The Agri-Food and Biosciences Institute (AFBI) have released a comprehensive year-long economic analysis highlighting the price and production impacts of alternative Post-Brexit Trade Agreements on UK agriculture.
Brexit will have important implications on UK agricultural commodity markets due to potentially significant changes to trade flows. Analysis undertaken by economists within the Agri-Food and Biosciences Institute (Professor John Davis, Dr Siyi Feng and Dr. Myles Patton) in conjunction with the University of Missouri (Dr. Julian Binfield) has quantified the sectoral impacts on UK agriculture of alternative trade agreements following Brexit using the widely-respected FAPRI-UK economic modelling system. The AFBI researchers captured the impacts on UK agricultural commodity markets as a result of three possible post-Brexit changes in trade flows with the EU and the rest of the world:
- Bespoke Free Trade Agreement (FTA) with the EU;
- World Trade Organisation (WTO) default Most Favoured Nation (MFN) tariffs;
- Unilateral Trade Liberalisation.
Post-Brexit trade arrangements could take many different forms. The scenarios are designed to be illustrative of the impacts of the range of possible trade arrangements, rather than speculating on the final outcome of the Brexit trade negotiations. The results indicate the broad directions of change in UK agricultural commodity sectors within each trade scenario.
Bespoke Free Trade Agreement with the EU
This scenario is in line with the goals for an ambitious and comprehensive Free Trade Agreement and a new customs agreement within the UK Government’s Brexit White Paper, with tariff and quota free access for UK exports to the EU and tariff and quota free access for imports into the UK from the EU. However, additional trade facilitation costs are incorporated. These costs arise due to cross border administration paperwork (checking rules of origin for example), sanitary and phytosanitary inspections and delays at ports. The results indicate that the impact on producer prices varies across all commodities, but the changes are relatively small (+/- 3% compared to Baseline) due to the limited disruption to trade.
WTO default to Most Favoured Nation (MFN) Tariffs
In the absence of a Free Trade Agreement between the UK and the EU, the UK would fall back to WTO default MFN tariffs, at least in the short-run. Under this scenario, MFN tariffs are applied on UK exports to the EU and likewise imports from the EU to the UK.
The MFN tariffs are very high, leading to significant disruptions to trade between the UK and EU-27; impacts depend on whether the UK is a net importer or a net exporter of the relevant commodity. Thus in net importing sectors – dairy, beef, pig and poultry – the high tariffs reduce the volume of EU imports and available supplies and significantly increase UK producer prices and output values. Producer prices in the dairy, beef, pig and poultry sectors are projected to increase by 30%, 17% 18% and 15%, respectively. While higher producer prices should benefit producers, there would also be knock-on consequences in the form of higher consumer prices. The increase in producer milk price is higher in England, Wales and Scotland compared to Northern Ireland where there is a much higher reliance on the milk powder market
In contrast, MFN tariffs diminish competitiveness in the net-exporting sectors – e.g. sheep and barley – reduces UK exports to the EU, increases domestic supplies, lowers market prices. Producer prices in the sheep and barley sectors are projected to decrease by 30% and 5%, respectively. The negative price impact is particularly marked in the sheep sector due to the large quantity of sheepmeat currently exported to the EU from the UK
Unilateral Trade Liberalisation
In contrast to applying the high WTO default MFN import tariffs, the UK could potentially opt for unilateral trade liberalisation, where tariffs on imports from the EU and the rest of the world are reduced. Here, we examine a radical version of unilateral trade liberalisation in which the UK sets zero tariffs on imports to the UK from both the EU and the rest of the world, while exports from the UK face trading partners MFN tariffs.
This scenario has a depressing impact on UK prices and output values across all commodities particularly in the beef and sheep sectors where international competition is very strong. We project a large increase in imports in these sectors from the rest of the world and significant downward pressures on UK prices and production. Producer prices in the beef and sheep sectors are projected to decrease by 45% and 29%, respectively, with reductions of 12%, 9% and 10% in producer prices for the pig, poultry and dairy sectors respectively.