Brexit uncertainty hitting agriculture ahead of UK Parliament vote

Farmland prices in the country have tumbled 15% since their 2015 peak and ag investment has declined amid an unsettled future for the sector, industry insiders tell Agri Investor.

There has been a marked reduction in UK farmland sales since 2015 and less ag investment amid uncertainty over what the future will look like for UK agriculture post Brexit, industry insiders told Agri Investor.

UK farmland prices have fallen from £8,306 ($10,596, €9,309)  per acre in the third quarter of 2015 to £7,045 per acre in the third quarter of 2018 – a 15 percent drop – said Andrew Shirley, head of rural research and wealth report editor from Knight Frank. “The fall is partly due to uncertainty surrounding the exit of the UK from the EU as well as declining farm profits,” Michael Fiddes, senior director of Strutt and Parker Estates and Farm Agency Department, added.

There is also uncertainty over future agricultural subsidies. “But prices haven’t nose-dived as the land market remains resilient and it is considered to be a safe haven to put your money,” Clive Hopkins, partner at Knight Frank, said.

“Some foreign investors are also being attracted by the weakness of pound sterling, but there has not been a big upsurge as many are waiting to see what the Brexit outcome will be,” Fiddes stressed.

Citing examples, Hopkins said: “Scotland is continuing to attract European investment, notably from Scandinavia. There were also purchases last week of a 2,000-acre farm in East Anglia by a UK farmer and one in Wiltshire by European investors.”

Hopkins doesn’t expect next week’s parliamentary vote on the EU Withdrawal Agreement to have an immediate impact on the farmland market. “We need to wait until the New Year when we get more clarity about the situation, but it will probably take months before anything will happen,” he said.

The yin and yang of currency movements 

Still, speculation is growing about how markets will react to the December 11 vote.

“Without a deal, the currency is likely to plummet, but if it is passed, it should strengthen as there will be more certainty in the market. We might see land values hold and more investment if it goes through, but the long-term future would still be uncertain,” Luke Crossman, senior analyst from the Agriculture and Horticulture Development Board, said.

With between 70 percent and 99 percent of UK agricultural imports originating from the EU, worth €57 billion, exporters to the UK have felt the impact of Brexit sharply, due to the weakness of the pound. Trade is mainly concentrated in six EU countries: Ireland, Germany, France, Spain, Belgium and the Netherlands.

“Irish exports to the UK dipped by over €600 million since 2016 after the UK voted to leave the EU,” Alo Duffy, from the Irish Cooperative Organisation Society, warned. As much as 37 percent of the country’s agri-food exports, worth €4.13 billion, go to the UK, including 52 percent of beef.

The UK also exports around 60 percent of its agri-food produce, worth €11 billion, to the EU, but these have benefited from the pound’s weakness.

“For companies that import food produce to the UK, Brexit can be extremely damaging whilst the fall in pound sterling can benefit exporters,” said Stéphane Soussan fund manager at CPR-Asset Management.

“Due to the uncertainty, some agri-businesses are stockpiling produce before the end of March 2019 to avoid trade implications and mitigate risks. Some Irish producers are putting plans in place to reduce the impact by making less cheddar for the UK market and more European cheese, for example,” Crossman said.

Trade deal?

Like in many other sectors of the economy, “the uncertainty is hugely damaging for business investment – it is near impossible to adopt a strategy or make any concrete plans, as it is unclear what the future EU-UK trading landscape will be like,” Duffy said.

“Most will consequently view a free trade deal between the EU and UK which is as frictionless as possible as positive for agriculture. It will minimize disruption to trade with the EU and investment,” Crossman stressed.

Opportunities could, nevertheless, emerge for countries outside the EU. Grain imports from the US and Canada could rise. And the UK could also start importing more beef and lamb from New Zealand, Brazil and the US, for example.