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UK farmers hold onto cash, cut investment on Brexit uncertainty
February 21, 2017 / 4:46 PM / 7 months ago

UK farmers hold onto cash, cut investment on Brexit uncertainty

* Access to trade, subsidies knock sentiment

* Farmers plan to cut machinery, land investment

* Uncertainty over subsidies after 2020

* GRAPHIC: tmsnrt.rs/2liQv0I

By Mariana Ionova

LONDON, Feb 21 (Reuters) - British farmers are holding back on big investments as they brace for the UK’s exit from the European Union, their largest market and a vital source of subsidies.

Agriculture enjoyed a brief boost after Britain voted to leave the bloc last June, when a weaker pound lifted profits by about 12 percent and subsidy payments by roughly 15 percent, the National Farmers’ Union (NFU) estimates.

UK food and drink exports rose nearly 10 percent to a record 20 billion pounds ($24.8 billion) in 2016, the Department for Environment, Food and Rural Affairs said on Tuesday.

While more cash on hand usually spurs investment, farmers have become cautious as the benefit of the weaker pound fades and lifts the price of imported inputs such as fertilisers.

“There’s big uncertainty ahead,” said Stuart Roberts, a cereals and cattle farmer with 1,400 acres of land in Hertfordshire and Kent. “The benefits we were seeing - that was always going to be a short-term gain.”

“Certainly, at the moment, we are not looking to do any big investments in the pure farming stuff like machinery, land, new tenancies.”

An NFU survey late last year showed British farmers on the whole plan to reduce spending on machinery by 26 percent and land investment by 31 percent over the next three years.

Some 37 percent of English farmland marketed in 2016 attracted no offers by the end of the year, up from 13 percent in 2015, data from property group Strutt and Parker shows.

Farmland values fell 2.6 percent in the fourth-quarter of 2016 compared with the third quarter, property consultant Knight Frank said.

“Medium-term confidence has been dented by increasing uncertainty about the EU and the higher cost base,” NFU economist Anand Dossa said. “People will put investment plans on back burners as a result of that uncertainty.”

Appetite for bank finance from the agriculture, hunting and forestry sectors is still growing at about 2 percent annually but has slipped from levels seen between 2012 and 2015, when demand rose by roughly 10 percent a year, Bank of England figures show.

The slowdown began before the June vote but has intensified in recent months and is expected to deepen in 2017, a spokesman for the British Bankers’ Association said.

‘TOUGHER TIMES’

British farmers received 2.8 billion pounds in support last year under the EU’s Basic Payment Scheme. Farming and environment minister Andrea Leadsom said on Tuesday that for some UK farmers this payment accounted for 70 percent of their bottom line.

The government has promised that these payments will continue until 2020, but the future beyond then is unclear.

“There is no guarantee how much will be available after Brexit,” said Graham Redman, a research economist at the Andersons Centre, a farm and rural business consultancy.

“But everyone is assuming it will be less. And if it is, we might have some economically tougher times to get through.”

Leadsom said Britain was looking to build new partnerships and strike the best free trade deals for Britain while noting that 60 percent of exports go direct to the EU.

“The EU is our most important trading partner, a fact that won’t change when we leave, and a relationship we are determined to uphold,” she said, adding Britain was seeking tariff-free trade with Europe.

Roberts is taking no chances. He’s shifted his own focus to building closer relationships with consumers and moving down the supply chain.

“What we’re trying to do is structure our business in a way that makes it at least as resilient as possible.” ($1 = 0.8051 pounds)

Reporting by Mariana Ionova; Editing by Veronica Brown and Susan Thomas

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