Brexit to Trigger UK Farm Policy Overhaul and EU Funding Gap

Britain is expected to radically overhaul agricultural policy after it leaves the European Union and the bloc may have to make changes too when it loses Britain's net contributions to the region's farming budget.

For the first time in decades, farmers in Britain will have to fight for a slice of government funds with departments such as health and education once Brussels hands over the purse strings for farming budgets to London.

Britain's exit also spells trouble for EU farmers as the country puts more into the bloc's Common Agricultural Policy (CAP) than it takes out, meaning subsides for farmers on the continent could also fall unless the funding gap is plugged.

British farmers have been shielded by a powerful farming lobby within Europe and benefit from EU subsidies, preferential trade deals and access to cheap seasonal labor, but they fear they will be losers on all three fronts in a post-Brexit world.

"The bloody-mindedness of the French or the Irish in standing up for agriculture was not just standing up for their farmers but actually brought a good deal for us as well. Without them we are more vulnerable," said Nigel Miller, who has a sheep and cattle farm near Galashiels in Scotland's Borders region.

"The reality is, as a farmer, I don't see the UK government expending a lot of negotiating capital to protect agriculture. Their main issue when they look for trade deals will be financial services, banking, etc," Miller said.

Britain voted to leave the 28-nation EU in a referendum in June last year. It has two years to sort out the terms of the divorce before it comes into effect in March 2019.

In 2015, British farmers received 3.25 billion euros ($3.5 billion) from the EU's agriculture fund in direct payments based chiefly on the amount of land they farm, essentially a form of income support that does not take individual needs into account.

The government has guaranteed payments will be maintained until 2020 but farming and environment minister Andrea Leadsom said in February there would be a major policy overhaul when the EU subsidies stop.

Wealthy Individuals

On average, British farmers get about 15,000 pounds ($18,700) a year from direct payments and an EU rural development fund. For some, direct payments account for 70 percent of their income.

But a significant chunk goes to wealthy individuals who are large landowners. An investigation by environmental lobby group Greenpeace showed that in 2015 the top 100 recipients of EU direct payments in Britain received more in total than the bottom 55,119 recipients combined.

Berkeley Hill, professor of policy analysis at Imperial College London, said any overhaul should ensure funds go to farmers making decisions that benefit the environment, or help them cope with disasters such as flooding or foot-and-mouth disease.

"It has the potential to be quite radical. What is the taxpayer getting in return for all this money? Most of it does not go to poor farmers," said Hill.

Greenpeace campaigner Hannah Martin hopes the government will reshape Britain's food and farming policy so payments are for the "common good", rather than just rewarding landowners for owning land.

"That means, landowners getting the money are doing positive things like boosting rural economies, ensuring food production is genuinely sustainable, reducing flood-risk, maintaining healthy soils and protecting biodiversity," she said.

Britain has about 18.4 million hectares of agricultural land of which more than half is classified as permanent grassland, according to government data for 2015. Wheat is the leading arable crop with 1.8 million hectares while others include barley, rapeseed, oats, rye, sugar beet and potatoes.

Spending Cuts

British farmers fear that in a post-Brexit world preferential trade deals could end, seasonal workers from the EU may find it harder to come to Britain and subsidies will stop.

The farm lobby has been a powerful force in Brussels but has less influence in Britain where, according to European Commission data for 2014, agriculture accounts for 1.2 percent of employment, compared with an EU average of 4.7 percent.

A National Farmers Union (NFU) survey late last year showed British farmers overall plan to reduce spending on machinery by 26 percent and cut investment on land by 31 percent over the next three years because of uncertainty caused by Brexit.

In budget terms, Britain will benefit from leaving the EU as it puts more into the bloc's CAP than it gets out. But that does not necessarily mean farmers will be the ones to benefit.

"The moment you are putting payments to farmers up against the National Health Service, care in the community, education ... You can see it is going to take its share of cuts," said Sean Rickard, a former chief economist for the NFU.

Farmers also worry that when it comes to trade deals and EU market access, sectors such as financial services will be a much higher priority for the government, and any new EU trade tariffs could have a significant impact.

The EU is Britain's most important trading partner for most agricultural sectors. In 2015-16, for example, about 80 percent of UK wheat exports went to the EU, mainly the Netherlands, Portugal and Spain.

There is also concern that new trading arrangements with countries outside the EU could leave farmers vulnerable to cheap imports from agricultural powerhouses such as Brazil and the United States.

CAP Gap

EU agriculture commissioner Phil Hogan is in little doubt that British farmers will suffer following Brexit.

"If people want to go separate ways like the UK there are going to be losers, and the big losers in the UK are going to be farmers," Hogan told a media briefing last month.

For the EU, though, Britain's departure will leave a significant funding gap that is already pitting countries with big farming sectors against major net contributors to the CAP, who are looking for ways to economize.

Alan Matthews, professor of European Agricultural Policy at Trinity College, Dublin, estimates there would have been a 3.1 billion euro hole in the CAP budget in 2015 without Britain, though the gap would have been significantly smaller in 2014.

In 2015, that shortfall would have been more than 5 percent of total EU spending on direct payments and rural development funds of 56.7 billion euros, and farmers in Europe are preparing to fight for their subsidies.

"If our calculations are right, it's a 5 percent cut to the EU budget, so we can say it's 5 percent less for the CAP budget. That's the first challenge," said Claude Cochonneau, a farmer in northwest France and president of a farming support network.

Spain and Bulgaria, both net beneficiaries of EU farm subsidies, are pushing for payments to be maintained, which would mean any shortfall would have to be made up elsewhere.

Pressure for EU farming budget cuts is more likely to come from large net contributors, such as Germany and Sweden.

"There should be less focus on current direct support and market measures," Sweden's Minister for Rural Affairs Sven-Erik Bucht said in an emailed response to questions about Sweden's objectives in the next round of CAP talks.

Joachim Rukwied, president of the German farming association DBV, said it supported a mix of increased national contributions and spending cuts elsewhere to cover the funding gap.

Analysts believe direct payments to EU farmers are likely to be maintained as part of the overall agricultural package although there may be moves to link more funds to ensuring environmental benefits, a policy known as greening the CAP.

"Are we going to see fundamental reform, or some adjustments? For the moment the Commission looks like it just wants to make adjustments to the current market approach, simplifying and greening," said Bruce Ross, managing director at agri-consultants Ross Gordon Consultants in Brussels.

But in Britain, farmers are bracing for a tough post-Brexit world, where some may not survive.

"There will always be people milking cows because we've got lots of grass and there will always be people growing crops - there just won't be as many," said Rickard, the NFU's former chief economist.