The Effect of Brexit on the Agriculture Industry

The United Kingdom represents one of the largest economies in the world as well as a major agricultural producer in Europe. However, the popular vote to leave the European Union, the so-called Brexit, held this past June, creates great uncertainty around the future of the UK’s agriculture industry. Even though there are still several years and a major negotiation before the Brexit becomes effective, British farmers are already worried about the possible effects of this political reality.

The Effect of Brexit on the Agriculture Industry

The UK is the third largest European economy after Germany and France, both of which are key trade partners for the UK. Furthermore, despite the fact that agriculture represents less than 1.0% of the British economy, the UK is a major producer of cereal, oilseeds, potatoes, vegetables, and cattle. Nevertheless, it is important to mention that agricultural aid and subsidies are vital to the subsistence of the British agricultural industry. It is estimated that UK farmers receive ₤3 billion (approx. US$4 billion) in agricultural aid from the EU’s Common Agricultural Policy (CAP) on a yearly basis. In fact, the CAP accounts for almost 40% of the total EU budget, totaling about €58 billion (approx. US$63 billion) destined to helping farmers throughout the 28 member states. Similarly, the CAP and the EU provide a regulatory framework for the food and agriculture industry to be harmonized within the Union, thus facilitating free trade of consumer goods.

Given this scenario, British farmers and consumers are concerned about losing preferential access to the one of the largest common market in the word, which unites 500 million individuals. Likewise, it remains to be seen whether the UK will be able to maintain preferential trade agreements with international partners that did not negotiate directly with London, but rather Brussels. Also, it is not clear whether the British government will decide to maintain the same regulatory standards as the EU or rather legislate its own.

Being an EU member, goods produced in the UK enjoy free entry into all other EU countries. However, even though the Brexit political negotiation is still pending, it is unlikely that UK producers will still enjoy the same trade benefits without being a member of the EU. This is significant, because currently the UK exports more than ₤10 billion (approx. US$13 billion) worth of food, drink, and animal feed to other markets within the EU. Similarly, Brexit could mean a substantial increase in the price of consumer goods sold within the UK. In the particular case of agriculture, every year the UK imports approximately ₤26 billion (approx. US$33 billion) worth of goods from other EU members. Currently, all of these goods are traded without any tariffs or duties, but this could change once Brexit is complete.

The effects of the upcoming Brexit are already being felt by the agriculture industry in the UK. Given the political and economic uncertainty, the value of farms and agricultural lands has decreased substantially during the last several months throughout rural Britain. The fear that agriculture in the UK will not be as profitable in a few years as it is currently is affecting land valuation in the central and northern parts of the country.

(Read more about how Brexit Creates Uncertainty and Opportunity in Agribusiness)