This weeks guest blog is by Clive Phillips, Head of Land and Rural Business at Brodies LLP, on his thoughts on the 2018 Oxford Farming Conference.
In the round of key presentations at this year’s Oxford Farming Conference, Michael Gove’s much talked about announcement is arguably more fundamental than an extension of farm support to 2024, and a focus on the environment.
From Ted McKinney of the US Department of Agriculture Under Secretary for Trade and Foreign Agricultural Affairs, and Paolo De Castro, the Vice Chair of the EU Parliament on Agriculture and Rural Development, to the Oxford academic, Professor Dieter Helm, there were clear and powerful messages. But what vision did it leave me with of the future of the rural sector?
Let’s start with Professor Helm, and his economic theory of Natural Capital. An elegantly argued thesis that natural capital should be left in a better condition for the next generation than it was inherited; that subsidies distort the market and lead to damage to the environment; and that instead natural capital can be valued and state support should only be paid for public goods. Public goods are benefits that the market is unable to deliver. The environment is one, but also public access, opportunities and so on. The Natural Capital Committee which Helm chairs is recommending a 25 year environmental plan that agriculture is part. Note agriculture is a subsidiary “part” of the framework of the environmental policy; the committee is not recommending separate agricultural and environmental policies.
Helm also emphasised that in the UK, agriculture accounts for only about 0.7% of GDP (net of subsidy) and in effect the potential loss of the UK agricultural economy would not damage the economy of the UK nor did he say would it even damage the food and drink sector. The point he was making was that in any trade deal, post Brexit, agriculture was not a critical industry.
McKinney was clear in terms of what he wants out of a US:UK trade deal. “It’s a two way street” he emphasised repeatedly. He pointed to artificial barriers to trade as he saw it of sanitary and phytosanitary regulations…the elephant, or indeed the herd of elephants in the room, being GMO, glyphosate, hormone beef and chlorine washed chicken. His criticism of the EU approach to these trade restrictions was clear. The US is waiting to see what “kind of trading partner the UK is gonna be” he said rather pointedly. It left no doubt that hormone beef and chlorine washed chicken were on the negotiating table, if not yet the UK dining table.
Paolo De Castro, of the EU Parliament, sounded a fairly stern warning for both the UK, and indeed the remaining EU 27. His talk gave a sense that the UK may well be punished on terms of trade particularly on agriculture. The UK will require to maintain the same standards as the EU, he too pointing to the said elephants in the room. The tension between the US and EU positions was evident. But for the remaining 27 member states it was not good news either, he explained that the net effect of the UK leaving the EU being to reduce the CAP budget by about 3 billion euros. This will undoubtedly put pressure on CAP reform and will no doubt influence terms of trade and indeed the whole EU budget.
Pulling all these strands together, the future might run like this. Subsidies will largely be reduced, and agriculture may be acceptable collateral damage in trade negotiations. Whilst the trade gates may be flung open, UK agriculture will have to fall back on competing on a USP of high welfare and other production standards, supported by environmental payments to prevent potential decimation of the countryside in the wake of an economically challenged agricultural industry. It was in this context that Gove has announced a four year transition period through to 2024 to ease the potential pain. As an industry the message is clear that change is coming and we had better prepare.
But is this all doom and gloom or indeed doom and gloom at all? To start with, the premise of most economic theories is of “all things being equal”, but they never usually are. The natural capital theme will no doubt get buffeted and contorted by political and commercial reality along the way. Helm talked about a reduction in land prices, which he saw as largely being propped up subsidy. But an emphasis on the environment may further reduce active farming, which has already been a criticism of the CAP system, and may attract new buyers to compete in the market for the opportunity to pursue environmental objectives, re-wilding, forestry, alternative energy and so on.
Some argue that the value of land is underpinned by inheritance tax reliefs. But any move to abolish those also carries risks to the succession of family farm and estate businesses that are the backbone of the rural economy and communities. So from that point of view, Helm’s view of land prices being a function of CAP is perhaps too simplistic.
Also in Scotland, there is no guarantee that the Scottish Government will pursue the same line. Agriculture is devolved, and so is the environment. In the press conference after his speech, Gove confirmed that he respected it was a devolved matter and that money would be made available to Scotland.
Despite devolution of agriculture and the environment, it seems that there are going to be restrictions on the extent to which the devolved governments will be allowed to depart from ‘retained EU law’. Retained EU law is EU law that is preserved in domestic law post Brexit (for example on environmental or agricultural standards). There is certainly some doubt over how much flexibility Scotland will have over, for example, subsidies post-Brexit. But how divergent the support systems will be north and south of the border is very much up for discussion amongst politicians, farmers, landowners, their lobby bodies and Government. To what extent will Scottish policy be influenced by the natural capital thesis, and to what extent could different support regimes function effectively within one internal UK market remains to be seen? Therefore, in Scotland we cannot disregard these powerful pointers as to agricultural and rural policy coming from south of the border.
Clive Phillips, Head of Land and Rural Business, Brodies LLP