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Guarding Wealth: Heading to the colonies

After Brexit, some Brits may be taking a look at Canadian farmland

British farmers’ interest in moving to Canada is rising in the wake of the U.K.’s June vote to leave the European Union. The Economist, a British newsweekly, reported that the urge to move somewhere else among all residents of the United Kingdom is at “an all-time high,” spiking dramatically as it became obvious that Britain’s membership in the EU would eventually be history. Among the expected casualties of the secession, farmers are expected to be badly hit. And they know it. Some are testing Canada for a fresh start.

There are already relocation inquiries from British farmers, who stand to lose much or most of their income when EU agricultural subsidies end. Canada is relatively close to Britain compared to other Commonwealth countries such as Australia, and cannot be seen as the “enemy,” as some characterize the EU.

“We will see some British farmers coming,” says realtor Murray Gibbons, a specialist in farm properties in Waterford, Ontario, an hour’s drive southwest of Hamilton. “We have had inquiries from them.”

The inquiries are just a trickle so far, but more will come, Gibbons says. The majority of farmers are not yet ready to quit Britain’s meadows. The British way of life is different from Canada’s vast distances from town to town and, of course, they don’t have our bitter winters. Yet the incentives to leave Britain are potentially huge. Those farmers who stay put will have to survive life without EU subsidies. Some will move to subsistence farming as a way of surviving a decision to stay. Some will leave in order to preserve their standard of living.

“As much as 55 per cent of U.K. farmers’ total income comes from supports by the EU’s Common Agricultural Policy (CAP) direct transfers to farmers,” notes Lucia Zitti, an economist for the National Farmers Union, the largest farm lobby and research group in the U.K. “That means less than half of farm income is from sales in markets. In the heavily subsidized sectors such as livestock and grains, if EU income supports are removed, farms will not be viable.”

It would not be affordable for an independent U.K. to match EU CAP subsidies, says a major agricultural research firm, Agra Europe, a specialist in the EU subsidy system. Once the U.K. or England (the Scots might choose to leave the U.K. in order to remain with Europe) leave the EU, EU subsidies will be lost. There are further EU subsidies for very undeveloped regions of the U.K., such as Cornwall in the southwest where per capita incomes are less than 75 per cent of the EU average.

To maintain farm incomes at present levels, an independent British government would have to make up lost EU subsidies when Brexit turns from political direction to policy. How farmers are compensated by an independent government will depend on what Parliament does to make up for lost income.

Farm prices may have to rise. That would make them less competitive with subsidized foods still coming from the EU.

Lenders might stiffen credit conditions for farmers with stressed incomes. It might even be harder for British farmers to buy seed and fertilizer. There may also be new rules and restrictions on workers from Eastern Europe who travel to Britain to work during harvests.

If the U.K. makes a complete break with the EU, which seems in the cards, the outlook for farming without compensating payments to make up for the loss of subsidies is gloomy. One estimate is that only the most efficient tenth of British farmers would be able to survive without subsidies.

The price of freedom

If there is free trade and no direct payments from the EU, the U.K.’s National Farmers Union estimates that farmers would have estimated average annual losses of 24,000 Euros (C$34,000) — 50 per cent of their total income, Zitti says.

“If World Trade Organization model of price stability is adopted, British tariffs which penalize imports would be cut by half,” Zitti says. “With no direct subsidy payments to British farmers, losses would rise to 36,000 Euros (C$51,900) per farm. That would be about 75 per cent of present farm incomes.” Farming of many crops would have to end, she adds.

Another possibility is that much of the ag sector’s losses could be made up by redirection of the payments that the U.K. government will no longer pay into the EU farm subsidies program. However, farming accounts for only one per cent of British GDP; the ag sector does not have a lot of muscle in making government policy. Moreover, there is no certainty that the government could make up with domestic subsidies what is lost by ending of EU subsidies. After all, 40 per cent of the EU’s budget goes to agriculture. Funds of that scale would be hard for the British government to match.

British farmers may have no choice but to take up other work or emigrate if they cannot compete with products from farms still subsidized within the EU. Ironically, British farmers who want to export to the EU will still have to comply with all EU labelling and packaging rules.

Land prices

Not surprisingly, the price of farmland in the U.K. fell this year, according to Frank Knight, a real estate agency. The price decline before the Brexit vote was 3.2 per cent during the three-month period from December 31, 2015 to March 31, 2016. That was the largest drop since the end of 2008.

Savills, a global property agent headquartered in the U.K. expects farm property prices to fall over the next few years: 4.5 per cent in 2016, 3.8 per cent in 2017 and 1.7 per cent in 2018.

The market for U.K. farmland is relatively illiquid. Farmers are holding on for a while to see what happens, Zitti says. Yet other parts of the U.K. property market have seized up. A few large real estate trusts have been squeezed by unitholders who want to sell out. The funds, which own office towers and shopping centres, have cut payback by as much as 17 per cent from clients’ present unit values or have stopped redemptions entirely, reported The Economist.

Abundant land at relatively low prices will attract British farmers to Canada, says Dan Mazier, president of Keystone Agricultural Producers, the Manitoba farm lobby and research organization.

“British farmers may come to Canada seeking a more stable business model,” Mazier says. Yet British farmers would be exchanging supply controls for quotas in Canadian supply management. They could go to market gardening and turn out premium priced fruits and vegetables in southern Canada. But scaling up for grain farming could be a challenge.

Even so, our land is cheap compared to theirs. The average price of British farmland is the equivalent of about C$14,400 per acre. Cash from the sale of a British farm could buy a Canadian farm for as little as a few thousand dollars an acre for western cultivated grain land.

Moving from the U.K. to Canada would not be easy, warns Don Forbes, a farm financial planner in Carberry, Manitoba. “There are relocation costs, immigration issues and differences in farming practice, but the laws are similar. Heading out to what were once ‘the colonies’ would, in a sense, be history repeating itself.”

About the author

Columnist

Andrew Allentuck is the author of 'When Can I Retire? Planning Your Financial Future After Work' (Penguin, 2011).

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