Earlier this year, I wrote that if Britain did vote to leave the EU, UK agri investors would need to raise their voices to influence policy as soon as possible.
Preparation for a Brexit outcome, at least by investors (British farmers voted overwhelmingly to leave, according to several polls), was very little to none, according to analysts I have spoken to. Brexit clauses – where deals are subject to change or renegotiation depending on the outcome – seem to have been absent.
Talking before the vote, investors in food processing and the value chain were more worried than farmland investors about the long-term effects.
Big GPs in British food, drink and processing and distribution include 3G, Bain Capital and Baring Private Equity Asia. Bain will still be able to sell food distributor Brakes to Sysco, the latter confirmed, saying the deal was due to close in early July. It added there was no Brexit clause. While a Sysco spokesman was upbeat about the referendum result, no private equity food investor would comment.
Rabobank analyst John David Roeg, who had been talking to food businesses in Europe, was distinctly downbeat, saying that since there was no certainty in British politics, the food and agribusiness sector would be under particular stress: “If there is one thing that is not good for business that is uncertainty, and think how many regulations govern food trade and agriculture in particular.”
Land investors, on the other hand, may well be less troubled in the long term – although they are still in for plenty of short-term volatility. Farmland in the UK has tended to attract investors with long-term views, and it is attractive due to tax laws that offer relief for those inheriting an estate or companies with these assets on their balance sheets.
Whatever UK policy replaces the EU’s Common Agricultural Policy will have consequences for the values for some types of farmland. Payments to UK agriculture from the European Agricultural Guarantee Fund, for example, rose from £2.5 billion in 2008 to £3.12 billion in 2014, with grazing farming the most subsidy-reliant sector.
Most analysts agree that the majority of primary production agribusinesses would not have been in profit in the last year if it weren’t for subsidies. And Bidwells consultant Ian Monks wrote for us yesterday that values for marginal and grazing farmland could fall as much as 30 percent, now that subsidies are at risk.
Before the referendum, farmland prices fell 3 percent in the first quarter, after a 1.7 percent drop in the final quarter of 2015. While some blamed the drop on Brexit, sales consultants argued the price cycle and low commodity prices were more likely to be the cause.
Some major UK farmland holders had divested by then, cashing in on all-time high prices, including the Crown Estate and many of the Danish investors who came to the UK 10 years ago, when farmland prices in their home country were steep. Now prices are likely to drop faster and further than they otherwise would have, according to Paul Cooper from Deloitte and several others.
This might result in some buying opportunities. The most radical idea I heard from an analyst was that if distress forces a large parcel of farmland on to the market, the best buyer could be a Middle Eastern sovereign wealth fund, which would have food security as a major concern.
As Allan Buckwell, an EU and agriculture researcher, said in February, the list of burning questions is long: “What will be the fate of direct payments in terms of funding level? In terms of eligibility and type or adjustment period? What tariff position can we negotiate with the EU? Could tariffs even be punitive? What about how this will affect land prices and food prices?”
None of these have been answered yet.
Environment secretary Liz Truss has said Parliament will not debate agricultural subsidies until a new government is formed, which looks like September at the earliest.
This, then, is the chance for investors and the industry to come together to speak out and shape a debate about the regulations they want. The sooner they do that, the more hope there will be for long-term winners in UK agriculture and agribusiness.
What are the key issues investors in UK food and agriculture must now consider? Email me: email@example.com