarily see disadvantages for UK farming as an impediment to agreeing a deal. An opening of opportunities to sell financial services to the Mercusor Group of countries in South America in return for the opening of the British market to South American beef could put serious pressure on the beef sector here. The food exporters of New Zealand and Australia will be welcomed.
What farm supports for the UK outside the EU?
But there will be a case to sustain beef and other sectors of farming at some level within the UK. Before entry to the EEC, the UK supported farmers by a system of ‘deficiency payments’ that at least partly made up for the prices of farm produce being below the cost of production. Something similar could return but it won’t be set at levels to maintain inefficient farming.
More recently, the notion of ‘sustainable intensification’ of food production has gained traction as a means of ensuring that a reasonable portion of the food to be consumed in the UK should be produced in the UK. And the drive to promote products with a ‘local’ label or a ‘Red Tractor’ British farm-assured identity hasat least opened opportunities for produce from farms in Northern Ireland to be sold in the British market of near 60 million consumers. Labelling and ‘traceability’ could be powerful tools in a market where a proportion of consumers value attributes other than the lowest available price for food.
Looking back over the decades, I can recall tremendous ups and downs in different farm enterprises
The years since 1973 have seen much change within ‘the European project’ and in the fortunes for agriculture within Ireland, North and South. Looking back over the decades, I can recall tremendous ups and downs in different farm enterprises – beginning with those pig farms back in 1973. And while pig farming looked like it might disappear, the very best producers have survived and prospered.
The same applied to egg production, while Moy Park’s vertically integrated business in poultry meat bucked the trend. Ironically, the latter company is one that was strongly in favour of remaining within the EU as mainland Europe is a key market for tariff-free sales of the ‘brown meat’ and employees from other parts of the EU are a major part of the Moy Park workforce. Being the European headquarters of their South American parent business JBS, they will be keenly interested in the exit negotiations.
Political decisions and volatility
The swings in fortune have often been related to world market conditions of supply and demand, where volatility has always been present. But the ups and downs have also had clear links to political decisions in many cases.
Until the weakening of EU intervention supports following the McSharry reforms in the 1990s, the European price support systems tended to smooth out that volatility. When world price surges co-incided with the new support systems introduced by McSharry, fortunes were made such as by the ‘grain barons’ of the EU including the UK.
More recently, the political decision by the EU to impose sanctions on Russia in relation its activities in the Ukraine is an example, with the knock-on effects of Russian import ban hitting sales of hundreds of thousands of tonnes of pigmeat and dairy products from the EU to Russia.
Closer to home, political decisions have created opportunities such as the French market opening up for Irish lamb, which included lamb from North of the Border, while UK lamb was excluded from that market and the sector enjoyed direct support through a sheep premium payment.
Unintended consequences
The ‘transition period’ to full EEC membership over the period from 1973 to 1978 turned out to be an amazingly good time for farming in Northern Ireland, largely due to prices being stepped up each year of the transition but also related to currency. There were unintended consequences when the Republic of Ireland, for good reasons, took a historic decision to end the exchange rate parity between the Irish punt and the pound sterling. With the farm price support system operating intervention prices at ‘green’ exchange rates, the policy in the Republic was to keep green rates at the actual value of the punt, while the radically different UK policy was to maintain green rates at a level that kept food prices down.
A system of monetary compensatory amounts (MCAs) applied at the border, the aim being to ensure that products going (legally) into the Republic incurred a levy and products coming from the Republic qualified for a compensatory payment as they were being exported into a lower priced region of the EEC. By some means or other, grain and pigs and cattle were transported from North to South of the Irish Border along unapproved roads but similar lorry loads being brought from South to North managed to obtain all of the paperwork necessary for the MCA payments to be claimed on them.
Often it was the same lorry load going across in different directions at differing times of the day, and sometimes more than once per day – the so-called grain carousel. But the traffic in cattle and pigs going south, without incurring the MCA levy, was such that it was hitting throughput in slaughter plants in NI.
While the UK declined to allow its green exchange rates to be moved in a way that would increase prices and put a stop to the abuse of the MCA system, the ‘direct rule’ government in Northern Ireland introduced a ‘Meat Industry Employment Scheme’ which paid a direct subsidy on all cattle and pigs slaughtered in NI. That subsidy was paid directly to the farmers, providing prices as good as the ones available in the South while Northern farming had the additional benefit of inputs at lower prices in sterling terms. Suddenly there were happy days for those who stayed in pig farming then in NI.
Read more
Full coverage: Brexit
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