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European exit could prove painful for farming sector


Farmers fear the financial cost of a Brexit

Farmers fear the financial cost of a Brexit

Getty Images/iStockphoto

Farmers fear the financial cost of a Brexit

The combined efforts of farmers and food processors directly generate probably about 20% of local incomes and employment.

Whilst food production is a natural endowment, it is not necessarily an endowment with a comparative competitive advantage. In Northern Ireland the output of these sectors does not, at present, sustain generous incomes.

Of course, whilst average farm incomes and average earnings in food processing are not world-beating, local farmers and food processors are core to the economy and attract political and public support. There are, however, difficult policy questions for the main interest groups as well as Government and the EU.

The immediate policy questions centre on the evolving relations of the UK Government with the EU - the Brexit debate. The Brexit debate will take headlines, at least until June 23, but for the agri-food industry, there is an even wider set of issues.

If the UK-wide Brexit vote is successful, there are obvious consequences. What would take the place of the Common Agricultural Policy (CAP) of the EU? There is no firm assurance, from Westminster or Stormont, of how the Single Farm Payment system would be replaced, if at all. The UK Government would need to fill the void but, judging from the pre-EU policies, the UK Government could be less generous.

The Brexit debate partly conceals a related serious question. Now that the EU has converted the CAP into a mainly income support mechanism, rather than a system of price support, a consequence is that the CAP facilitates international market forces in setting prices for key produce. Within the EU, dairy farmers are subject to prices for liquid milk that are essentially internationally determined (sometimes to the distress of those producers).

The pre-EU, pre-CAP, UK system of allowing food imports at world prices and supporting farm incomes with 'deficiency payments' might be re-invented. That might be attractive to farmers but would come with a political price if it directly affected food prices. It is not likely.

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This means that Brexit or no Brexit, ex-farm prices for milk, beef and poultry will be set by international competition and any support for farm incomes would be in a revamped SFP which would likely be less generous if set by the UK Government.

Proposals about the methods of supporting farm incomes, through either intervention on prices or schemes to store surplus supplies, will focus the political debate. Logically a part of the debate on future farm incomes should assess the evidence on incentives to rationalise the structure of the farming sector.

Northern Ireland has an inheritance of owner-occupied farmers influenced by additional acreage leased under conacre arrangements. Demographic changes, as current owner-occupiers get older, has created a distorted farm labour force. Aging farmers only reluctantly retire, sons and daughters move out of farming, and by attrition the structure is moving towards the efficiency of larger farm sizes.

Arguably this 'free market' process of structural change is too slow and takes little account of the effective economics of larger production units (larger farms) and the advantages of implementing modern techniques.

A decision by the UK to leave the EU would shift the farming policy debate on how to replace the SFP mechanism. That alone could be painful for local farming. However, looming larger in the policy debate are the consequences of a CAP (or a UK equivalent) that is based on acceptance of low international trade prices for core produce (of the type found in Western Europe, including Ireland north and south). Income support, whether in the form of a SFP or a UK variant, will be too expensive to be generous enough in delivery.

The optimists will be hoping for the rejection of Brexit. The super-optimists will be asking for acceptable incentives to restructure an owner-managed farm sector into a shape that is better adapted to efficiency and better real incomes.

Company report: McAleer & Rushe Construction Contracts Ltd

The Cookstown-based McAleer and Rushe Construction Contracts Group now has its registered office in Newcastle-on-Tyne. This company consolidates the results for a wide range of other subsidiary companies.  The Construction Contracts company commenced trading in April 2013. 

The principal activity of the group in 2015 is described as design and build construction.

The group is one of the largest construction businesses which originated in Northern Ireland and has, more recently, won a number of large contracts outside Northern Ireland so that its main activities now seem to be across Great Britain.

In the aftermath of the earlier recession, the trading results for the year to December 2015 show a substantial increase in business turnover to over £180m — now higher than any recent year. 

In 2015 the group continued to enjoy work on contracts for several large schemes which had been won in earlier years and were moving into the fit-out stages.  It had 20 projects active on site at the year end, an increase from 18 a year earlier. The contracts included a 1,000-bed student housing scheme in Portsmouth. Other contracts are near to successful conclusion and the group talks of further turnover and profit growth in 2016 and 2017.

No dividends were paid to the shareholders in the last three years. Employment has increased during its three-year existence to reach an average of 209 people.