Why supermarkets are siding with farmers over inheritance tax
In recent years, British farmers have faced growing pressures, from Brexit to COVID and the Ukraine war. For some of them you can now add planned inheritance tax (IHT) reforms – announced in the budget last autumn – to that list.
The proposals to cut certain agricultural reliefs sparked protests by farmers across the UK. Currently, farms benefit from 100% relief on agricultural and business assets, but from 2026 the relief will be capped at £1 million, with excess taxed at 20% (half the usual rate). Exactly how many farms will be affected is not yet clear but estimates range between a quarter and a third.
Farming associations and the government have clashed over this in recent months. Some sections of the public have backed the protesting farmers and voiced their frustration after the announcement.
But more recently, there has been support from a different – and unexpected – quarter. Seeing UK supermarkets enter the fray and highlight the concerns of farmers adds fuel to the already heated debate.
The big chains have long faced accusations of unfair treatment towards farmers, using their might to press suppliers for the lowest prices and reportedly forcing some out of business in the process.
So what has prompted supermarkets to speak out now? As a supply chain expert, I think there are several possible reasons.
1. Empty shelves
Simply put, the pressures on farmers can have far-reaching consequences for supermarket supply chains. A key reason for their support will be to avoid food shortages and empty shelves. There are many examples of supply chain disruptions leading to gaps in stores’ product lines, ultimately affecting the customer experience and supermarket profits.
UK food supply chains are under increasing pressure. Disruptions such as adverse weather, energy price hikes and even cyberattacks have highlighted the vulnerability of the UK’s food system.
Farmers have also demonstrated their ability in the past to cause disruption to food supply chains by protesting over cheap imports. Mass and sustained farmer protests could turn off the tap to the UK’s food supply, as happened in the Netherlands in 2022. UK supermarkets will want to avoid this at all costs.
2. Reliance on imports
In the event that their IHT is unaffordable (those affected will have ten years to pay the tax, interest free), some farms may be forced to sell up, leading to reduced availability of locally grown produce. Limited supply of domestic produce will increase the dependence on imports, ultimately leading to increased costs for supermarkets (and so for consumers too) as well as uncertainty.
The UK’s food supply depends on global regions, seasonal shifts and complex sourcing to maintain fresh produce year round. Increased reliance on imports, combined with post-Brexit import charges is neither ideal nor sustainable for supermarkets.
3. Reduced competition
Supermarkets have a vested interest in maintaining competitive prices. Fewer agricultural producers essentially means less competition. This could mean supermarkets having less bargaining power with suppliers and a diminished ability to meet consumer demand for variety and quality.
This could lead to higher prices in stores, potentially undermining supermarkets’ messaging around their competitive edge over smaller retailers.
4. Public image
Ultimately this move does supermarkets no harm. UK chains are both the backbone and the bane of farming. A handful of supermarkets dominate the food supply market, setting the prices farmers receive and shaping the structure of agricultural production.
Supermarkets are often accused of exploiting farmers through their purchasing power, by dictating prices and imposing inflexible quotas. So their support for farmers could help with their public image. Aligning themselves with farmers offers them the opportunity to position themselves as protectors of the agricultural sector, boosting their public image while pressuring policymakers to take action.
But will it change anything? Well, supermarkets have economic clout – and having their support is better than not having it.
Historically, supermarkets have shown their collective ability to lobby. Their opposition to supermarket price caps, support for plastic reduction initiatives and even influencing policy in the wake of Brexit highlight how pressure from the big stores can shape national conversations.
No one wants a return to empty supermarket shelves.
Kauka Jarvi/Shutterstock
All this, ultimately, is to ensure supermarkets can continue to serve customers with competitive prices. But who is paying for the UK’s cheap food culture?
While supermarket dominance has led to lower prices for shoppers and even reduced inflation, it also exposes broader systemic issues within the UK’s food culture. Despite a recent study revealing that UK food costs were about 7% below the EU average, food prices remain a top concern for consumers in the UK.
Farmers were not the only ones protesting. Migrant fruit and vegetable pickers staged a smaller demonstration, over claims of exploitation by farms.
Either customers need to be prepared to pay more for their food, or supermarkets need to revisit their pricing strategies. Something has to give, and it appears that this time it cannot be the farmers or agricultural workers.
While many farmers in the UK are asset-rich they are often cash-poor, frequently relying on wafer-thin profit margins to get by. Supermarkets may have a lot to lose if IHT reforms lead to lots of farmers leaving the sector.
Protecting supply chains, maintaining cost structures and ultimately offering a stable, affordable domestic supply of produce is in their best interests. In the end, it may not be the farmers but the supermarkets who stand to gain (or lose) the most. Läs mer…
