The AFBI (Agri-Food and Biosciences Institute) released the results of a comprehensive one-year study called ‘The Impacts of Alternative Post-Brexit Trade Agreements on Agriculture’ earlier today.
This report details the effects of three possible post-Brexit trade agreements on UK agricultural commodity prices with the EU and the rest of the world on UK agricultural commodity prices and production, the institute has said.
Completed by AFBI agricultural economists using the FAPRI-UK economic modelling system, the report is funded by the four agricultural departments of the UK, but is independent of government and has been peer-reviewed by external parties.
According to the AFBI, Brexit will have important implications on UK agricultural commodity markets due to potentially considerable changes to trade flows.
The analysis – undertaken by the economists within the AFBI, 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 of alternative trade agreements on UK agriculture following Brexit.
The three possible post-Brexit changes in trade flows looked at included: bespoke free trade agreement with the EU; World Trade Organisation (WTO) default Most Favoured Nation (MFN) tariffs; and unilateral trade liberalisation.
Bespoke Free Trade Agreement with the EU
In line with the goals for an ambitious free trade agreement and a new customs agreement within the UK government’s Brexit White Paper, this scenario – says the AFBI – has 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.
Additional trade facilitation costs are incorporated, however. These costs arise due to cross-border administration paperwork, sanitary and phytosanitary inspections and delays at ports, according to the report.
The results indicate that the effect on producer prices varies across all commodities, but the changes are relatively small (+/- 3% compared to baseline) as a result of limited disruption to trade.
WTO default to Most Favoured Nation (MFN) Tariffs
Should a free trade agreement fail to materialise, the UK would fall back to WTO default MFN tariffs, at least in the short-term, the report says. In this case, MFN tariffs are applied on UK exports to the EU and the same for EU into the UK.
The MFN tariffs are very high, which would lead to significant disruptions to trade between the UK and EU. Impacts depend on whether UK is a net importer or a net exporter of the relevant commodity.
As a result, the high tariffs would reduce the volume of EU imports and available supplies in net importing sectors, such as dairy, beef, pig and poultry, and significantly raise UK producer prices and output values, the AFBI experts warn.
Producer prices in the dairy, beef, pig and poultry sectors are projected to increase by 30%, 17%, 18% and 15% respectively under such tariffs.
While higher producer prices should benefit producers, knock-on consequences of higher consumer prices would also occur. The increase of producer milk price would be higher on the island of Britain compared to Northern Ireland where there is a much higher reliance on the milk powder market.
Contrastingly, MFN tariffs would diminish competiveness in the UK net-exporting sectors – e.g. sheep and barley – would reduce UK exports to the EU, increase domestic supplies and lower market prices.
Producer prices in the sheep and barley sectors are projected to decrease by 30% and 5%, respectively in this scenario. The negative price impact is particularly marked in the sheep sector due to the large amount of UK sheepmeat currently exported to the EU.
Unilateral Trade Liberalisation
Instead of the WTO scenario, the UK could potentially choose unilateral trade liberalisation, where tariffs on imports from the EU and the rest of the world are reduced.
The AFBI chose to look at a “radical” version of unilateral trade liberalisation where 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.
As expected, such a scenario has a depressing impact on UK prices and output values across all commodities, but in the beef and sheep sectors in particular – where international competition is very strong.
A large increase in imports in these sectors is projected from the rest of the world along with significant downward pressures on UK prices and production.
Producer prices in the beef, and sheep sectors are projected by the research team 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 in such a scenario.
For those interested, the full report is available on the AFBI website.
