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A Detailed Guide To Brexit For The Farming And Agriculture Industry

The EU referendum vote on 23 June 2016 in favour of the UK leaving the EU (Brexit) has created uncertainty in the agricultural sector.

Issues of particular relevance for farmers and rural land managers include:

1) The type of agricultural policy that will replace the Common Agricultural Policy (CAP), and the future of agricultural subsidies and payments for environmental land management. Agriculture currently obtains a considerable amount of funding from the EU budget under the CAP.

2) The effect of the future UK-EU trade model on prices and profits. At present, a high percentage of UK agriculture exports go to other EU member states, and the EU’s common external tariff on agricultural produce protects prices.

3) The extent to which regulation derived from EU law will continue to apply. Agriculture is currently subject to a substantial body of EU regulation.

4) The availability of migrant labour after Brexit. Some agricultural sectors in the UK rely heavily on migrant labour.

This article summarises the findings of some of the main reports that have addressed the likely legal implications of Brexit for the agricultural sector and rural land, and the possible consequences for the UK agricultural policy. The post-Brexit position will be heavily influenced by the outcome of trade negotiations with the EU and the government’s decisions on what EU-derived laws they want (or are able) to retain, amend or repeal.

The practical and legal consequences of Brexit are further complicated by the high degree of integration that currently exists between EU and UK agricultural and environmental legislation, and the significant differences between England and Wales in the implementation of EU requirements. Agriculture and environmental protection are largely devolved matters. While Brexit brings some scope for deregulation and new UK policies, it may also herald increased national divergence in the absence of a common EU legal framework.

Uncertainties over the future of the CAP and the character of any replacement UK agricultural policies raise various practical problems, particularly for parties in long-term tenancy agreements or other contractual arrangements that are likely to remain in force after Brexit. They should consider reviewing such arrangements to check that they will still operate as intended. For example, provisions dealing with the CAP may require broader drafting that attempts to cover potential replacement UK agricultural policies, and the parties may want to add a mechanism to resolve disputes.

Brexit withdrawal procedure and timetable

Article 50 of the Treaty on European Union sets the procedure and timetable for Brexit. The UK must formally notify the European Council of its decision to withdraw from the EU. Once notification is given, the UK has two years to negotiate a withdrawal agreement with the EU. Any extension of the two-year negotiation period requires unanimous agreement of all 27 remaining member states.

At the time of writing, the UK has yet to decide when to trigger Article 50.

UK remains subject to EU law during negotiation period

During the negotiation period, the UK remains a member of the EU. EU obligations, such as the CAP requirements, will continue to apply.

Basic legal implications of Brexit

The main legal implications of Brexit are as follows:

  • EU treaties will stop applying to the UK at the end of the negotiation period (Article 50). However, some rights could continue after Brexit as vested or acquired rights. Some commentators have queried whether such vested rights could include rights to CAP payments.
  • During the negotiation period, the UK government and Parliament must consider what aspects of EU-based UK legislation they want to keep, amend or repeal. A recent House of Commons Briefing considers that the starting point is likely to be repealing the European Communities Act 1972 (ECA 1972), perhaps with savings provisions. The ECA 1972 incorporates provisions of the EU treaties into UK law. Secondary legislation made under the ECA 1972 transposes into UK law much of the legislation that affects agriculture, such as environmental regulation.

CAP after Brexit

Until Brexit, the current CAP rules continue to apply. Most commentators agree that Brexit implies exit from the CAP, since the CAP only applies to full members of the EU, and that alternative trade models would not include a CAP element. There is some uncertainty over the timescale of exit from the CAP following Brexit and whether there will be any transitional arrangements. The Institute for European Environmental Policy Brexit report (IEEP Report) presumes that on Brexit, UK agricultural policies will replace the CAP.

As regards the character of replacement agricultural policies, commentators have suggested that:

  • There could be a reduction in the level of direct payments.
  • There could be an increased emphasis on rural development payments.
  • Payments under current agri-environment agreements are likely to continue to be made for the duration of their contractual terms.

Implementation of the CAP in the UK is a devolved matter and differs between England and Wales. The Worshipful Company of Farmers’ Brexit report (WCF Report) points out that there is generally a higher degree of dependence on CAP payments in Wales than in England, so different regional views will be an important factor in the debate over post-Brexit agricultural policy. The Brexit report for the Yorkshire Agricultural Society (YAS Report) expects differentiation to continue after Brexit, if not increase.

Are CAP payments likely to continue after Brexit?

Most commentators agree that the UK is likely to provide some budgetary support for agriculture after Brexit, but whether the level of support will match current CAP funding is unclear:

  • A Trinity College Dublin Brexit paper (TCD Report) believes that the UK Treasury is unlikely to cut all spending in terms of direct payments, but a lower level can be expected.
  • The YAS Report notes that following Brexit, at some point the UK will become responsible for funding UK agricultural policy measures, and the Treasury could see Brexit as an opportunity to reduce the overall cost of payments to farmers. The most likely scenario, according to the YAS Report, would be the continuation of BPS payments as a reducing percentage of the historical figure.

The government has not given any firm indication of the level of future support. If budgetary support continued after Brexit outside the CAP, the UK would also have to decide the extent to which such payments would continue to be subject to conditions.

What might happen to rural development support after Brexit?

Most commentators predict a shift away from direct payments and towards rural development:

  • The YAS report sees direct payments as more vulnerable to attack than rural development payments, partly because the latter involve contractual commitments that have a number of years to run.
  • The IEEP Report takes a similar stance, noting that the established Treasury view suggests that direct payments should be seen as transitional compensation, which is phased out over a reasonable adjustment period, with the residual core of agricultural policy comprised of rural development measures.

The House of Lords European Committee has also recently flagged the importance of issues traditionally associated with the rural development side of the CAP and cross compliance, and has recommended a restructuring of agricultural policy to support the provision of public goods. (Public goods are those matters outside the private concerns of a subsidy recipient, such as animal welfare, environmental stewardship, increased food security, environmental sustainability and climate change mitigation).

The WCF Report suggests that the main elements of current RDPs will continue in a UK policy with objectives of improving agricultural productivity and marketing, purchasing public environmental services from farmers, supporting rural infrastructure and encouraging economic diversification.

According to the IEEP Report, it would be surprising if the new national policies did not make significant provision for agri-environment schemes, as the UK was one of the pioneers of such schemes. However, the IEEP Report also warns that the funds for agri-environment measures could well be reduced, perhaps substantially. It concludes that Brexit is likely to lead to less financial support for environmentally sensitive farming and a more free market approach.

The Natural England Press Office has said:

“The current position is that the UK remains a member of the EU. We continue to engage with EU business and decision-making as normal and Rural Development Programmes (RDP) across the UK remain in place. Defra is working with the Treasury to get clarity on the future of RDP/Countryside Stewardship (CS) funding and an update on future funding under current EU schemes will be made as soon as possible.”

Are payments under existing agri-environment agreements likely to continue after Brexit?

The contractual terms of some agri-environment agreements entered into before Brexit will extend into the post-Brexit period. If the ECA 1972 is repealed, the authors of the YAS Report see no reason why this would affect the legal status of existing agri-environment agreements after Brexit. Natural England has its own statutory power to enter into management agreements with landowners under other domestic legislation.

After Brexit, the source of funding for agri-environment agreements entered into before Brexit is unclear. Some commentators have suggested that EU funding might well be withdrawn if no transitional arrangements are agreed, with Natural England remaining responsible for funding agreements in England until the contractual terms of such agreements expire.

Agreement-holders may want to check the terms of their agri-environment agreements to identify the circumstances under which Natural England has the ability to terminate or vary them.

Implications for agriculture of the UK-EU trade relationship after Brexit

The post-Brexit trade model will significantly influence the extent to which EU law will continue to affect UK agriculture and rural land. A House of Commons Briefing has observed that the Brexit negotiations are likely to see a trade-off between the level of access to the single market and freedom from EU product regulations, social and employment legislation, and budgetary contributions.

There is currently a strong trading relationship between the UK and the EU in food and agricultural products. 73% of the UK’s agricultural (food and non-alcoholic drink) exports go to the EU, according to data presented at the Oxford University Brexit Seminar Series (OU Seminar). At present, EU membership gives the UK access to the single market. EU member states are part of a customs union, with no tariffs on goods moving between member states, and a common external tariff applied to goods entering from outside the EU. The EU also has exclusive competence to negotiate trade and investment agreements with countries outside the EU.

Brexit commentators have suggested various alternative trading relationships between the UK and the EU after Brexit. These include the following models:

  • European Economic Area (EEA) membership (like Norway). The IEEP Report notes that if the UK stays within the EEA after Brexit, the majority of EU regulations relating to agriculture would continue to apply to the UK (with the exception of the Birds Directive and Habitats Directive).
  • European Free Trade Association (EFTA) membership and bilateral trade agreements with the EU (like Switzerland).
  • Customs union with the EU (like Turkey).
  • Free trade agreement with the EU (like Canada).
  • Trading with the EU as a World Trade Organisation (WTO) member. This is the default option if the UK fails to negotiate a free trade agreement with the EU before Brexit. Commentators tend to agree that the WTO model gives most potential for deregulation, but also generally observe that exports to the EU would continue to be subject to many EU regulatory standards for food and agricultural products, and that trade would be subject to WTO rules.

The TCD Report points out that agricultural trade is, in principle, excluded from the first three of these models, although covered by separate bilateral agreements which grant limited preferential access to both sides.

The implications of these models for agriculture are complex, and are analysed in detail in the TCD, WCF and YAS Reports

Since the CAP only applies to full members of the EU, none of these models include CAP access.

EU-based legislation relevant to agriculture and rural land after Brexit

Agriculture and the management of rural land in the UK is subject to a considerable body of EU law covering areas such as farm pollution, food safety, animal identification, animal health and welfare, plant health, pesticides control, and environmental protection for habitats and species.

The future of EU-based legislation relevant to agriculture depends partly on the outcome of trade negotiations and the nature of the UK’s future relationship with the EU. For example, non-EU members of the EEA adopt the majority of EU law in return for access to the single market.

The IEEP Report includes the following observations:

  • If the UK remains inside the EEA, most EU environmental law will continue to apply to the UK (such as the Nitrates Directive, Waste Framework Directive, GMO Release Directive, and most of the Water Framework Directive). The Birds Directive and Habitats Directive would no longer apply, as they are outside the EEA agreement, leaving a future government free to change UK legislation implementing those two Directives. (Most key sites protected under the Birds and Habitats Directives are also protected under domestic legislation as sites of special scientific interest (SSSIs). However, the level of protection is lower.)
  • If the UK leaves the single market, avoiding the strong influence exerted by the EU in the EEA and EFTA countries, there is a significantly higher probability that regulations will be withdrawn, including those with environmental objectives.
  • Some of the EU standards relevant to agriculture apply to any UK exports to the EU, so will either continue in force after Brexit or remain very influential.

Obligations that have already been incorporated into UK implementing legislation will continue to apply until that legislation is repealed or amended. EU Regulations are directly applicable in member states, but much EU legislation has been transposed into UK law via primary and secondary domestic legislation. For example, many requirements of EU Directives have been transposed by statutory instruments under powers granted by section 2(2) of the ECA 1972.

The YAS Report observes that if Brexit were followed by the repeal of the ECA 1972, in principle the subordinate legislation made under the ECA 1972 would also fall. It considers it likely that any Bill to repeal the ECA 1972 would have to be drafted with a saving clause providing for the continued application of legislation made under the ECA 1972 until a decision on the repeal of that legislation could be made.

Cross compliance after Brexit

The UK will have to decide the extent to which the cross compliance conditions will continue to apply after Brexit. At present, a recipient of CAP direct payments or agri-environment payments must comply with the cross compliance conditions. This link between payment and compliance gives leverage for the enforcement in the UK of broader EU policies, particularly environmental regulation. Farmers and land managers subject to cross compliance must observe the following standards and conditions or risk payment reductions and penalties:

  • Statutory management requirements (SMRs). The SMRs reflect the requirements of EU law such as the Nitrates Directive (SMR 1), Birds Directive (SMR 2), Habitats Directive (SMR 3) and EU Regulations and Directives on food safety, identification and registration of animals, animal diseases, plant protection products and animal welfare.
  • Standards for good agricultural and environmental condition of land (GAECs). EU law sets out a broad framework for GAECS, but each member state decides their own detailed rules. In the UK, this is a devolved matter, enabling variation in GAECs between England and Wales.

The UK GAECs legislation implements the cross-compliance requirements of EU law. However, it also cross refers to, and requires compliance with, a range of other primary and secondary UK environmental legislation. Until Brexit, these cross compliance conditions will continue to apply. The position after Brexit is less clear, and will depend on the extent to which cross compliance remains a part of UK law. The IEEP Report points out that if, after Brexit, agricultural payments are phased down and perhaps out, then the leverage of environmental conditionality attached to those payments is diminished, and perhaps lost.

Animal health and welfare after Brexit

Much of UK law relating to animal health and animal welfare implements broader EU policies. A common approach to these issues assists trade in live animals and products of animal origin within the EU.

In the UK, the Welfare of Farmed Animals (England) Regulations 2007 (SI 2007/2078) and the Welfare of Farmed Animals (Wales) Regulations 2007 (SI 2007/3070) implement a range of EU directives that protect farm animals and set minimum standards. These Regulations also reflect the requirements of the European Convention for the Protection of Animals Kept for Farming Purposes (Convention). All member states have ratified the Convention and must take account of its requirements when implementing EU legislation, which makes it unlikely that Brexit would bring major changes to the current UK animal welfare framework.

After Brexit, the UK’s ability to depart from the EU rules will depend partly on trade restrictions. For example, the UK may want to impose more rigorous standards.

Policies on GMOs and plant protection products after Brexit

The IEEP Report suggests that after Brexit, some change could be expected in UK policies on genetically modified organisms (GMOs) and plant protection products.

The YAS Report observes that although plant protection products restricted by the EU could, in principle, be used by the UK after Brexit, there would be substantial political pressure to oppose this by a strong domestic environmental lobby. It also points out that there is an international movement to harmonise plant protection regulations globally, coordinated by the Organisation for Economic Co-operation and Development, of which the UK would remain a member.

It is possible that differences between England and Wales in their approaches to GMOs could increase following Brexit, but whether this happens remains to be seen. EU law currently regulates the release of GMOs into the environment and the marketing of GMOs through the GMO Release Directive. Its provisions are implemented in England and Wales under the Environmental Protection Act 1990, supplemented by the Genetically Modified (Deliberate Release) Regulations 2002 (SI 2002/2443) in England and the Genetically Modified Organisms (Deliberate Release) (Wales) Regulations 2002 (SI 2002/3188.)

Availability of EU labour after Brexit

Some agricultural sectors in the UK rely heavily on migrant labour, which ranges from seasonal work in the labour-intensive fruit and vegetable sectors to more permanent work in the dairy sector. According to data presented at the OU Seminar, around 22,000 (65%) of the 34,513 non-UK full-time employees are from the EU, and labour-intensive seasonal workers schemes are also highly dependent on EU labour, with 21,250 workers from Bulgaria and Romania alone. The availability of unskilled and semi-skilled migrant labour after Brexit will depend partly on the outcome of trade negotiations with the EU and the UK’s ability to impose restrictions on the free movement of people, such as eligibility requirements to obtain work visas.

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