With the UK’s departure from the European Union well underway, the impact of Brexit is still unknown.
Despite the majority remaining in the dark, those involved in the agricultural sector know that one thing is for certain when we leave the EU for good in 2019, and that is that we will also leave the Common Agricultural Policy (CAP).
Created as a financial support aid to farmers and agricultural businesses, CAP has been an imperative force in agricultural finance since its inception in 1973, nearly 50 years ago.
As a result, exiting CAP will result in the biggest change to the financial aspect of agriculture in nearly half a century.
Business owners are still in the middle of adjusting to the most recent CAP changes after, British farmers were given around £2.4bn in direct payments under the CAP scheme in 2015 and, following reforms in 2013, an overall pot worth £4bn last year, though over half of that was dedicated to rural development subsidies rather than direct.
In short, 55% of UK farming income comes from CAP support.
What should farmers expect?
The UK has been notably critical of direct subsidies whilst in the EU, so farmers and agri-business owners shouldn’t expect a replacement come 2019.
However, rural development subsidies have always been seen as ‘better value’ by the government, shown when they reallocated part of the direct subsidies to rural development funds under the current CAP scheme.
This is perhaps an indication that UK farmers can expect more funding to become available for business development and environmental projects rather than direct payments.
With negotiations still ongoing between the UK and the rest of the EU, nobody yet knows what the exact repercussions will be.
A lot will depend on the type of trade deals that the UK will be able to negotiate, but the problem lays in sub-sectors such as dairy and cereals that may find themselves competing in the EU market against businesses that are CAP-backed.
Down the line, farming activity could also decrease which could lead to land prices to crash once the UK leaves CAP, leaving farmers in weaker positions to secure loans.
As a result, it is highly advised that, should you have any capital investment projects that you are looking to carry out, now may be the time to do it, before we leave the EU and CAP for good and enter another period of uncertainty.