Why 25% of English farms could go bankrupt after Brexit

Why 25% of English farms could go bankrupt after Brexit

   April 16, 2018  
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Why 25% of English farms could go bankrupt after Brexit

Theresa May's plans to replace farm subsidies after Brexit could mean that up to 25% of English farms could go bankrupt, according to academics.

Dr Ludivine Petetin, an expert in agricultural law at Cardiff University, told Business Insider that proposals from the Department for Environment, Food & Rural Affairs (Defra) to replace existing EU farm subsidies with environmental payments mean "up to one in four" farms could "disappear."

The EU's Basic Payment Scheme currently provides land-based subsidies to farmers that, in England, represent a significant portion of many farmers' incomes. When Britain leaves the EU, Defra says it will replace the basic payment scheme with a new policy which rewards farms for environmental schemes, but experts believe the overall budget allocated for English farmers could reduce significantly, and that is causing concern.

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"From reading the paper, it seems that the payments being given to farmers will reduce in the long-term," said Petetin. "That will mean that those farms which are struggling at the moment — even with direct payments coming from the EU — will not make it afterwards."

Dr Alan Matthews, professor emeritus of European Agricultural Policy at Trinity College Dublin, Ireland, emphasised that Petetin's estimation was an "extrapolation" of Defra's policy approach rather than its own expectation, but said that it appeared to be "reasonably accurate."

What is the CAP?

The purpose of the CAP is to support farmers, who struggle to maintain consistent revenues against a backdrop of volatile food prices and low margins.

The Common Agricultural Policy has long been criticised by economists because it is not tied to market incentives — instead, the EU pays farmers an annual lump sum payment every year for each hectare they farm. As a result, many believe that the new system which incentivises goods production is welcome, but there are concerns that the speed and scale of the changes could leave farmers without sufficient time to adapt and diversify their incomes.

In any case, farmers are highly dependent on the payments. Dr Alan Greer, associate professor in politics and public policy at UWE Bristol, outlined just how dependent UK farmers are upon CAP payments in evidence given to a House of Lords select committee last year.

"It has been estimated that EU subsidies make up between 50 and 60 per cent of farm income in the UK as a whole. However it is estimated that 87 per cent of total farming income in Northern Ireland, 80 per cent in Wales, and three quarters of total income from farming in Scotland is contributed by CAP payments."

Farming policy is deferred to the UK's devolved administrations, which means that Defra's post-Brexit farming plan will only apply to England, but farms in Northern Ireland, Wales, and Scotland are likely to face even greater challenges if the overall budget for farm subsidies shrinks significantly.

What next?

Defra's proposals to replace the CAP with environmental payments are still only at the consultation stage, and its exact plans cannot be clarified until the Treasury confirms its overall budget. Philip Hammond has confirmed that the budget will remain the same until 2022, after which it will enter an as-yet undefined "transition period."

Michael Gove, Secretary of State for Environment, Food and Rural Affairs, says post-Brexit farming policy will reward farmers for "public goods" such as planting meadows and access to the countryside.

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