Diversification: How to Brexit-Proof Your Business

So as everyone knows only too well by now, Brexit is happening, and for UK farmers, that will mean the end of the CAP.
calendar icon 8 May 2017
clock icon 4 minute read

How this will pan out for the UK’s rural economy is, in the long term, anyone’s guess. We don’t yet know what any future UK agricultural policy will look like, or what form (if any) government support for farmers to replace CAP subsidies will take.

What we do know is that the end of the CAP will see an end to around £4bn worth of EU funding for the UK’s rural economy. Under the current CAP settlement, just over a third of this takes the form of ‘first pillar’ direct subsidies paid to farmers, with the rest made available as ‘second pillar’ incentives for so-called rural development.

While the end of direct subsidies will affect pig farmers, the industry is not as reliant on EU money as, say, upland sheep farmers are. Perhaps the bigger impact on the country’s pig meat producers will be the change in trading arrangements with the EU.

Again, as yet no one has any idea what future trading arrangements with the EU, or with the rest of the world for that matter, will look like, so it is hard to say with any certainty exactly how Brexit will affect pig meat imports and exports. We can, however, make a couple of educated guesses based on the current state of the markets.

UK pork and other pig meat already has a price premium over EU produce, and farmers are therefore already under pressure to cut prices to compete with imports from Europe. Post Brexit, those EU competitors will continue to receive the subsidies British pig farmers will lose, making the job of reducing prices even more difficult.

On the other hand, since the referendum vote to leave, the vpound has been weak, and that is expected to remain the case in the medium term, especially if the UK also leaves the single market. This is good news for pork exports.

Riding out uncertainty

The worst thing for any business is the uncertainty. If we could guess the financial implications of Brexit with any degree of confidence, we could plan accordingly. But we just don’t know.

It therefore makes sense for farmers to hedge their bets a little. Diversifying your business has never looked a better idea, because that extra income stream will act as an insurance policy. Sectors like leisure, tourism and hospitality will not face the same levels of volatility agriculture is likely to undergo - they are safe bets for a back up if you can tap into them.

Diversification can also help farmers maximise the assets at their disposal. Do you have land that is not currently in use? Coming up with ways to bring it into production, whether looking at alternative livestock or crops, or turning it to a completely new use, will again provide that additional buffer against uncertain times.

The key is to start planning now. At the moment, finance is still widely available and relatively cheap, but we do not know how Brexit will affect that. The end of the CAP is expected to see land prices dip, so you will have less value in your assets to secure loans against. Now is therefore a good time to seek finance to invest in new projects, while you can be sure of your financial footing.

Peregrine Finance is the UK’s largest provider of asset finance to rural businesses. With more than 25 years’ expertise in the field, Peregrine specialises in providing bespoke financial services to land based industries. To read more about our award winning services, please visit www.peregrinefinance.co.uk

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