New EU trade relationship key to farming sector

Agriculture must be ‘high on the agenda’ for any new trade relationships with the EU or elsewhere, say lawyers, who remain confident the sector will survive post-Brexit.

The prime minister, Theresa May, announced this week that the UK will leave the European single market and prioritised the negotiation of a customs agreement and tariff-free trade with the EU. She will also try to forge new trade agreements with countries outside the EU.

‘It will be vital that agriculture is high on the agenda in trade negotiations with the EU and other countries,’ Vivienne Williams, a partner and head of agriculture at Michelmores, told Solicitors Journal. ‘Farmers are very reliant either directly or indirectly on access to EU and other markets; therefore, any restriction on that access is of great concern.’

Williams said there was a strong belief among farmers that they would be able to trade successfully in the future, a view echoed by Paul Rice, a partner in the farming and estates team at Wright Hassall. ‘The reality is that the uncertainty is a worry. However the sector will survive because it always has and, after all, we all need to be fed.

‘Our view is that the prices received on farming may very well be subject to downward pressure as a result of Brexit. So, in order to maintain margins, producers will need to be more efficient, add value, or diversify.’

Mike Holland, a consultant at the Agricultural Law Association, told the journal that in the absence of a clear view on trade relationships with Europe or elsewhere, ‘the shape of agriculture policy will always prove challenging’. However, he was optimistic that Brexit provided ‘an opportunity to put in place a policy for agriculture and support for the agricultural industry which is fit for purpose and which is fit for the UK’.

Fundamental impact

The UK farming industry relies on subsidies through the EU’s Common Agriculture Policy. In 2015, farmers received around £2.4bn from the basic payment scheme, according to the NFU. Some £4.5bn has also been allocated to the UK for rural development projects between 2014 and 2020, which includes £2bn that has been transferred from the scheme to UK rural development programmes.

The government has previously expressed its intention to move away from farming subsidies in the long run. A House of Commons Library briefing paper on the impact of the EU referendum on agriculture policy said it was unclear how far subsidies would be replaced in terms of level or approach.

Michelmores’ Williams believes the subsidies are under threat. ‘There is little doubt that whatever the outcome of the negotiations, Brexit will have a fundamental impact on the UK agricultural industry.

‘There has been much discussion about how the £350m not sent to Brussels will be spent, which includes the subsidies currently paid to UK farmers through CAP, so if subsidising farmers is to continue after 2020, the government will have to justify continuing to spend any part of this sum on farmers rather than the NHS or other industries.’

The uncertainty around trade arrangements and access to subsidies has led to an upturn in instructions for Williams, including advice and bespoke drafting on farm business reorganisations, long term tenancies, and new business structures.

‘We are advising clients to reserve the ability to renegotiate arrangements once there is greater clarity about the future of both subsidies and access to markets,’ she said. ‘Break clauses allow clients to terminate and rearrange agreements once there is further clarity about the future of subsidies and access to markets.’

Wright Hassall’s Rice is also being asked to put in break clauses into farm business tenancies. ‘The basic payment scheme plays a material factor in farm income/profit and thus in determining affordable rent levels. If direct or indirect payments are significantly reduced there is a concern that rent will become unaffordable – hence the reason to have these break clauses.’

Matthew Rogers is a reporter at Solicitors Journal

matthew.rogers@solicitorsjournal.co.uk | @lex_progress