What does Brexit mean for the UK's rural sector?
The 21-month transition period is well rehearsed, as is the backstop of a UK-wide customs union with special treatment for Northern Ireland. But what does the Agreement propose for agriculture; for leaving the Common Agriculture Policy (CAP) and freedom for the UK to do its own trade deals?
Given that agricultural and rural support is the largest part of the EU budget, it’s not surprising that it gets a special mention in the Agreement. While the UK would only be obliged to follow the EU rules on farm payments in 2019, payments in 2020 will only be permitted under the transitional state aid rules if the UK’s replacement payments scheme remains “equivalent” to the EU’s. So in practice, the EU’s rules on payments will still apply.
If the transition was extended beyond 2020, the UK would have more freedom on structuring farm payments but would be subject to an overall spending limit of the CAP support provided in 2019, as well as having to comply with WTO constraints. Under the backstop, a maximum annual level of support would be set by a joint UK-EU committee. These requirements would at least appear consistent with the framework proposed by Defra that the UK will continue to support agriculture to the same level until 2022.
In terms of trade, the UK could reach agreements with countries outside the EU during transition, as long as they did not come into effect until afterwards. There are also constraints designed to prevent the UK negotiating with others in a way that was prejudicial to the EU during that time. The backstop arrangement would also prevent the UK agreeing to reduce tariffs on goods from non-EU countries. So an immediate new dawn of free trade in March 2019, or even at the end of a transition period, seems unlikely. That said, the continuation of frictionless UK-EU trade during the transition period, and the political declaration’s plan for a free trade area post-transition, has been broadly welcomed by most agricultural industry representatives.
Although the backstop being made UK-wide is designed to avoid special arrangements for Northern Ireland, there are, inevitably, special provisions. In particular, EU regulations on agriculture and food would still apply in Northern Ireland, including rules on livestock, agrichemicals, food hygiene and phytosanitary matters. Britain and Northern Ireland would therefore only remain aligned on those issues if the UK as a whole continued to abide by EU rules (although it is not clear that the UK would want to diverge from EU standards in those areas). For Scottish producers trading with Northern Ireland it remains unclear what, if any, effect these backstop arrangements might have.
At the time of writing this all remains highly provisional. While the agreement has been signed off by the Governments of the UK and the EU27, and farmers unions have declared it as an “opportunity that needs to be taken”, it must still pass through the UK and European Parliaments. However, it does start to crystallise issues, and encourages us to think about how Brexit might really look for the farms and estates of rural Scotland, and the food and drink sector reliant upon them. And it will no doubt influence the development of agricultural policy and support in Scotland as the Scottish Government sets its mind to that task.
Clive Phillips is Head of Land & Rural Business at Brodies LLP