What now for direct support to farmers in Northern Ireland post-Brexit?

A key issue within Northern Ireland since the UK’s decision to leave the EU in June 2016 is exactly how this decision will affect local farming?

The significance of agriculture within Northern Ireland

Compared to other parts of the UK, agriculture remains a significant industry within Northern Ireland, employing 47,979 (total farmers and workers in 2015) and accounting for 1% of Northern Ireland’s Gross Value Added (GVA), as compared to the overall UK figure of 0.6%.

A recently published assessment of the Contributions of UK Agriculture completed by Development Economics and commissioned by the National Farmers Union, estimated that the monetised benefits of agriculture to the UK that included elements such as purchase of goods and services, countryside use for recreation, and habitat and species protection generated benefits to costs for the entire UK at a ratio of 7.4:1 in 2015.

With specific regards to Northern Ireland, the report identified the total procurement expenditure of agriculture here on items such as feed and seed, fertiliser, fuel, and vehicles to have been £486 million in 2015. Additionally, local agriculture generated further economic benefits through the workings of multiplier effects to the tune of £214 million in 2015.

The significance of direct payments to local farmers

There are legitimate concerns around the underlying ‘health’ of the agricultural industry here, particularly in relation to its income and associated economic sustainability.

Local farm incomes are heavily reliant on direct income support in the form of the EU’s Basic Payment Scheme, which is a key component of the EU’s Common Agricultural Policy (CAP). Farm income data covering the 2014-15 period reveals that direct payments accounted for 103% of Farm Business Income (FBI) in Northern Ireland. [UPDATE: Newly released DAERA farm income statistics from 2016 reveal that when measured across all farm types, average direct payments now represent 169% (see page 15) of the value of average Farm Business Income.]

Looking at the Farm Business Income (FBI) data on an agricultural sector basis also reveals that certain parts of the industry are more vulnerable than others to any changes to the existing direct payments regime. As set out in table 1 and based on 2014/15 data, the cereals and cattle and sheep sectors could face particular difficulties if direct payments either altered or halted post Brexit.

Table 1: Farm Business Income including and excluding direct payments in 2014/15 (£ per farm)

Critical issues

Given both the economic significance of local agriculture and its reliance on direct payments there are a number of critical questions for the future of agriculture post Brexit. Whilst there may be aspirations for UK agriculture to move towards such a model with either reduced or non-existent subvention, the reality is that this is not where we are at in 2017, and as such there are a number of critical questions for our local agriculture in the short to medium term.

Can direct payments to local farmers continue outside the EU?

At a basic level, there appears to be the potential for direct payments to continue outside the EU. A recent Assembly Research briefing paper looking at forms of farm support/subsidy operated in a range of countries highlighted the fact that at least nine countries/jurisdictions outside the EU either do or can directly provide cash to individual farmers providing they meet certain conditions.

The OECD data utilised in this paper identified the EU as being broadly mid ranking in terms of overall agricultural support to farmers. Whilst recognising that the EU data covers all 28 Member States and cannot be broken down for either the UK or Northern Ireland (save for percentage in agricultural employment) it does suggest that more or less could be done within the UK to support agriculture based on the data from other countries. With regard to doing more, Norway and Switzerland appear to be the most generous in relation to direct payments whilst the approach taken in Australia or New Zealand could be seen as doing the least, with neither using annual direct payments but having the means to make one off payments under certain environmental or natural disaster conditions.

Whilst there could be potential for payments to continue, a key issue here will be as to whether any such regime would be compliant with World Trade Organisation (WTO) rules. Current WTO rules and commitments under Uruguay Round Agreement on Agriculture effectively set limits on the level and types of support that countries can provide in terms of domestic support to farmers.

Is there the political will within the UK Government to make direct payments to farmers?

The answer to this question is hard to accurately assess and does appear to have varied pre and post referendum. Given the eventual outcome in the referendum it probably makes most sense to focus on the views of those on the winning ‘leave’ side. Within this context, in the run up to the EU membership referendum there were those on the ‘leave’ side who claimed that direct payments either could or would continue for UK farmers outside the EU at either a comparable or higher level with notable quotes including the following:

If the UK left the EU, there would be an £18bn a year ‘Brexit dividend’ in savings. Could we find the money to spend £2bn on farming and the environment? Of course we could. Would we? Without the shadow of a doubt. –George Eustice, DEFRA Farming Minister, NFU Conference, February 2016

Following the referendum result it would be fair to say that there has been less public commentary or commitment in relation to either the nature or continuation of direct payments to farmers across the UK. Indeed, some of what has been said could be said to be contradictory to the pre-referendum statements. Attending the Oxford Farming Conference on the 4^th January 2017, George Eustice, the UK Farming Minister revealed the following:

If subsidies equal direct payments, of course we want to move away from that. We want support to help farmers improve productivity, and target the support at active farmers. We can design a system which does that.

The UK Government’s White Paper on the Brexit process, published on the 2^nd February 2017, also built on this statement making no commitment to the continuing direct payments, rather proclaiming:

In addition, and with EU spend on CAP at around €58 billion in 2014 (nearly 40 per cent of the EU’s budget), leaving the EU offers the UK a significant opportunity to design new, better and more efficient policies for delivering sustainable and productive farming, land management and rural communities. This will enable us to deliver our vision for a world-leading food and farming industry and a cleaner, healthier environment benefiting people and the economy.

Could the NI Executive make a unilateral decision to continue with a direct payment regime?

In theoretical terms this could be possible, but there could be challenges. Agricultural policy is a devolved issue and as such the NI Executive currently has the ability to develop its own policy responses to meet the particular needs of local agriculture. The operation of the current CAP within the UK jurisdictions highlights the flexibility that devolution has enabled with key decisions around operation of the CAP support schemes showing variation and adaptation to local circumstances and needs.

Within this context, it should be noted that the UK Government does appear committed to the development of a UK framework for agriculture, as revealed by Farming Minister George Eustice at the Oxford Farming Conference on the 4^th January 2017:

We need to work in cooperation with the devolved administrations to work out what kind of UK framework we need to make sure there’s as much discretion as possible to create policies that work for them. We need a UK framework to replace what’s decided at an EU level now.

There could, however, be potential cause for concern at this policy position, as it could be interpreted as representing an intention to centralise and standardise agricultural policy for the UK, rather than empowering the devolved administrations to make their own tailored decisions and associated provisions. If this analysis is correct, the ability of the NI Executive to introduce a form of direct payments could potentially be either prohibited or severely restricted, and as such this is an issue which would benefit from clarification.

At a more practical level, and premised on the NI Executive actually being able to make a decision to continue direct payments, there would be financial implications to the Executive and Department for Agriculture, Environment and Rural Affairs (DAERA) budgets from any such decision. HM Treasury’s statement of funding policy relating to the funding of the UK’s devolved administrations in Scotland, Wales and Northern Ireland, contains a number of key principles that may have implications for Northern Ireland, if the decision was made to introduce a local cost of production payment plus an index linked amount to farmers.

In particular principle 1.17.10 states the following:

…where decisions taken by any of the devolved administrations or bodies under their jurisdiction have financial implications for departments or agencies of the United Kingdom Government or, alternatively, decisions of United Kingdom departments or agencies lead to additional costs for any of the devolved administrations, where other arrangements do not exist automatically to adjust for such extra costs, the body whose decision leads to the additional cost will meet that cost…

Under these terms, and theoretically speaking, the creation of a Northern Ireland specific direct payment might potentially have a financial implication for other departments/agencies across the UK. In such instances, HM Treasury can adjust a devolved administration’s budget (as set out in section 6.8.2 of the statement of funding) by either requiring it to make payments to other departments across the UK in respect of costs accrued, or alternatively by directly reducing the Departmental Expenditure Limit (DEL) of the devolved administration.

Any theoretical cut to DEL levels, i.e. those public expenditure funds which local departments can decide how they wish to spend, could mean that DAERA or the Executive would be forced to make decisions on how to balance the books, a process which could see the cutting or reduction of certain services.