Agriculture Brexit Conundrum

Transcription

1 Agriculture Brexit Conundrum Charles Dickens: It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair A Tale of Two Cities 1

2 Brexit and Scottish Agriculture: Some SRUC perspectives Steven Thomson Senior Agricultural Economist, Land Economy, Environment and Society Research Group Kev Bevan Senior Consultant and Farm Accounts Survey Team Leader, SAC Consulting SRUC Brexit Seminar Macdonald Holyrood Hotel, Edinburgh 31 st May 2017

3 What are the wider economic impacts? EU accounts for 44% of total UK exports and 53% imports in bn EU trade deficit 3.3m jobs linked with EU exports House of Commons 3

4 Where do we spend our EU budget? UK spends its EU budget on: EU Parliament data 4

5 Where will the net UK Contribution go? 1bn to 1.5bn private benefit not included UK Govt. Pillar I and Pillar II guarantees 5

6 Is agriculture support a priority for the UK/ Scotland? ( 68.6bn) 6

7 How important is CAP in Scotland? 20% loss making 7

8 How important is CAP in Scotland? 73% loss making 8

9 BUT are we path dependent? 9

10 Brexit headline issues Time Budget and policy framework Wider EU regulations Replacement agricultural policy Labour Trade: tariffs and customs 10

11 How much time do we have? By 29 th March 2019 we will know if we have: Soft Brexit position with transition period & interim arrangements to negotiate on trade Hard Brexit position - out without trade agreement or interim arrangements EU key negotiation points before the relationship discussions occur: Status of UK and EU Citizens Exit bill (the financial divorce settlement) Ireland / Northern Ireland Border 11

12 Who will control the Framework? Great Repeal Bill White Paper The devolved settlements were, therefore, premised on EU membership The Government intends to replicate the current frameworks provided by EU rules through UK legislation..we will begin intensive discussions with the devolved administrations to identify where common frameworks need to be retained in the future, what these should be, and where common frameworks covering the UK are not necessary What will replace the EU institutions? 12

13 Current agriculture & rural development budget distribution? Added budget complexity of co-finance Pillar 1 Allocation (and UK share) PI allocation after PII transfer PI to PII transfers (and rate) Northern Ireland 2, % 2, % Scotland 4, % 3, % Wales 2, % 1, % England 16, % 14,727 1,694 10% UK 25,061 22,740 2,321 9% Pillar 2 Allocation Natioinal co- Finance + Top ups Scotland -17.9% of budget allocation Total PII Budget Effective cofinance rate (and UK Share) Total EAFRD (and UK share) Northern Ireland % % % Scotland % % 1,680 30% Wales % % 1,130 42% England 1, % 3, % 4,056 14% UK 2,882 5,203 2,088 7,626 Data Source:

14 What replacement budget?? No indication of long term support for agriculture and rural development Barnett formula Current CAP budget allocations based on historical support Many ways to slice a cake: Scotland generates about 12% UK agricultural output Scotland has 18% of UK cattle and 20% UK Sheep Image from BBC Illustration by David Simonds The Economist 14

15 Agricultural regulation 15

16 Will there be a regulatory bonfire? Part of the functioning agricultural framework Environmental designations Animal traceability Environmental regulations Animal health Food standards and safety Pesticides / active ingredients? Workers rights etc If we want to trade with the EU we will have to comply with their regulations Can we soften interpretation and oversight? 16

17 How reliant is farming and the food chain on EU labour? No hard facts!! Permanent employees and seasonal migrants: UK food processing & manufacturing estimates 125,000 (29%) UK restaurants and hotels 442,000 Farming????

18 Why can t we revert to coupled support and price guarantees? Ag policy needs to comply with WTO Agreement on Agriculture Amber Box trade distorting support to be reduced Blue Box if farmers forced to limit production Green box non-trade distorting & permitted Questions over BPS & Greening Payments 18

19 Will future support be based on ecosystem services / agri-environment / climate-change? Do we have an grasp of a baseline? WTO Agreement on Agriculture rules support must be: part of a clearly-defined government environmental or conservation programme payment shall be limited to the extra costs or loss of income involved in complying with the government programme Likelihood of a true agri-environment payment being challenged in WTO?? 19

20 A Soft or Hard Brexit? Single Market (4 freedoms) Goods, services, workers and capital Customs Union No customs checks at border Common external tariff EEA extension of single market Comply with 4 freedoms / most EU regulations & must pay a fee FTA Preferential market access to EU WTO - Most Favoured Nation Based on Tom Hind, AHDB 20

21 Are we not self sufficient? 75% self sufficient in beef (Scotland over 150%) nearly self sufficient in sheepmeat (Scotland (175%) Nearly self sufficient in cereals (85-90% in Scotland) SAC, AHDB & QMS estimates What trade-offs would be willing to submit to in order to make trade deals around the globe? 21

22 Why are we concerned over the EU s External Tariffs? Pretty draconian effective EU Tariffs for most agricultural products: Beef: 92% to 112% Lamb: 45% to 64% Wheat: ~75% Milk: ~ 81% But many Tariff Rate Quotas (TRQs) in place: Would UK get allocation of EU TRQs? Will UK adopt the EU s schedule of tariffs? Irish cheddar would jump from 2,900/tonne to 4,000/tonne Will the UK have to renegotiate access to markets? Seed potatoes to Egypt & Morocco 22

23 What would customs checks, etc mean? UK is net importer of food, feed & drink : ~ 20bn deficit % of total Country million imports Netherlands % Irish Republic % France % Germany % Spain % Italy % Belgium % U.S.A % Poland % Denmark % Other % Total exports % Out of customs union 20% physical & 100% paper checks Rules of Origin Sanitary and Phytosanitary Standards % of total Country million exports Irish Republic % France % U.S.A % Netherlands % Germany % Spain % Belgium % Italy % Hong Kong % UAE % Other % Total exports % Source - Defra: Agriculture in the UK 23

24 Exchange Rates will become more important Forget weak or strong Sterling Import friendly or export friendly!! 24

25 The options for Scottish rural policy O1 the status quo O2 the New Zealand way O3 the old CAP (pre-2006) O4 a UK approach 25

26 The test criteria Compliance with WTO trade rules Budgetary cost when established Transition period and costs Impact on consumers Impact at farm level Impact at supply chain level Environmental impact Opportunity to reduce regulations Ease of devolution within UK 26

27 The trade scenarios Soft Brexit Hard Brexit 27

28 O2 the NZ way 28

29 the lash of the market No cheap Irish imports 29

30 O3 the old CAP 30

31 No chance given WTO rules 31

32 O1a the status quo (soft Brexit) Continuation of CAP 2019 Direct payments (per ha) R1 c. 200 R2 c. 34 R3 c. 10 Coupled payments Emergency intervention Pillar 2 (eg, agri-environment) Admin system up and running 32

33 Limited transition Plentiful production - Consumers - Farmers - Supply chains 33

34 But! Potential challenge at WTO Area and coupled payments? 34

35 Is it affordable? 35

36 Environmental changes Would environment and fragile areas benefit? 36

37 Administratively too complex 37

38 O1b status quo (hard Brexit) Big problems for some sectors More income support? 38

39 O4 a UK approach Transition from direct payments To more agri-environment payments More risk management Help to lift productivity Wider rural development? 39

40 WTO challenge reduced The environment (more ) Consumers OK (imports) 40

41 Phasing out direct payments Tangermann Bonds? 41

42 Practicality and outcomes of agrienvironmental schemes 42

43 Helping not hindering the adjustment process 43

44 Breaking supply chains 44

45 Customising to Scottish needs 45

46 Thank you This event has been funded through the Scottish Funding Council s Universities Innovation Fund and the presentation draws on analysis conducted as part of Work Package 2.4 Rural Industries of the Scottish Government s Strategic Research Programme ( ) steven.thomson@sruc.ac.uk and Kev.Bevan@sac.co.uk