Brexit could lead to UK agri depression

Leaving the EU could lead to some painful years for UK agribusinesses, warned researcher Allan Buckwell, but is unlikely to lead to a long-term slump in farmland prices.

A European environmental policy researcher, Allan Buckwell, has warned that leaving the EU could constrain investment in UK agriculture, depress producer profitability and temporarily push down farmland prices.

There is likely to be a referendum in the UK in June, and if the country votes to leave the EU, it could exit by the end of 2019.

Buckwell said “Brexit” was likely to result in a subsidies decrease that would endanger agribusinesses, in a talk marking the publication of his report, Agricultural Implications of Brexit.

As the second-biggest economy in Europe, the UK may be able to argue for a strong trade agreement with the EU. But Buckwell warned that could be complicated: “The Dutch, French and Germans care about being out-competed. There will be intense suspicion that we will undercut them by producing at lower-quality produce at a lower cost.”

“The average tariff [for exporting to the EU] is 14.8 percent and the range is from 0 percent to 197 percent. If the UK cannot get, or decides not to seek, more favourable access, these are the tariffs UK exporters would face,” the report said.

UK total food imports stand at about £40 billion ($58 billion; €52 billion) a year, while exports are valued at £18.9 billion. Of those imports, 70 percent come from the EU, while 62 percent of exports are to the EU.

“If we were to choose lower protection it would depress UK producer prices, while food prices might increase or fall,” he said.

“Farmers themselves will adjust,” he added of the long term, but also said that if the UK exited the EU with no clear plan for the shape agricultural trade, subsidies or regulations will take, “there will be a slump in confidence [and] investment will slump … the agricultural recession we are in turns into depression.”

But Buckwell was generally confident that prices for farmland would not be damaged in the long term, although they would also dip.
UK farm borrowing now stands at £17.6 billion, and is expected to rise to £19 billion over the next year. “Much of the lending to agriculture is secured against land, so any dip in land prices can be expected to lead to credit tightening and perhaps increases in the cost of borrowing,” he wrote in his report.

“The astonishing doubling of real land prices since 2007 cannot be explained by changes in direct payments. This rise is evidently due to historically low levels of land available for sale at that time and buoyant demand from non-farmers,” he wrote in his report.

“Clearly the fact that agricultural land prices continue to soar despite falling real support levels (and great uncertainty about their long-term future) indicates that the capitalisation effect is by no means the only, or perhaps even the most important determinant, of changes in land values.”

“Rents react quickly, and in the long run land prices are not going to fall. But what I am saying is that in the short run they might,” he said in the talk.