Farm subsidy reform post Brexit

November 30th 2017

Ed Dillon is our second inaugural Lycetts Royal Agricultural University, Cirencester, Summer Scholars. In this article he sets out some of the findings from the research task he undertook this summer sponsored by Lycetts.

The Government has committed to continuing with direct payments until 2020 and the Great Repeal Bill White Paper makes it clear that the Government will continue to follow EU legislation for two years after Brexit.

Indications are that environmental considerations will be a higher priority in any future system of support than they have been in the past.  The environment is valued by the public and is often a focus for media attention. Public sympathy is more inclined towards smaller more diverse farms than it is to a more industrial approach and it is likely that this prioritisation will be reflected in measures that replace the current scheme.   If this proves to be the case, then future subsidies may prove increasingly helpful to small scale farmers.

Although the indications are that subsidies will be reformed rather than be removed, it is useful to consider what has happened elsewhere in the world where this occurred.

Subsidies have been removed in New Zealand, Canada and the USA.

New Zealand could adapt to the new system by diversification and this was helped because the change came at a time when farm diversification was a relatively new concept.  A higher proportion of the population were employed in agriculture than in the UK, which helped successful diversification because farms could draw on broad experiences from other industries and services.

The short-term scope for much greater diversification in Britain is limited because most farms have already exploited this potential.  However, greater prospects may develop in the future as technological advances open new area of growth.

The United States of America operates two insurance options with one based on standardised prices the other on an historic level of farm revenue.

World Trade Organisation rules on state subsidy are a barrier to state sponsored insurance schemes because the minimum variance to justify support is a reduction of 30% below average revenue (Yield/Price). The UK would need to suffer extreme weather or an economic crisis to trigger eligibility for claims.

All indications are that farming is likely to become increasingly diverse following Brexit with greater attention paid to the environmental benefits of agricultural management. Insurance scheme are likely to pay a key role in helping to manage farming risks in the future.   Elsewhere in the world systems of this sort have been introduced with the state as the main sponsor.

There may be potential for Lycetts to consider the role they and the broader insurance industry should have in such a system. Building relationships with government advisors and policy makers may increase scope to help shape the systems that replace EU subsidy in the medium to long term.

 The current funding available for projects such as diversifying or adapting a rural business will be lost with Direct Payments and Lycetts clients should seek professional advice about taking advantage of the scheme while there is still time.

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