Brexit is a net positive for large UK dairy farmers as lower profitability in rival sectors will give them more opportunities to expand production, according to Rob Hitch from accountancy firm Dodd & Co.
Speaking at the RABDF Dairy Business and Policy conference in Westminster on Wednesday (14 November), Mr Hitch said the exodus of unprofitable red meat producers from the industry after the withdrawal of area-based subsidies would force down rents, allowing dairy farmers opportunities to expand.
According to Farm Business Survey figures, even the top 25% of lowland beef and sheep farmers only break even with BPS before they draw a wage, meaning higher rents would be untenable, unless a future support scheme is equally as generous, added Mr Hitch.
“I just cannot see rents staying at anywhere near their current levels,” said Mr Hitch. “Therefore there is a lot of lowland land that has to come available.
“Dairy farmers need to stand up and say to processors; we will back ourselves to produce extra milk, you need to invest in processing to try to offset imports.”
Whatever the UK’s future trade deal with the EU looks like, the guarantees of an overhauled agricultural subsidies system and changes to the free movement of EU migrants, trade and currency will all affect the future of the industry, he said.
Positives and negatives to come
- Trade: The UK’s future trade arrangement with the European Union is likely to provide dairy farmers with the opportunity to offset a wedge of the £830m of dairy imports that arrived from the EU in the year to September 2018.
- Trade facilitation costs on imports of 8% would translate to an extra 2p/litre to farmgate milk prices, further bolstering dairy farmers’ position when the transition period ends.
- Savings: There were further likely savings to be made of about 10% to variable costs through lower-priced oilseeds and cereals, as well as the potential for cheaper fertiliser from Russia, said Mr Hitch, which would shave about 1.5p/litre off of farmers’ costs.
- Access to labour: The government has indicated that the UK will see an end to the free movement of EU workers after Brexit. RABDF figures published in 2016 showed that 56% of dairy farmers had employed staff from outside the UK in the previous five years.
- Smaller farms. Producers with fewer than 100 cows would be put in the most precarious position by Brexit, said Mr Hitch. These units are the most reliant on subsidies and have a greater reliance on beef markets, which could be hit by increased competition from non-EU countries. A milk price of 28p/litre or less would take the average smaller farm balance sheets into the red.