At the UK’s Conservative Party conference this week, Environment, Food and Rural Affairs minister Andrea Leadsom confirmed the continuity of subsidies for farmers for four years.
However, she emphasised the need for local farm workers and for the food industry to increase exports globally. For investors, that deepened their conviction that subsidies are going to be cut, removed or reconsidered, and raised questions about how the UK will negotiate favourable agriculture and food trade deals.
We look at where the uncertainty leaves British businesses in the sector.
Food and agribusiness
“[The speech] only serves to confirm what most of us already knew,” said one executive at a major British food company. “That subsidies will eventually be reduced, meaning some sectors are going to suffer in the long term, but there will also be winners. Put simply, there will be more volatility based on currency …and the political situation, so higher risk in the sector … but not everywhere.”
Food exports have gone up – there was an 8.7 percent increase compared with the first half of 2015, according to government statistics. And Rabobank analysts believe domestic consumption of some UK products could go up because of currency fluctuations.
Last month, Paine & Partners bet on this opportunity by investing in UK dairy processor Meadow Foods. The dairy’s executive chairman Simon Chantler told me the firm decided to go through with the deal because expansion for Meadow Foods in the UK is part of the plan.
Investment in UK food and agribusiness is generally slower as investors at home and abroad move cautiously.
Trade deals that don’t yet exist and the possibility of restricted access to the European market are creating plenty of long-term uncertainty for UK agribusiness.
Sixty-three percent of the UK agri-food exports go to the EU, and 70 percent of UK food is from the continent.
“Brazil, South Africa, Argentina, India and China will want to negotiate with the EU and US over Britain,” professor Allan Buckwell, who is a member of the Institute for European Union Policy and an expert in agriculture, told me.
“The question is, what are we asking for? The ability to compete in industrial agriculture and large commodities, or with high-value smaller producers? Will there be policies to bring in workers to pick our fruit and vegetables if we tighten freedom of movement?”
So it is impossible to know which businesses will benefit from future trade deals and policy.
“The perception right now is that there is big uncertainty. People will be very wary of getting into long-term contracts now until all these things get clarified,” said Buckwell.
True to its lower-risk profile, investment interest doesn’t seem to have slipped in farmland.
An analyst at one of the UK’s top three farmland sales and consultancy companies said farmland deals on offer this summer were snapped up by domestic and foreign buyers alike, and rates of sale haven’t changed dramatically since Brexit.
“I wouldn’t say there has been a flood of investment but the estates launched in the summer, including proper farm properties with little in the realm of sexy housing, have been bought very quickly,” he said. However, livestock properties had little sale value, given expectations of lower or no subsidies.
“As long as farmland is taxed favourably, it should remain an attractive asset class,” he said, adding that with competition for land from tourism, housing and infrastructure projects would continue to bolster prices.
He pointed to New Zealand as a comparison point for the removal of subsidies. According to research by former head of the New Zealand Trade and Economic Analysis Unit, Vangelis Vitalis, farmland prices fell 50 percent in real terms by 1988 “as a direct consequence of the removal of subsidies” in 1984 but recovered 86 percent of their 1982 value by 1995.
While that makes the long-term picture less frightening, farmland values in some sectors, like livestock, could still have a long way to fall.
How has the UK’s planned exit from the EU affected your appetite for British food, agribusiness and farmland? E-mail me: email@example.com