EU farm subsidies will have to be cut

Date: 07 Jul 2016


James Pavey, partner, Irwin Mitchell Private Wealth, says that without subsidies, farming will cease to be economically viable and will be a no-go for investors in the long term.

What impact will Brexit have on UK agriculture?

It is likely to have a big and probably negative impact. Many farm businesses have made their plans to 2020 based on the current Common Agricultural Policy (CAP), which is the agricultural policy of the European Union that implements subsidies. The Brexit campaigns promised a like-for-like replacement subsidy scheme, but the political reality is that maintaining the current levels of farm subsidy is not a vote-winner. It is an easy target for cuts and the UK Government has much less to fear politically from the farming community than, say, the French Government.

How will the agricultural sector continue without EU subsidies?

Agriculture is, in many places, only viable because of subsidy, so there is a real challenge to the sector to lobby DEFRA hard and make a convincing public case for it, for example by pointing out the benefits of environmental stewardship and food security, and quickly. If it doesn’t, we may see more land come on to the market as farming ceases to be economically viable, and, in the long-term, much less interest in farmland as an investment class.

What should investors look for in the agricultural sector?

The most important things are still location, the type and quality of the land and how accessible is it for the market it’s supplying. Secondly, in light of Brexit, the economics of subsidy as a UK Agricultural Policy is likely to be less generous than Common Agricultural Policy (CAP).

What uses are most common for land?

There is continuing interest from institutional investors and a variety of UHNWIs. Some buy the land as a valuable adjunct to a substantial house; some, purely as an investment; others, as a basis for hobby farming or shooting.

Does land come up for sale much?

With the relatively recent exception of the CO-OP who sold its farms business which had a portfolio of fifteen farms, a hundred residential properties and twenty seven commercial properties to Wellcome Trust in 2014 for £249 million, there are generally no big sellers of agricultural land. Taking a historical view, the capital taxes regime since the 1980s has helped see an end to the substantial sales of farms and estates in the thirty years or so after WW2.

What are the incentives to invest in agricultural land?

The strong and steady increase in capital values of agricultural land over many years, cheap debt, Agricultural Property Relief and, in certain cases, Business Relief which allow reductions in inheritance taxes.

This article was published in Citywealth Weekly, our mid-week roundup of topical news and exclusive expert comments.Sign up here to start receiving the Weekly in your inbox.

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