3Agriculture
50.Agriculture is affected by many of the same issues as the economy more generally. The impact of a vote to leave on exports is a concern for farmers just as it would be for any other business, for instance. However, leaving the EU would also see an end to the current system of support for farmers through the Common Agricultural Policy (CAP), though this might be an opportunity to introduce an alternative scheme, which perhaps could be better targeted. Such is the significance of the EU to agriculture in Northern Ireland that we have addressed it specifically.
Agriculture in Northern Ireland
51.Agriculture represents a significant sector for Northern Ireland’s economy. There are 25,000 farms in Northern Ireland and 28,500 people employed in the farming sector. Almost as many are employed in the wider agri-food sector, which includes processing and packaging and is one of Northern Ireland’s main industrial sectors, and agricultural supplies.65 Agri-food is, unsurprisingly, one of the sectors targeted for growth in the Northern Ireland Executive’s Economic Strategy.66 The Executive established an industry-led Agri-food Strategy Board in 2012, which published its strategic plan for the sector in April 2013.67
52.The composition of the Northern Irish agricultural sector is quite different from the UK as a whole. Figure 4 shows the agricultural output of Northern Ireland and the UK respectively. It highlights how the sector in Northern Ireland is heavily concentrated on livestock: dairy and beef cattle alone account for 50% of total agricultural output but only 28% in the UK. The UK, in contrast, has a much higher output of crops and the sector as a whole is more diverse.
Figure 4: UK and NI agricultural gross output by sector 2015
Source: DAERA
53.Table 4 gives the value of Northern Ireland’s sales of its main agricultural products by destination. The data shows that the largest proportion of agricultural sales are made within the UK: sales within Northern Ireland and the rest of the UK comprise 70% of the total.68 Exports to the European Union account for 27.2% of the total.69 Of that EU trade, the Republic of Ireland represents a significant market. It accounts for 57.4% of sales to the EU and 15.6% of Northern Ireland’s total sales. The Republic is also an important market for agri-food products such as baked goods and soft drinks. The small proportion of sales to the rest of the world is striking. Only 3% of total sales are to countries outside the EU.
Table 4: Northern Ireland Agrifood Sales by Destination 2012
|
Destination |
TOTAL NI SALES |
Animal by-products |
Milk/Milk products |
Beef/Sheep meat |
Pig meat |
Poultry |
|
NI |
£1205.8m |
£2.7m |
£296.3m |
£152.2m |
£124.3m |
£143.4m |
|
GB |
£1940.5m |
NA |
£222.3m |
£768.3m |
£120.2m |
No data |
|
RoI |
£704.7m |
£1.8m |
£155.5m |
£80.1m |
£55.5m |
£96.2m |
|
Rest EU |
£523.9m |
No data |
£259.2m |
£178.6m |
No data |
No data |
|
Rest World |
£135.1m |
No data |
£66.6m |
£19.9m |
No data |
No data |
|
TOTAL |
£4510.0m |
£40.5m |
£999.9m |
£1199.1m |
£316.0m |
£764.7m |
Source: DAERA
54.There is clear variation between sectors. In their evidence to us, the Ulster Farmers’ Union (UFU) stressed the importance of the EU as a market for beef and dairy in particular and this is confirmed by the figures.70 For milk and dairy products, for example, the UK is still the largest market but accounts for just over half of total sales, with the EU accounting for over 40%. Again, the volume of exports beyond the EU is low.
55.As we noted in the previous chapter, if no trade deal with the EU were agreed following a vote to leave the EU, trade would be conducted under the terms established by the WTO’s Most Favoured Nation (MFN) criteria. This could have potentially far-reaching consequences for Northern Ireland’s farmers. The EU, like many trading blocs, has traditionally protected agriculture from cheap imports and this is evident in the MFN tariff regime. Tariffs are typically higher for agricultural products than manufactured products. The EU’s average MFN tariff is 5.3%. However, for agricultural products, the average is much higher at 12.2%. But there is considerable variation within that 12.2% average. Of particular relevance to Northern Ireland are the MFN tariffs on meat and dairy which are amongst the highest tariffs the EU imposes. For meat, the current MFN tariff is 17.7% and, for dairy products, 42.1%.71 It should be noted that these are averages and are much higher for some dairy products.72
56.There is a global oversupply of milk which is reflected in falling prices that farmers receive. In Northern Ireland, average farm gate milk prices fell by 28% over 2015.73 Some of the oversupply is generated within the EU. Northern Ireland itself saw milk production increase by 3% to a record level in the same period.74 The concern is that, in this context, any post-Brexit trade negotiations would encounter resistance from remaining EU members keen to restrict the supply of dairy from a major supplier into the EU. But the inclusion of dairy produce by HM Government in any post-Brexit trade agreement would be imperative for Northern Ireland’s interests. It is also worth noting that Russia has instituted a ban on agricultural imports originating from the EU. This ban came in response to the imposition of EU sanctions on Russia, supported by the UK, following that country’s actions in Ukraine, and has impacted the global price for dairy in a way that has been unhelpful to Northern Ireland’s farmers.
57.Tariffs on the scale of those currently imposed by the EU under the WTO’s Most-Favoured Nation conditions would be hugely damaging to Northern Ireland farmers. Trade within the UK would be enhanced if substantial tariffs on EU imports into GB were put in place, but exporters in sectors such as dairy would be badly affected, especially in the context of a continued global oversupply. Agreeing a free trade deal that includes agriculture would need to be a priority for the UK Government in the event of a Brexit. That deal would need to recognise that the profile of agriculture in Northern Ireland is different from the UK as a whole and should include tariff-free exports of dairy and beef.
The Common Agricultural Policy
58.The Common Agricultural Policy (CAP) is the largest single item of EU expenditure, constituting around 40% of the total budget. It comprises two elements or ‘pillars’. Pillar One, the Basic Payment Scheme (BPS), gives support directly to farmers and accounts for the bulk of the CAP. Pillar Two, the Rural Development Programme, supports rural economies more generally.
59.The steady move of EU agricultural support away from coupled support—support linked to production—to provision of a basic income for farmers, contingent on fulfilling certain environmental roles, has continued. Under the latest round, the old Single Farm Payment (SFP) scheme has been replaced with the Basic Payment Scheme. Under the BPS, 30% of the payment is dependent on compliance with various ‘greening measures’.75
60.The CAP allocations for the current 2014–20 round were announced in late 2013. There has been a reduction in the UK CAP allocation in line with a reduction in the overall CAP budget. The Pillar One allocation has been reduced by 12.6% and Pillar Two by 5.5%.76 Within the UK, that reduction has been distributed evenly, so the proportion of the CAP budget going to each part of the UK has remained the same.
Table 5: UK CAP Allocations
|
Pillar One |
Share |
Pillar Two |
Share |
TOTAL |
|
|
England |
€16,421m |
65.5% |
€1,520m |
58.9% |
€17,941m |
|
N.Ireland |
€2,299m |
9.2% |
€227m |
8.8% |
€2,526m |
|
Scotland |
€4,096m |
16.3% |
€478m |
18.5% |
€4,574m |
|
Wales |
€2,245m |
8.96% |
€355m |
13.7% |
€2,600m |
|
TOT |
€25.1bn |
€2.6bn |
€27.7bn |
61.The UFU is not campaigning to remain in the EU but its official position is that “… in the absence of any compelling reason for agriculture to leave the European Union, we feel that it is better for the minute, given the circumstances and the knowledge we have, to stay”.77 They did, however, acknowledge there were divisions within their membership: UFU President, Ian Marshall, told us that “We see divides within sectors of our industry. We see splits within families within our membership”.78
62.Along with access to markets, the future of agricultural support is the other key issue that would most directly affect Northern Irish farmers. Currently, support to farmers primarily comes through the Pillar One of the CAP. Current economic conditions have put the future of farm support high in the minds of Northern Ireland’s farmers. Data from the Northern Ireland Department of Agriculture, Environment and Rural Affairs (DAERA) suggest that total income from farming in Northern Ireland fell by an astonishing 41% in 2015.79 The figure is even higher for some types of farm, with dairy and pig farming particularly badly affected.
Figure 5: Average farm business income by type of farm (£ per farm) 2010–11 - 2015–16 (forecast) for selected sectors
Source: DAERA
63.This reliance on subsidy from the EU was also noted by Dr Gudgin: “… virtually the whole of farm income in Northern Ireland, by which I mean the income of the farmers and the businesses, not the labour costs, is really covered by the CAP. If that subsidy was not there, the farming industry in Northern Ireland would not make any money at all. It is a marginal producer in this sense and that is something that nobody in Northern Ireland has been very keen to publicise”.80
64.Figure 6 gives the breakdown of average farm income by source for the main industry sub-sectors. It clearly shows the importance of the direct payments in keeping many farms afloat. Cattle and sheep and cereal producers are particularly dependent. Without it, or an equivalent replacement, many would not survive.
Figure 6: Average farm business incomes including and excluding direct payments in 2013/14 (£ per farm)
Source: DAERA
65.It should also be noted that because incomes for dairy and pig farmers have fallen dramatically in the last year (see Figure 6 above) they will be more reliant on CAP support now than this 2013–14 data suggests.
66.Under such circumstances it is perhaps unsurprising that farmers in Northern Ireland are concerned about the future of support. UK governments have supported farmers before they were eligible for CAP and could do so again. In an interview with the News Letter earlier this year, the Secretary of State for Northern Ireland, Theresa Villiers, who favours leaving the EU, sought to assuage these sorts of fears. She said that some form of support for Northern Irish farmers will certainly continue in the event of a Brexit. She emphasised that there would be extra money available for support if the UK were no longer making an EU budget contribution: “I don’t think one would want to say that it continues in exactly the same form, but arguably we’ll have cash to spare, so it’s not impossible that we could have a more generous system”.81 Yet, the Government has not signalled any commitment to replace such funds to farmers. The Parliamentary Under Secretary of State for Northern Ireland, Mr Ben Wallace MP told us the Government “cannot guarantee [that farmers in Northern Ireland] will get the same subsidy that they get currently in direct payments in the event of Brexit”.82
67.The UFU’s witnesses were not convinced by such reassurances. UFU President Ian Marshall said “The concern is that historically there has not been a track record of supporting agriculture, irrespective of which party was in control. In the absence of guarantees [of continued support] we have huge concerns about what this could potentially look like”.83 Chief Executive Wesley Aston went on to say “… we don’t expect the UK to provide any money to any parts of the UK farming industry”.84 They noted that British governments had not used the latitude available to them within the existing rules to provide support to farmers to the extent that other EU members have.85
68.In the event of a vote to leave the EU, the nature of continued support matters to Northern Irish farmers. They were concerned that any support programme must support farmers directly; Pillar One funding would need to be replaced with an equivalent mechanism in the event of a Brexit. However, successive UK governments have argued for significant further reductions in Pillar One support, which has been regarded as market distorting. With agriculture a devolved competency, the Northern Ireland Executive would have the ability to match existing Pillar One support but it would run counter to the policy pursued by UK governments, and be limited by the level of funding made available to the Department of Agriculture, Environment and Rural Affairs.86 It is clear then that it is the certainty that the CAP provides that has led the UFU to favour remaining in the EU even though farming income in Northern Ireland has fallen dramatically.
69.There has been a precipitous fall in Northern Irish farmers’ income from farming, which means the future of agricultural support is a particular concern for the sector. Without support, much of Northern Ireland’s agriculture would be unviable. In the event of a vote to leave the EU, a new system of agricultural support should be high on the agenda of both the UK Government and the Northern Ireland Executive.
65 See DAERA, Statistical Review of Northern Ireland Agriculture 2015, p 19-21
66 NI Executive, Economic Strategy, March 2012
67 Agri-Food Strategy Board, Going For Growth, May 2013
68 The sum of sales to Northern Ireland and the rest of the UK.
69 The sum of sales to the Republic of Ireland and the rest of the EU.
71 WTO, World Trade Tariffs, 2015, p 75
72 Because trade tariffs are excepionally complex, with different rates applied to similar products (for example, to milk with different fat content or two different cuts of beef) or the form it is exported in, we have just included the average tariffs. A full breakdown is available from https://www.gov.uk/trade-tariff/sections
73 DAERA, Statistical Review of Northern Ireland Agriculture, 2015, p 23
74 DAERA, Northern Ireland agricultural incomes in 2015, Statistical Press Release, 28 January 2016
75 Basic Payment Scheme Debate Pack, CDP2016/0026, House of Commons Library, January 2016, p.10-11
76 “CAP Allocations Announced”, GOV.UK Press Release, 8 November 2013
79 DAERA, Northern Ireland agricultural incomes in 2015 Statistical Press Release, 28 January 2016. We were told that dairy prices had fallen so dramatically due to a combination of high production, falling demand, particularly in Asia, and the EU embargo on exports to Russia.
81 Sam McBride, ‘After Brexit, Farm Subsidies Could Be Even Bigger: Villiers’,The Newsletter, 5 March 2016
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25 May 2016