Commodity Chat

As the Brexit separation nears, are UK farmers facing a messy divorce?

For many UK farmers, the impact of Brexit has so far been positive, but continued uncertainty about the split is increasingly impacting on business planning and prospects.

The country’s decision to leave the EU in June 2016 was accompanied by the biggest slump in the value of the sterling for more than 30 years. Against the euro, the pound fell 15%, while the loss against the US dollar was even more dramatic at 17%.

It might’ve been bad news for British holidaymakers, but for UK farmers operating on a global market, the drop in value lead to higher prices which have largely continued since; even today the value of most crops and livestock stand at 15% more than at the time of the referendum.

The weaker pound also saw food exports increase, reaching much-trumpeted records of £23bn a year (although much less attention was paid to the fact that food imports also jumped to a record £46 billion a year).

On top of higher commodity prices, farmers have seen their euro-based Common Agricultural Policy support increase, with 2018 payments worth a whopping 22% more than those in 2015.

It’s a Brexit bonus that, after several years of market volatility, many farmers have been grateful for. But as the date for separation from the EU looms, there’s nervousness that not only could farming’s honeymoon be over, but that it faces a divorce that will fundamentally change the way it operates; causing short-term uncertainty even if there are longer-term gains.

With Brexit just months away, there’s a lot of uncertainty as to what will happen in the build up to 29th March and beyond.

A no-deal Brexit would devalue the pound, which could give support to UK farm prices but make imports of inputs more expensive; meanwhile, a deal that is approved could boost the pound and also push up interest rates.

It’s a sensible strategy for UK farmers to follow Brexit developments closely and look at what protection they can receive from a service such as Stable.

There’s still a possibility that the UK will fall out of the EU, with trade tariffs, duties and restrictions on the movement of people between the EU and UK in place on 30 March 2019.

Agricultural suppliers are devising contingency plans in the event of a disruption, and it’s wise for farmers to assess how a no-deal would impact their businesses — and to put plans in place.

Both the EU and UK want to avoid a cliff-edge no-deal, and might see emergency measures put in place to ensure there are few changes after 30 March. There are, however, no guarantees of that.

While farmers should be making short-term plans to prepare for the impact of Brexit, it’s vital to consider the longer-term impact changes in support, regulation and currency might be — and whether they can benefit from any opportunities those changes present.

Brexit Separation

Cedric Porter is a farming journalist and consultant who publishes World Potato Markets and Brexit Food and Farming, a monthly analysis of the impact of Brexit on farmers and food companies. To read other blogs written by Cedric for Stable follow this link.

Stable was designed and built by farmers. We help farming and food businesses of every size and sector manage the risk of volatile prices so they can invest in their future with confidence.  Stable’s index-insurance platform enables farmers and food businesses to insure themselves from a wide range of volatile commodity prices and input costs.

To find out more about Stable or to book a demo, please visit our website, call us on +44 (0) 203 8599390 or email hello@stableprice.com and we can show you how farmers are using Stable to protect their balance sheets.

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