The proposed post-Brexit phasing out of direct support payments over a seven-year transitional period means farmers need to start considering now how they can build resilience into their businesses, delegates at this week’s Northern Farming Conference heard.
Much of the industry’s future prospects are entwined with what post-Brexit trade arrangements are put in place and without a withdrawal deal between Britain and the EU by the end of May next year – which will render Britain a ‘third country’ outside of the Single Market – the industry is likely to get smaller, farmers were told.
About 200 people attended the conference in Hexham on Wednesday where Tom Hind, chief strategy officer at the Agriculture and Horticulture Development Board, was among the speakers.
Mr Hind said: “Under a withdrawal deal we will see restructuring, we will see the industry consolidate as it adapts to that environment where we see that elimination of direct payments over time, but the indications are that we will still see an industry that is fit for the future in the long run.”
But, he warned: “Under a no-deal scenario, we are probably looking at a smaller industry, that becomes a bit more niche and a bit more focused.”
Neil Wilson, head of agriculture at HSBC, said it was important to start giving some thought now to how farms can position themselves to be profitable, whatever the future holds.
“I think traditional models will find themselves under real pressure and I think there will undoubtedly be further consolidation.
“Start thinking about alternative strategies and other things that your business can do and planning, whether that’s scenario planning or longer-term strategic planning about succession and other things you can do as a business. The best businesses are doing that all the time and are measuring it,” Mr Wilson said.
He outlined how reductions in farm payments could affect farm incomes post-Brexit.
A middle-performing, 650-hectare combinable crops farm would only just break if direct support fell by 53 per cent, a 250-cow dairy farm would break even if both direct support was removed altogether and the milk price dropped by 2p per litre, while an upland farm would break even if payments were cut by a third.
Mr Wilson said becoming a “high performing” business is the best way to protect a farm’s future.
“Whatever (post-Brexit) situation we end up in, those businesses that are already high performing will still maintain that position.”
The highest performing farm businesses, as HSBC sees it he said, are those that have low production costs, cope with volatility but take some risks, and retain cash so that they can take advantage of market opportunities as they arise.
He added: “If you are looking at your own business, start to think about benchmarking.
“For all the challenges, unknowns and uncertainty that’s out there, one thing we can all look at from our own business perspective is, is my business in a great position to move forward?”
Mr Hind said the AHDB levy board was striving to help the industry make sense of Brexit.
“We are confident that to the best of our ability we can do what we can to help the industry to navigate a path through whatever Brexit scenario. If it’s a deal scenario then the industry will have to adapt to an environment without direct income support. It may well for some producers mean more of a push towards public goods than the market place.
“If it’s a no-deal situation, part of it may well be managed transition but it will also be focussing on diversifying our exclusion and risk to the European market which is where we are fundamentally exposed from an export point of view – 97 per cent of exports per volume go to Europe in terms of lamb and of that about 55 per cent goes to France so it’s a real issue for us.”
Mr Hind added: “There is a period of time in which the industry can prepare, using that time wisely to put businesses in the state where they can cope with that phasing out and elimination of direct payments is absolutely pivotal because when we look at averages across the industry there are still a significant number of farming businesses across the key sectors that are heavily dependent, if not entirely dependent on direct support for profit.”
Allan Buckwell, policy director at the Country Land and Business Association, who also gave a speech at the conference, said consumer changes and adapting farm businesses to better tackle climate change are bigger threats to the industry than Brexit in the long run.
The Government’s future plans include paying farmers for the delivery of “public goods”.
And with the ongoing value of those payments depending on the Government, the farming industry has a battle ahead to ensure levels of support are appropriate, according to Mr Buckwell.
He said: “The biggest challenges we need to focus on is farmers and green NGOs to make the case for long-running support through these public goods, of course defining them as wide as possible, and being constructive in making the case for the scale to which this can grow.”