Category: Policy & Business

Ex-WTO Chief Weighs in on Brexit

Pascal Lamy, the former Director-General of the WTO, spoke at a couple of Brexit-related events in Dublin recently and made several noteworthy points on Brexit and the Irish border issue.

Overall, he believes that idea that there will be a frictionless border between Northern Ireland and the Irish Republic when Britain leaves the European Union (EU) is ‘fairy-tale’. He stated (in the context of the UK being outside of the Single Market and Customs Union) that ‘no border is simply impossible’ as borders are necessary to check and police, primarily due to Country of Origin rules.

He went on to say that in terms of border solutions, there was no good solution and that the negotiating parties will have to choose the least disruptive solution.  Controversially, he opined that ‘putting a border between the North and South (of Ireland) is not the least disruptive and that ‘putting a border around the island with the UK is probably less disruptive’.  Whilst he acknowledged that this might be difficult with the parliamentary situation in Westminster, he urged some form of special status for Northern Ireland.  At an earlier Brexit-related event, he noted that the only condition to becoming a WTO member is to be an Autonomous Customs Territory, such as Chinese Taipei and Hong Kong, and reading between the lines one might think that he was thinking of something similar for Northern Ireland. 

Perspectives such as this will go down like a lead balloon with the DUP and other stakeholders within Northern Ireland, as they are keen to avoid any trade barriers with GB, which after all is Northern Ireland’s biggest market, accounting for more than 70% of beef and sheep meat exports alone.

Mr Lamy also expressed concern about the amount of negotiating time which had passed and the limited amount of solutions that have been agreed upon thus far.  He outlined three scenarios, each with an equal likelihood of emerging as the eventual outcome: a ‘soft and long’ exit based on a deal; a ‘hard and short’ exit based on no deal, and no exit.

In his view, a soft and long exit, pursuant to a free trade agreement, would take 5 years to negotiate and 5 years to implement.  It would involve zero tariffs, although in certain areas, such as in relation to agricultural payments, difficulties might arise.  He also mentioned that regulatory standard equivalence will be the hardest area to address.

Given his previous experience as effectively the Head of the WTO, Mr. Lamy’s views carry weight, although being French, some will also think that his comments are unsurprisingly pessimistic. Time will tell on this front, but it is becoming apparent that the Brexit-related negotiations with the EU (and increasingly other WTO Members as well) will not be the ‘easiest negotiations in history’. Instead, the arduous process has only just begun.

LAMMA Move

The LAMMA farm machinery show will be moving to the NEC in Birmingham from 2019.  The upcoming event in January will therefore be the last at the current East of England Showground site.  The organisers of the LAMMA state that moving the show inside will make the event more professional.  Perhaps learning from the example of the Dairy Event moving to the NEC, other aspects of LAMMA will be kept the same – it will still happen in January (8th and 9th Jan2019) and will be free to enter.  LAMMA 2018 is taking place on the 17th and 18th January 2018.

Rise in Farm Business Incomes

Revised figures from DEFRA show an improvement in profitability across most sectors in 2016/17.  Taken from the Farm Business Survey, they show the Farm Business Income (FBI) for various standard farm types.  FBI can be thought of as equivalent to the ‘Net Profit’ measure widely used in accountancy.  These results relate to England and update the provisional ones released earlier in the year (see March article).  The FBS works on February/March year ends so the period being reported covers harvest 2016 and the 2016 BPS.  The full release can be found at – https://www.gov.uk/government/statistics/farm-business-income

As shown on the chart below, most sectors saw an increase in returns in 2016/17 compared to 2015/16 (the 16/17 year is the last of the multi-coloured columns).  The total height of the bar gives illustrates the overall FBI.  The only sector to buck the trend was Specialist Poultry.   Looking ahead, the figures for the current 2017/18 year (in light blue) are Andersons estimates.  These show that most sectors may are forecast to see further increases in profitability.  The first DEFRA estimates for 2017/18 will be published in February.  It can be seen that, for many sectors, profitability is well-down on the average for the five years 2008/09 to 2012/13 (the dark blue columns).

As stated above, the latest 2016/17 figures are updates of the estimates DEFRA published in February this year.  There have been relatively minor adjustments in the figures apart from two farm types.  Average Dairy farm incomes have been revised significantly upwards – from a forecast £22,500 FBI in February to £50,000 now.  Poultry incomes have gone in the other direction, down £20,000 compared to the Feb estimate.

The chart shows a breakdown of where the profit comes from for the years 2013/14 to 2016/17, based on four ‘profit centres’.  For Cereals and the two Grazing Livestock farm types it can be seen that the return from agriculture was negative in 2016/17.  It took part of the Basic Payment to return these farms to profit.  Of course, FBI is only an average for the sector.  The range in performance across farms is vast, andthe more efficient units are likely to have made a much better return than these average values show. 

FARM BUSINESS INCOME (ENGLAND), REAL TERMS 2016/17 PRICES – Source: Farm Business Survey

CAP Simplification

The EU has agreed a further package of rule changes aimed at simplifying the CAP.  Contained in the ‘Omnibus Regulation’ they were agreed by Member States on the 16th October.  They are meant to come into force for the 2018 scheme year but Member States are requesting more time for implementation and they may be delayed until 2019.  With some of the changes also being optional, it is therefore not yet clear what practical effect there may be for next year’s scheme.  Among the changes are;

  • Flexibility on how to define an ‘Active Farmer’, including making the assessment optional
  • Changes to the definition of arable and permanent pastureland
  • Adding plant varieties that can be used as EFAs (e.g. miscanthus)
  • Changing the definition of Arable and Permanent Pasture
  • Increase to the top-up for Young farmer payment from 25% to 50% of the Basic Payment entitlement

Welsh Young Farmers Scheme

The Welsh Government has announced that £6m of funding will be allocated to help young farmers.  The Young Entrants Support Scheme (YESS) ran from 2010 to 2014 and provided 50% grants up to a maximum of £15,000 for those setting up as a ‘head of holding’.  A Business Development Plan and a mentoring service were part of the scheme.  The programme is to be reinstated with £2m of funding for 2018-19 and £4m for 2019-20.  It is not yet clear whether the rules and funding levels will alter from the previous YESS, or when applications will commence.

Top Fruit Labour

A report has just been published that highlights once again how reliant the UK horticultural sector is on EU migrant labour.  It was prepared by Andersons Midlands for English Apples and Pears (EAP), a growers’ organisation.  The report outlines that the UK orchard-fruit sector currently employs around 10,300 seasonal workers each year to harvest a crop of 300,000 tonnes.  This supplies around 30% of UK requirements.  It is forecast that the seasonal labour requirement will grow to 11,500 people by 2021.  EAP is asking for a seasonal agricultural workers scheme to be put in place by autumn 2018 to ensure there is enough time to organise labour for the 2019 crop.  It is stated that waiting until March 2019 to introduce a scheme will be too late.  More details can be found via – http://www.englishapplesandpears.co.uk/pdf_word/EAP%20Andersons%20Report%20(1).pdf

Qualified ‘No’ to Brexit Trade Talks

For now, the UK and EU Brexit talks will not move on to discuss future trading relationship.  EU leaders, meeting at a Summit on the 19th and 20th October, concluded that not enough progress had been made on the ‘Exit’ issues – citizens’ rights, the Irish border and the UK’s ‘divorce bill’.  The last of these, on the financial settlement, is proving to be the most intractable.

However, after some last minute politicking, the Prime Minister, Teresa May, was able to come away from the summit with a measure of progress.  The EU-27 agreed to start ‘internal preparatory discussions’ (i.e. talking among themselves) ahead of the second phase of negotiations.  This is to provide the EU Chief Negotiator, Michel Barnier, with a further set of guidelines for the trade element of the talks.  The next Summit is on December 14th and 15th, and it is widely believed that the go-ahead to start discussing Trade will be given then.

There was hope in some quarters that discussions on the ‘transition period’ could begin, even if the formal Trade talks were delayed.  This has not happened, and the business community is getting increasingly restless to have a degree of certainty about what is to happen after March 2019.  Many large firms, especially in the City of London, are stating they have a cut-off of the end of this year due to the time it takes to relocate offices and staff.  They are threatening to begin the ‘offshoring’ process unless there is clear progress towards the transition deal. 

Agriculture White Paper

As we wrote back in our June Bulletin, an Agriculture Bill is expected as one of a number of pieces of legislation needed to enact Brexit.  Speaking before the EFRA Select Committee, the DEFRA Secretary of State, Michael Gove, indicated that this might be published in May or June before Parliament’s summer recess.  Any slippage in the timetable would see it revert to the autumn 2018 period that was originally outlined.  Ahead of the actual Bill, DEFRA is likely to produce a White Paper setting out what could be included in the legislation.  This White Paper should be available ‘early in the New Year’ according to Mr Gove.  This will provide more detail on what the scope of the Agriculture Bill will be.  At one end of the scale, it could be a very ‘technical’ piece of legislation, simply transposing current EU legislation into UK law.  At the other, more ambitious, end of the spectrum, it might aim to set out the framework for the future direction of farm support, and the industry more generally, in the post-Brexit world. 

NFU Support Proposals

The NFU of England and Wales is calling for area payments to be maintained in any new Domestic Agricultural Policy (DAP), at least in the short-to-medium term.  The Union has put forward its detailed proposals for a post-Brexit farming policy in document called ‘A Framework for Success’ (see – https://www.nfuonline.com/assets/100873).

The document builds on the framework the NFU set out in March (see https://www.nfuonline.com/assets/94690) which centred around three themes of volatility mitigation & resilience, environment, and productivity.  The balance of funding between the three is not set out in the policy document as the NFU states that this will depend on the final terms of Brexit.  The Union has previously set out that any transition to a new agricultural policy should be very gradual, with no significant change in 2019 or 2020 and the full DAP only coming in from 2023 or later.

In terms of volatility and resilience the NFU states that ‘in order to support income resilience on farms, decoupled direct payments must remain a key component of a domestic agricultural policy post Brexit’.  There is little detail on the precise rules for these direct payments, but the document suggests that Greening and Capping should not be part of the system.  Over time, the document suggests that direct payments might be phased out in favour of more targeted volatility mitigation measures.  Among the suggestions are counter-cyclical payments, revenue insurance schemes, futures markets and savings schemes.

On productivity, the NFU calls for a fairly obvious package of measures.  These include more spending on research and development, investment in training and knowledge exchange, a focus on advisory services and aid for farm investment (grants and loans).  Beyond farm policy the Government should help productivity with changes to the planning system, better broadband, tax policy (particularly investment allowances on farm infrastructure, and a benign regulatory framework.  Without being very specific the policy also states that the DAP should support structural change in the farming sector.

The environment strand proposes something that looks very much like the old Environmental Stewardship Scheme.  A lower tier would allow all farms to engage in environmental work in return for payments – much like the ELS.  A higher tier would focus on specific locations that have the most environmental potential.  Both capital and annual payments would be available.

There are elements within the proposals that it is difficult to disagree with – especially in terms of the productivity strand.  Even here though, the devil will be in the detail – how exactly are the broad ideas outlined going to be delivered.  In other areas the proposals seem backward-looking and not very radical.  Whilst it is acknowledged that a representative organisation has to take its members with it, this document does not seem like a blueprint for an innovative 21st Century industry, and appears to be a wasted opportunity to really set the agenda for a post-Brexit policy.