At long last we have the first glimpse at what Brexit might look like and to be honest it does not look too pretty. When I canvassed opinion of my clients and other farmers leading up to the vote, it was clear that about 75% were in favour of leaving, so the result was no surprise to me. However it took Westminster and the City by complete surprise.
What voters were not asked is what sort of Brexit they would like. I think some are now wishing they had been; what is sauce for the goose is not so for the turkey and some in the industry might just be beginning to feel that they have been a bit like turkeys voting for Christmas. Having just spent some time on farms in New York State the feeling of shock is rather similar, although I think their ‘turkey’ had shown his ‘feathers’ only too clearly and left the voters in no doubt what they were voting for! Whilst most farmers seem to have voted for ‘croked Hilary’ they appear somewhat relieved not to have got her. Whilst we agonise over the impact of Brexit, I was fascinated to discover that farmers in New York State pay rates on their agricultural land at a similar level to which UK farmers receive BPS payments.
As I write Chancellor Philip Hammond is giving his budget statement which is expected to be dominated by the costs of Brexit, with reports suggesting the cost of withdrawal from the EU could reach £100 billion over a five year period. Furthermore he is proposing a 4% increase in the National Living Wage for those over 25. None of which is necessarily good news for business owners and employers.
If you are a dairy or beef producer you are probably feeling quite positive about Brexit with a weak pound for exports and no great concerns if we can’t stay in the single market with tariffs subsequently applied. However, if you are a lamb producer or a cereal farmer you might feel very differently. We are a massive exporter of lamb and whilst we are a net importer of cereals, we tend to export a lot of what we produce and import bread and biscuit wheat as well as malting barley. We also need to consider our raw material sources. So much of what we use is imported, from power in the form of gas, oil and electricity to feed stuffs such as soya, and machinery such as the ubiquitous dark green tractors and the light green harvesters.
Whichever sector farmers are in, they certainly need to take stock and make a plan. Planning does not need to be a complex, convoluted process but it does need some clear, strategic thinking and a formulated, mutually agreed plan. It might just be a few notes on a scrap of paper following family discussion, but it is vital to the long-term future security of the business. There are key questions to ask. What is the worst case scenario, what is the best, what is the most likely and how would your business cope in each case? Plan for the worst and hope for the best.
One area that needs careful thought is borrowings. Interest rates are at record low levels; will they stay there with a weak pound and inflationary pressures from rising import prices? Probably not and the Governor of the Bank of England suggested that he is not opposed to the increase in interest rates if necessary. Is it time to fix interest rates on some of your borrowing? Fixed rates for long-term money have begun to rise, but it is not too late to act and they are still very reasonable.
Whatever you do about borrowing, review and plan based on your own unique set of circumstances. Don’t look back in three year’s time and wish you had thought about it. As Agents for the Agricultural Mortgage Corporation we know that there are some very competitive long-term fixed rates in the market at the moment. Equally we are well equipped to help you with reviewing all aspects of your current business and help you plan for the future. Don’t let fear of the unknown create inertia in your business; be bold and find the best way forward.
Mike Taylor BSc (Hons), FRICS, FAAV, FNAEA is Senior Partner of Barbers Rural and advises on the RICS Rural Board.