Brexit: agriculture Contents

Summary of conclusions and recommendations

Withdrawing from the Common Agricultural Policy

1.Leaving the Common Agricultural Policy and the European Union will have fundamental implications for the agricultural sector in the UK. In the long term the UK has an opportunity to review and improve its agriculture, environment, and food policy, better meeting the needs of the agriculture sector, the environment and consumers. But in the short term, the Government will need to work closely with the industry to help it respond to critical challenges: forging new trading arrangements with the EU and the rest of the world; providing regulatory stability and clarity; addressing the future of funding for the agricultural sector; and ensuring access to labour. (Paragraph 21)

Future trade in agri-food products

The UK’s new WTO schedules of concessions

2.In our report Brexit: trade in goods we concluded: “When establishing its own schedules at the WTO, the UK Government must give particular consideration to the implications of tariffs on the UK agricultural sector. High tariffs on imports would raise the cost to UK consumers, whereas lower tariffs could reduce the cost of food to consumers, but might undermine the domestic agricultural sector’s competitiveness.” We endorse this conclusion and underline its importance. (Paragraph 67)

3.Reaching agreement on dividing the EU’s Tariff Rate Quotas for agricultural products could be challenging, not least because the proposed reallocation will be open to negotiation by WTO members, not only the EU. We urge the Government to analyse the current patterns of trade under existing TRQs and the implications of a proposed split on the agricultural sectors and food manufacturers that benefit from the current TRQs in preparation for these negotiations. (Paragraph 68)

4.There is no precedent for splitting the Aggregate Measurement of Support—or the Amber Box entitlement—and in our view the Minister was over-confident that other WTO members would accept such a split. We invite the Government to confirm that it is considering alternatives, should the split be contested. (Paragraph 69)

Negotiating a UK-EU trade agreement

5.The UK is a net importer of food and therefore a very attractive market for agri-food products both from the EU and globally. We expect this to give the UK a strong position during trade negotiations for those products both with the EU and, after Brexit, with third countries. (Paragraph 107)

6.Nevertheless, leaving the Single Market and the Customs Union will create significant uncertainty for the UK agri-food sector. The EU is the single largest market for UK agriculture and food products, and our witnesses were clear that preserving tariff and non-tariff barrier free trade with the EU should be a priority. If the UK leaves the EU without agreeing a comprehensive UK-EU FTA, or a form of transitional arrangement, UK-EU trade would have to proceed according to WTO rules. Many of our agricultural producers, and our food manufacturers, would incur substantial costs associated with tariff and non-tariff barriers when exporting to the EU, with sectors such as pig and sheep meat at particular risk. (Paragraph 108)

7.Moreover, the agricultural and food manufacturing sectors are integrated into EU-wide supply chains. It is imperative that a UK-EU trade deal should avoid the imposition of tariffs on trade in both directions, to minimise the potential for disrupting those supply chains. (Paragraph 109)

8.Non-tariff barriers could be equally if not more disruptive to trade in agricultural products and food. Products must meet the standards of the EU market in order to enter it. If UK and EU regulatory frameworks begin to differ after Brexit, there is a risk of substantial non-tariff barriers for agri-food producers. The greater this divergence, the greater the need for customs checks and certification of products and production facilities. This could be costly and time consuming for UK farmers and food manufacturers wishing to export to the EU. (Paragraph 110)

9.In our report Brexit: trade in goods we urged the Government “to maintain close dialogue with the EU over the development of UK and EU standards post-Brexit, to avoid unnecessary divergence.” We endorse and re-state this recommendation. (Paragraph 111)

10.Customs procedures and associated delays would have a particularly strong negative impact on the agri-food sector, where products are often perishable and food supply chains are highly integrated across the UK and the EU. (Paragraph 112)

11.Agri-food supply chains are particularly highly integrated between Northern Ireland and the Republic of Ireland. The re-introduction of border controls and tariffs could severely disrupt this industry, and could lead to an increase in cross-border smuggling. We therefore repeat the recommendation made in our report on Brexit: UK-Irish relations that the Government should make every effort to avoid the re-introduction of customs controls on the Irish land border. (Paragraph 113)

New market opportunities

12.The EU is the UK’s biggest trading partner for agricultural and food products. The evidence suggests that, for a considerable period of time, it will not be possible to off-set this trade by increased trade with third countries or by expansion of domestic markets. (Paragraph 146)

13.As an EU Member State, the UK has access to preferential trade agreements with a number of third countries. As we have concluded in successive reports, we doubt that UK participation in these agreements can be preserved after Brexit. It is essential therefore that the Government should, as a matter of urgency, clarify whether or not such agreements could indeed be grandfathered to preserve preferential trade arrangements for agri-food products. (Paragraph 147)

14.Our witnesses were concerned that increased trade with third countries that operate different—often less stringent—regulatory standards than the UK could render UK producers uncompetitive in the domestic market due to an influx of cheaper products produced to lower standards. (Paragraph 148)

15.It could also lead to increased pressure on the Government to reduce standards domestically in order to lower the cost of production and increase price competitiveness. Yet we note that UK producers are proud of their high standards, and that our witnesses questioned whether consumers would welcome such a downward trend in current standards. (Paragraph 149)

16.In looking to expand trade in the longer term with third countries, such as China, we also heard that high standards were crucial to the British brand. The Government should therefore maintain the current standards to enable the export of UK food and farming products. (Paragraph 150)

17.We welcome the Government’s commitment to maintaining high levels of animal welfare in the UK. There is some doubt over whether animal welfare can be used as a rationale to restrict imports from other countries under WTO rules. However, we encourage the Government to secure the inclusion of high farm animal welfare standards in any free trade agreements it negotiates after Brexit. (Paragraph 151)

18.In developing new trading relations with the EU and the world, the Government will need to balance the sometimes conflicting needs and expectations of farmers, consumers and trading partners with respect to quality and costs. (Paragraph 152)

19.It may be hard to reconcile the Government’s wish for the UK to become a global leader in free trade with its desire to maintain high quality standards for agri-food products within the UK. Striking this balance will require extensive consultation with both industry and stakeholders. We note that it will be challenging to complete such a consultation in the two-year period set out by Article 50. (Paragraph 153)

Transitional arrangements

20.Despite the regulatory conformity between the UK and the EU, there is broad consensus among experts—including those on the EU side—that it will not be possible to negotiate and conclude a comprehensive free trade agreement with the EU within two years. It is therefore essential that the Government should agree transitional arrangements with the EU, in order to mitigate the potentially disastrous effects of trading on WTO terms on the agricultural and food sectors. (Paragraph 156)

21.In our report on Brexit: trade in goods we concluded that it was “critical that the Government considers negotiating access to the EU’s preferential trade arrangements with third countries for a transitional period”. We reiterate that conclusion: the fact that the UK may not be able to grandfather existing FTAs with third countries makes it all the more important, particularly to the agri-food sector, that there should be a phased transition, so as to allow time for the UK to negotiate new FTAs with third countries. (Paragraph 157)

The regulatory framework

Potential improvements

22.Brexit presents a new and important opportunity to replace elements of EU agricultural regulation that are bureaucratic, ineffective or ill-tailored to farming conditions in the UK, for example the three-crop rule and farming by calendar dates. (Paragraph 174)

23.Any regulatory change will have to strike a balance between managing international obligations, consumer and public demands, costs for producers, and the conditions of any trade agreements. (Paragraph 175)

24.Significant divergence between the regulatory frameworks in the UK and the EU, by creating non-tariff barriers, could make it more difficult to continue to trade agri-food products after Brexit. As we noted in our report Brexit: trade in goods, an FTA with the EU is likely to require a legal commitment by the UK to maintain a high level of harmonisation or mutual recognition of regulations and standards with the EU. The scope for deregulation, while not negligible, may therefore be limited. (Paragraph 176)

Devolution

25.Farming landscapes vary significantly across the UK, and agriculture is rightly a devolved policy area. Though implementation of CAP policies already varies, Brexit will allow the devolved administrations to tailor agriculture policies even more closely to their farmers and land. (Paragraph 189)

26.But the UK has an internal single market, in which agri-food plays a significant role. It is in the interest of all in the agri-food sector, as well as of consumers, that the integrity of the UK market be preserved. This will require either a UK-wide framework or the negotiation of co-ordinated agricultural policies by the UK Government and the Devolved Administrations. We encourage the Government to pursue dialogue on this issue as a matter of urgency. (Paragraph 190)

27.Trade policy is a reserved matter, so the sum of agricultural policy across the UK must respect the UK’s external trade commitments. The UK Government will need to work closely with the Devolved Administrations to ensure that this is the case. (Paragraph 191)

Regulatory transfer

28.We heard strong support for the Government’s approach of an initial transfer of EU agri-food regulations into UK law via the Great Repeal Bill, followed by a considered review of where improvements could be made. (Paragraph 200)

29.We welcome the groundwork already completed in relation to transferring EU legislation on animal welfare and plant health into UK law, and invite the Government to confirm that the same process will soon be completed in relation to other aspects of agricultural legislation. (Paragraph 201)

Institutional governance

30.EU agricultural regulation is underpinned by European institutions that monitor and enforce much of the legislative framework and international commitments. The Government will need to either ensure that these institutions’ roles can be carried out by independent domestic bodies, or negotiate enduring relationships with the EU agencies and entities to ensure high standards of food safety and quality after Brexit. (Paragraph 207)

Withdrawing from CAP financial support

Funding in the context of Brexit

31.Many farmers rely on Pillar I and II funding to keep their businesses viable, and any substantial reductions in the level of support would have a significant impact on both the agriculture sector and the wider rural economy. The Government should clarify its intentions regarding financial support post-2020 as soon as possible to provide the certainty required to make investment decisions. (Paragraph 237)

32.Brexit provides an opportunity for the Government to evaluate not only the level, but the objectives and structure of financial support to farmers, and to design simpler support schemes which are effective in the context of UK agriculture. We note that this could include support for the rural economy or those in less favoured areas (such as hill farmers), for investment in technology to improve productivity, for environmental protection, or to ensure UK farmers are not at a competitive disadvantage compared to their EU counterparts. We encourage the Government carefully to review the needs of the agricultural sectors across the UK, and to consult with the industry, to ensure that any future support is targeted and effective. (Paragraph 238)

33.There is a case for continuing to provide financial support to farmers after 2020 to correct market failures and deliver public goods, such as environmental protection and ecosystems services, which would not otherwise be paid for. We welcome the Minister’s support for this position. (Paragraph 239)

34.Nevertheless, we recognise that agriculture will be competing with many other sectors for public expenditure. The agricultural sector will have to make a strong case to maintain financial support at the same or similar levels to that provided under the CAP. (Paragraph 240)

35.WTO rules may hinder the design of support schemes tailored to UK objectives. The Government should factor these constraints into its post-Brexit agriculture policy, and negotiate a share of the EU’s Amber Box allowance to maximise its options for designing an effective post-CAP support scheme. It should also consider how to support the provision of public goods through agriculture in the event it does not secure such a share. (Paragraph 241)

Funding and devolution

36.Farmers in the devolved nations are proportionally heavily dependent on the financial support provided by the CAP. Funding mechanisms post-Brexit, while ensuring that farmers across the UK continue to receive the support necessary to keep their industry productive and sustainable, will need to avoid distorting the UK’s internal agri-food market. (Paragraph 246)

Funding transition

37.Farmers will need a transitional period in order to adjust to any new financial support scheme, and to provide the certainty they need to invest and adjust their business practices. The duration of the transitional period should be based on consultation with the industry and reflect the magnitude of change being implemented. (Paragraph 251)

Access to labour

Scale and scope of EU labour

38.Many workers in the agricultural sector are often regarded as ‘unskilled’, but are in fact extremely skilled at sector-specific tasks such as crop handling and harvesting. We recommend that the Government recognise these skills when assessing labour needs and access to foreign labour after Brexit. We also welcome the Minister’s recognition that continued access to EU labour should be based on an assessment of the needs of the industry, rather than a simplistic distinction between skilled and unskilled labour. (Paragraph 264)

39.UK agriculture and food sectors are highly dependent on access to not only seasonal, but also permanent, skilled and unskilled (in terms of education level) workers from the rest of the EU. The entire food supply chain will be adversely affected by any loss of access to that labour pool. (Paragraph 265)

40.We particularly bring to the Government’s attention the overwhelming reliance of the sector on EU citizens providing veterinary services in abattoirs, which are essential to ensure compliance with food standards and regulations. (Paragraph 266)

41.The evidence we heard suggests the agricultural sector is already struggling to fill vacant positions and that this challenge is being exacerbated by the uncertainty surrounding the UK’s withdrawal from the EU. We therefore urge the Government to work with farmers and the food processing industry and to assist their recruitment efforts. (Paragraph 267)

42.In our report on Brexit: acquired rights we concluded that the longer the future of EU nationals in the UK is uncertain, “the less attractive a place to live and work the UK will be, and the greater labour market gaps will be”. This risk is already materialising in the agri-food sector, and we therefore repeat our call for the Government to clarify the rights of these EU nationals to remain and work in the UK. (Paragraph 268)

Filling the labour gap

43.In the short term, technology cannot materially reduce the UK’s need for EU agricultural labour; nor is there sufficient local labour to address the shortfall. Unless arrangements are made to preserve access to labour from outside the UK, the agri-food industry will suffer major disruption. (Paragraph 275)

44.The UK agri-food supply chain employs both seasonal and permanent EU workers, so a seasonal agricultural workers scheme alone, though a priority for our witnesses, will not be a sufficient measure for preserving access to labour. (Paragraph 276)

Resources

45.UK bodies, such as the food inspection agencies, will need additional resources if they are to take on roles currently fulfilled by EU institutions in relation to the agri-food sector. One of these new roles will be an inspection workforce working in countries with which we have FTAs to ensure the upholding of welfare and phytosanitary standards. (Paragraph 284)

46.Defra faces an enormous challenge in repatriating agricultural policy alongside fisheries and environmental policy, particularly given the heavy cuts in its budget over recent years. Its role in relation to the agriculture sector will also increase significantly. The Department will need significant numbers of additional staff, with appropriate expertise. We welcome Defra’s use of expertise from its agencies as an interim measure to inform policy development ahead of Brexit, but the Department will need to secure sufficient long-term resource. (Paragraph 285)





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