Brexit trades and tariffs: challenges and opportunities for agriculture
Author: John Martin; James Bowen
Date: 2018-03-01T00:00:00+00:00
Keywords: Local government and services
Description: John Martin and James Bowen look at the history of British agriculture for possible templates for the future - particularly from previous periods of exposure to free trade.
Publisher: History and Policy (historyandpolicy.org)
Rights: Copyright History & Policy, 2018

Brexit trades and tariffs: challenges and opportunities for agriculture by John Martin and James Bowen.

Published in Great Britain in 2018 by History and Policy.

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Policy Papers

Brexit trades and tariffs: challenges and opportunities for agriculture

John Martin and James Bowen

CONTENTS

- TITLE PAGE
- COPYRIGHT
- POLICY PAPER
- FUTHER READING

Policy Papers

Brexit trades and tariffs: challenges and opportunities for agriculture

John Martin and James Bowen

Executive Summary

- Since 1973 when Britain joined the European Economic Community (EEC), agriculture policy and trade analysis has been determined by the European Union (EU) and agricultural subsidy continues to form a considerable part of the EU budget.

- As a result of Brexit Britain will have to be proactive in developing a bespoke agricultural policy that replaces the existing subsidy and trading arrangements, mitigates the effects of climate change and promotes locally grown food, reducing food miles.

- Recent policy analysis by think tanks and industry organisations has highlighted the probable impact of Brexit on a wide range of sectors of the agriculture industry and the country’s reliance on imports and exports with EU countries, particularly in the case of Ireland.

- Reflecting back on historical parallels can provide insight into present challenges especially in relation to the possibility of entering a free trade era. The most dramatic previous episode of exposure of British agriculture to free trade occurred when the Corn Laws were repealed in 1846. British agriculture subsequently experienced a depression of prices and profits which became evident in the late 19th century, lasting with the brief exception of disruption to trading relationships caused by the First World War, until the 1930s.

- During and after the Second World War British agriculture once again, as before 1846, was protected for decades. Since 1973 the EU’s Common Agricultural Policy (CAP) has insulated farmers from the volatile international commodity markets. The high level of financial support facilitated continued increases in agricultural output with limited regard for the environmental effects.

- In order for British agriculture to thrive post-Brexit strong government leadership, a properly funded system of agricultural support especially for vulnerable sectors, the careful negotiation of future trade deals particularly with major agricultural producing countries and innovative policy measures related to the environment and climate change are required.

Introduction

Many issues remain unanswered about the future of British agriculture post-Brexit. It will no longer be under the auspices of the CAP, which since the 1970s has determined the type and level of support farming receives. The threats and opportunities to agriculture and the food supply chain of leaving the EU are significantly higher than for any other industry. In spite of efforts to rationalise the cost of agricultural support, which in the 1980s accounted for in excess of 80 percent of total EU expenditure, even today it amounts to over 40 percent. The current payment system, based on the farmers’ acreage, amounts to £3 bn a year to British farmers; accounting nationally for 57 percent of average farm income. Any reduction will have a profound impact on the prosperity of the agricultural sector. The value of domestic agricultural support is modest compared to the Ministry of Defence budget (£36 bn) and planned spending for the Department of Health in England (£124.7 bn in 2017-18).

The challenges for the agricultural sector are further compounded by the fact that Britain only produces about 60 percent of the country’s food, a level which has been in long-term decline since the 1970s. The other 40 percent consists of either tropical foods, which because of the climate it is not possible to grow in Britain, or specialised agricultural commodities such as wine, olive oil and out of season salad crops, which other countries, including members of the EU, are more efficient at producing.

Leading advocates of Brexit have argued that in the event of a failure of the negotiations to reach an agreement, Britain could meet demand by simply growing more. While such responses provide reassurances to a public concerned about the possibility of impending food shortages, they fail to take into account the range and diversity of different types of food the nation has become accustomed to consume, much of which it would not be feasible to grow in Britain. Not surprisingly these claims have been widely challenged by farming leaders like the National Farmers Union. The Secretary of State has told farmers the government would guarantee subsidies at the current EU level until the 2022 election and that there would be a ‘transitional period’. His assurances are postponing the need for a decision about the future of British agriculture.

A government briefing paper has suggested that Britain will need new agricultural policies for almost every potential Brexit outcome. Britain exports large quantities of agricultural produce, particularly cereals and dairy products (butter, cheese, cream, liquid milk and milk powder), to the EU, particularly across the Irish border. Since the late sixteenth century counties such as Cheshire and north Shropshire have become major milk producing areas with the surplus produce being processed into cheese and other dairy products for both internal and external markets. Around half of the butter and over 60 percent of cheese consumed in Britain is imported. The end of present EU trade agreements will invariably have a major effect on the system of imports and exports following Brexit with the potential imposition of tariffs in the event of a failure to achieve a comprehensive free trade agreement (FTA) with the EU. If tariff-free access to the single market is lost and tariffs are imposed on exports and imports, trade with the EU is likely to change radically across all sectors. It will also have consequences for overseas territories including The Falkland Islands, which exports virtually all its wool and lamb to Britain.

Currently the investment and structural development of the agricultural industry are closely aligned with the EU. Disentangling Britain from the existing system of trades and tariffs will entail significant challenges for policy makers, particularly those involved in the agriculture and food processing industries as well as other rural stakeholders. Maintaining the existing level of agricultural support will be costly for Britain and have implications for the wider economy and rural communities. Furthermore, Britain’s efforts to develop trading links with primary producing counties such as Australia and New Zealand, which would like the opportunity to increase the amount of food exports to Britain in return for importing manufactured goods, has profound implications for British agriculture. A 2017 report from think tank Chatham House has pointed out that farm subsidies may be reduced if Britain is to benefit from free trade while also protecting the rural environment.

In order to respond effectively to the challenges and opportunities that will occur, it is important to learn lessons from history. The present concerns about the possible impact of Brexit on agricultural trade are not without historical precedent given the fundamental and often abrupt changes to trades and tariffs which have previously taken place in the state’s and society’s relationship with the agricultural sector. Several historical analogies can be identified in the case of agriculture and such past experience is relevant with regards to current policy debates.

The Agricultural Depression of the late 19th Century

Following the repeal of the Corn Laws in 1846, British agriculture was open to global free market forces. The immediate response for many farmers to this was the adoption of ‘high farming’, which entailed high levels of capital investment in agricultural improvements such as land drainage and farm buildings. At this stage there was as yet no large world agricultural surplus of food which could be easily exported to Britain. However, by the early 1870s with transport improvements, particularly the development of railways and steamships, it became possible to transport grain cheaply to Britain from the American Prairies as well as refrigerated meat from the New World. Between 1882-99 New Zealand imports of mutton increased from 181,000 hundredweight to 3.5 million hundredweight by 1899; cheese increased by a third and both butter and wool doubled. The emergence of these food surpluses, coupled with Britain’s free trade system which focused on exporting manufactured goods abroad in return for imports of agricultural produce, resulted in a domestic agricultural depression which was particularly acute between 1874 and 1894-5. This was characterised by low prices, declining output and profitability with only limited signs of recovery by the outbreak of the First World War.

However the fall in grain prices between 1871-5 and 1891-5 was actually slightly less than the corresponding fall in the price of coal and metals, although assessing the precise extent to which prices fell is problematic. Nevertheless, the immediate impact of the Great Depression was a sustained fall in the price of wool and cereals, which was in excess of 30 percent, a decline which was equivalent to that experienced for coal, metals and textiles. Similarly the decline in the prices of livestock products was less than 20 percent. Under the circumstances, a structural realignment of agricultural production occurred with the shift from arable to livestock production in response to market forces with the state making only a limited attempt to alleviate it effects, hence both landowners and farmers regarded it as an agricultural depression. International commodity prices were in long-term decline although production and price levels were subject to weather-induced instability. Unlike the present financial system where prices are affected by changes in the market-based exchange rate in the late nineteenth century most countries were on the Gold Standard which fixed the relative value of their currencies.

Whilst it would be scaremongering to predict an agricultural depression on the scale and magnitude which engulfed Britain in the late nineteenth century, the key point is that both historically and today British agriculture has great difficulty in competing with low-cost overseas producers, who are able to benefit from economies of scale accompanied with a climate more favourable to agricultural production. The British climate is more suited to livestock production. Consequently, the country needs to exploit those niche markets in which it has a competitive advantage. Post-Brexit the arable sector will have to overcome strong price competition from low cost producers which have the ability to supply grain of the appropriate quality and specification to a variety of end users. Farmers that prospered during the agricultural depression of the late nineteenth century were able to do so because of their ability to make efficiency gains by rationalising their costs of production to compete with low cost producers who were able to exploit economies of scale. More importantly it highlights their ability to diversify into those markets in which they had a competitive advantage, for example, horticulture and market gardening, malting barley, dairy farming and high-quality fresh meat.

Food shortages and state directed food production campaigns during the First and Second World Wars

The threat to Britain’s food supplies caused by the U-boat campaign during the First World War forced the state to introduce guaranteed prices for wheat and oats in 1917 coupled with a state co-ordinated food production campaign. Ensuring a rapid and immediate increase in food production is problematic and there is an overwhelming need for longer-term planning and overarching strategy. Agricultural support during this period was however short-lived, being mainly a pragmatic response to what were seen as short-term wartime food shortages. The financial retrenchment of the early 1920s led to the repeal of wartime legislation with agriculture once more left to fend for itself in a free market system where food surpluses and low prices for agricultural produce prevailed.

By 1931 Britain was the world’s largest free trade market for agricultural produce in the world. Fearful that the country might become a dumping ground for these surpluses, the British government abandoned its historical commitment to free trade. This was accompanied by the introduction of Imperial Preference, which granted the British Empire a favoured position in exporting agricultural produce to Britain. State assistance also encompassed the establishment of marketing boards with the 1933 Agricultural Marketing Act to co-ordinate the production of specified commodities: milk, pigs, hops and potatoes - the last two operating a quota system to regulate the acreage which producers could grow. This allowed the government to restrict the importation of any commodity for which a marketing scheme could be implemented, while enabling the producers collectively to control domestic production.  Such initiatives proved a relatively effective way of regulating production in line with demand and reducing the more volatile price fluctuations which had historically characterised agricultural markets. State assistance to agriculture also took the form of the earlier 1932 Wheat Act which provided subsidies to producers funded by levies on imported wheat.

It was not until the later 1930s, with the growing threat of another European war that the state, reluctantly, implemented a more co-ordinated approach. Following the outbreak of war in September 1939, the reconvened Ministry of Food rapidly became responsible for purchasing the vast majority of agricultural commodities at the farm gate and for overseeing the distribution of food. The powers of the Ministry of Agriculture to regulate agricultural production were strengthened and extended in a variety of ways. Reflecting back upon the food production campaign of the First World War when there had been widespread allegations of ‘farming from Whitehall’, the Ministry established a more de-centralised system of control based on War Agricultural Executive Committees (‘War Ags’), one for each county of England and Wales, to organise and direct food production in particular the ploughing up campaigns.

The need for such committees was considered essential because of what was regarded as the ‘innate conservatism of the British farmer’. The committees’ function encompassed not only the dissemination of more progressive methods of arable farming, but more productive methods of livestock farming, particularly dairying. Within five years the pre-war system of livestock-dominated pastoral farming was replaced by an emphasis on arable farming producing cash crops, especially wheat and potatoes. Livestock production was deliberately curtailed by the state, although milk production was prioritised and granted preferential treatment in terms of the allocation of scarce resources such as feeding stuffs.

The 1947 Agriculture Act

The Second World War was arguably of greater significance to the modernisation of British agriculture than any previous period. The state directed food production campaign, intended to rapidly increase the output of arable crops particularly wheat and potatoes was also accompanied with other initiatives; such practical steps encouraged the adoption of more effective and productive methods of farming. Not only did the state direct agriculture during the war, but what was portrayed as the successful experiences of wartime control was in fact less impressive than the many commentators implied. For example, the wartime increase in arable production was primarily made possible by increasing the acreage devoted to these crops rather than by raising output by acre. Such a structural transformation invariably led to a decline in livestock production which many contemporary accounts tended to gloss over.

The experience of wartime control led to the development of a regulatory framework of support which became the basis of post-war intervention. The landmark 1947 Agriculture Act committed the government to ensuring stability and efficiency for agriculture. This was partly to guarantee a return for farmers and ensure that the nation could be adequately fed during a period of world food shortages. State assistance was also intended to protect Britain from being dependent on volatile overseas supplies and violent price fluctuations. During this period the guaranteed price system meant that British agriculture was increasingly isolated from market forces while the immediate post-war food shortages were gradually replaced by food surpluses. A system of deficiency payments was introduced to compensate farmers when the market price fell below the guaranteed price, allowing for imports of low priced food, whilst at the same time ensuring that British farmers were not financially adversely affected by this competition. The replacement of wartime and immediate post-war food shortages with food surpluses from the mid 1950s onwards encouraged the government to shift agricultural support from guaranteed prices to infrastructure improvement grants to encourage more efficient methods of production.

Agricultural support was regulated through the operation of the Annual Review and Determination of Guarantees. This involved a yearly assessment of the changes in the main factor costs of agriculture accompanied by changes in the amount of financial aid provided by the government. In the nine Price Reviews 1952-60, costs increased by £195 mn while agricultural prices increased by £68 mn. Farmers were required to absorb the difference by improvements in productivity and efficiency gains. Work on the impacts of post-war subsidy reform on upland farming has shown farmers in areas such as Cumbria were reliant on hill farm subsidy to ensure stable farm incomes, reducing their vulnerability to changing market prices and other factors such as extreme weather events and disease. In many cases farm subsidies acted as a form of social welfare enabling marginal farms to survive, providing a means of maintaining the social viability of upland communities. Upland farms are especially vulnerable to Brexit: only 5 percent of Welsh lamb, which has Protected Geographical Indication status, is consumed in Wales, with up to 40 percent being exported outside Britain. More than 90 percent is sold tariff free within the single market.

Agricultural subsidies boosted domestic production and resulted in significant import savings; trade tariffs were designed to protect domestic markets from competition. For instance, Britain’s dependence on Danish bacon (first imported in 1847) was the subject of political debate between the 1930s-50s. Denmark’s pig industry was more efficient than Britain’s at exploiting economies of scale and improving breeds, resulting in a standardised product renowned for its consistent high quality. By comparison British pig production was of lower more variable quality. Consumers expressed concern about the rise in prices as a result of the imposition of 10 percent tariffs on imports of Danish bacon in 1956. Denmark’s success reflected state initiatives to promote scientific and technological improvements in farming methods, a process which was not so pronounced in Britain.

Agricultural Support and the EU

This system of support remained intact up until Britain’s eventual entry into the EEC in 1973. The new CAP was based on four key principles: free movement of agricultural goods within the community, common prices, standardised organisation for each commodity and uniform tariff walls against imports from non-EU countries. During periods of internal oversupply prices were maintained by intervention buying and the storage of surpluses leading to the ‘butter mountains’ and ‘wine lakes’ beloved by the media, along with stockpiles of sugar, grain and milk. As these were to be stored until they could be sold without prices falling below target prices, which only happened infrequently, stockpiling of surpluses became a re-occurring and expensive feature of agricultural support. They were difficult to dispose of, except by selling to non-EU countries at heavily discounted prices. EU regulations led to the eventual demise of Britain’s successful marketing boards, which might be successfully resurrected in the post-Brexit era.

For the last forty years the EU has fundamentally shaped the agriculture industry and the British countryside. Since the 1980s there has been a switch from financial support linked primarily to agricultural output to funding agri-environmental initiatives, a trend which is likely to be promoted in the future. In his speech at the Oxford Farming Conference Michael Gove reiterated that future agricultural support would be more directly linked to environmental schemes. Given the high cost of the EU system of agriculture support aligned with government’s commitment to rationalise expenditure, it is almost inevitable that in the foreseeable future financial support for agriculture will be reduced, a process which will have a significant impact on farm incomes.

The future of Agriculture post-Brexit

A report published by the Agriculture and Horticulture Development Board (AHDB) has outlined three long-term scenarios resulting from Britain’s exit from the EU. Firstly, a FTA between Britain and the EU providing agricultural support with labour costs and regulation largely unchanged. This will mean that whilst not a member of the single market, Britain would retain close regulatory and trading relations. The impact would be significantly different depending upon farming type, although incomes in general would be expected to fall. For example, cereals and upland beef and sheep producers, which dominate the agricultural sector and land use, would be most affected by the predicted decline in farm business income. Secondly, in the event of no trade deal with the EU, denoted in the report as ‘unilateral liberalisation’, it is anticipated that there would be no tariffs and a 50 percent reduction in agricultural support. Under this scenario labour costs would rise and there would be increasing competition from new global trading partners from outside the EU, or alternatively under World Trade Organization (WTO) Most Favoured Nation tariffs. In an opinion article we drew attention to the long-term decline in the size of the agricultural labour force and British agriculture’s dependence on migrant labourers.

In spite of widespread fears that Brexit will lead to a reduction in wage levels as a result of the abolition of protections on employment and working conditions, research by the AHDB suggests that in the case of agriculture the reduction in the number of migrants being able to enter the country will lead to labour shortages and a rise in wages levels. In order for British agriculture to successfully compete with other countries it is important that it is not forced after leaving the EU to lower its presently high standards of animal husbandry, for example, the ban on chlorinated chicken and genetically modified food. Lastly in the event of no deal with the EU (scenario denoted as ‘Fortress UK’), WTO tariffs would apply with an anticipated 75 percent reduction in the level of state funded agricultural support. Labour costs, both permanent and seasonal, would rise and consequently the average farm would become loss-making. Restrictions on migrant labour would increase labour costs, particularly in the case of horticulture. The importance of and need for adaptation to changing market conditions is apparent.

History points to the proven ability of British farmers as a group to absorb and adjust to shocks and pressures responding to changing market conditions. Such resilience is not however always evident at the individual level with farmers having worryingly high rates of suicide as well as isolation and depression. Efficiency and adaptability can take a variety of forms including the ability or willingness for farming families to make strenuous efforts to survive by engaging in pluractivity – family members including the farmer taking on additional sources of employment to supplement their income by off-farm work. Reflecting back on the experiences of the First and Second World Wars, what is evident is that agriculture has difficulty in responding in the short-term to dramatic changes in demand. Allied to this the increased variability of weather, which seems to be an accompaniment of climate change, may adversely impact on production and price stability, in the absence of the kind of government policy that was in place before the EU era.

Conclusion

It is difficult to be precise as to the possible outcome of Brexit, as many different variables may come into play, but by ‘thinking with history’ we can identify a number of important lessons we might learn from previous periods of agricultural change. First, that demand for staple foods is relatively inelastic, while level of agricultural production both globally and nationally can vary significantly between one year and the next according to the season, a situation which is likely to be even more pronounced in the future as a result of climate change. Farmers who want to thrive after Britain leaves the EU must be prepared to adapt their businesses and obtain more of their income from the marketplace, less from subsidies. Even in periods of long-term oversupply there will be occasional price spikes for the main agricultural commodities. These fluctuations are likely to become even more pronounced. Brexit is highly unlikely to herald a return to the protectionist measures that supported farmers and gave them price stability after the Second World War and before Britain joined the EEC.

Second, it is evident that farmers will need to become more proactive and implement policies to plan for the future, as opposed to previous policies, which have been largely a pragmatic response to changes in food supplies, exploiting opportunities provided by favoured product niches and driving improvements in performance. In order to ensure that British farmers are able to remain competitive government agencies will need to be proactive in responding to these financial pressures. Historically collectively farmers have been regarded as being resilient in the face of economic adversity, as witnessed by the ability for families to remain within the industry, even in times of acute depression such as that which occurred in the late nineteenth century and interwar period. However this resilience or really what was occupational immobility often reflected their willingness to soldier on carrying huge debts and working long hours in a desperate attempt to remain solvent. This has manifested in a willingness for farming families to make strenuous efforts to survive by engaging in if off-farm activities to supplement their income. The changing nature of farming with the increased levels of isolation both in terms of the working environment and social problems stemming from the decline of traditional community support structures has prompted official initiatives to address these challenges.

Third, history reveals that they cannot compete with low cost producers able to exploit economies of scale. Only a market-oriented model – aligned and integrated with a more effective commitment to the environment and climate change mitigation – would enable the country to benefit from the new trading relationships which are likely to emerge following Brexit, while keeping the government’s promise to improve the environment for the next generation. Government policy is committed to improving the environment and climate change mitigation implies a new set of government initiatives as a future framework for agriculture, which goes beyond simply free trade. This could include the promotion of locally grown food, forestation – which reduces the area of land allocated to food production, and encouraging farmers to become landscape stewards.

Lastly, it is evident that support organisations and the government need to promote resilience of the agricultural sector by identifying and tackling constraints, promoting knowledge exchange and skills training. Farmers of all types need to be urged to seek additional income streams in preparing their businesses for an uncertain future. This requires a strategic approach from government to ensure rural land – about 70 percent of which is farmed – delivers the greatest long-term benefit to British society. Our food system is at the centre of this debate, and there are significant implications for Britain’s nations, regions and communities.

About the author

John Martin was formerly Professor of Agrarian History at De Montfort University, Leicester. His research focuses on the transformation of the countryside, agriculture and rural life. He is particularly interested in the issue of food security with particular regard to the impact of and legacy of the state sponsored agricultural revolution during the two world wars. John’s policy based research has also investigated the way droughts and severe winters have affected food production as well as the changing role of the countryside. In addition to his extensive publications, he has acted as an advisor and consultant for the ‘Wartime Farm’, ‘Tudor Monastery Farm’ and ‘Full Steam Ahead’ series produced by Lion TV for the BBC as well as acting as a consultant for ITV’s ‘Home Fires’ series. The research behind this piece was supported by a Fellowship provided by the Museum of English Rural Life, Reading University.

James P. Bowen is the Contributing Editor for The Herefordshire Victoria County History Trust and a Research Associate (Victoria County History - Cumbria Project) in the Department of History, Lancaster University. He was formerly a Postdoctoral Research Associate (now Honorary Research Fellow) based at the Department of Geography and Planning, University of Liverpool. He completed a Ph.D. at Lancaster University supervised by Professor A.J.L. Winchester and held the Economic History Society’s Tawney Junior Research Fellowship in 2012-13. His research focuses on the rural agrarian history of Britain. In collaboration with John Martin their informed archival policy analysis of the impact of the 1962-3 winter has recently been published in the Agricultural History Review.

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Further Reading

- Secondary literature:

- J. Martin, The Development of Modern Agriculture: British Farming since 1931 (London, Macmillan, 2000).

- J. Martin, ‘British Agriculture in Transition Food Shortages to Food Surpluses (1947-57)’, in C. Martiin, J. Pan-Montojo and P. Brassley (eds.), From Food Shortages to Food Surpluses: Agriculture in Capitalist Europe (London, Routledge, 2016), 107-24.

- J.P. Bowen and J. Martin, ‘Brexit and the great British breakfast’, http://www.historyandpolicy.org/opinion-articles/articles/brexit-and-the-great-british-breakfast, 16 October 2017.

- H. Crowe, ‘Profitable ploughing of the uplands? The food production campaign in the First World War’, Agricultural History Review, 55, 2 (2007), 205–28.

- Official publications:

- Agriculture and Horticulture Development Board (AHDB), Brexit Scenarios: An Impact Assessment (October 2017).

- Yago Zayed, Agriculture: historical statistics, Briefing Paper, Number 03339, 21 January 2016, House of Commons Library.

- Report by the Policy Commission on the Future of Farming and Food, A sustainable future (2002).

- I. Mitchell, The Implications of Brexit for UK, EU and Global Agricultural Reform in the Next Decade (Chatham House, 2017).

- R. Bailey and T. Benton, Extreme Weather on Food Shocks (Chatham House, September 2015)

- Cm 5709 response to the Report of the Policy Commission on t6he Future of Farming And Food 9 Date).