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Post-Brexit farm support policy crucial to UK farm profitability, says new report

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Changes to the UK’s agricultural support payment system post-Brexit are likely to have a more profound impact on the financial health of the UK agriculture industry than changes to the country’s external trade regime, according to an important new study published today (October 11).

Reductions in the current overall value of farm subsidy, as compared with those on offer currently under the Common Agricultural Policy, would have a detrimental effect on overall farm incomes, whether these policies were accompanied by a liberal trade regime with UK import tariffs removed, or the opposite (‘Fortress UK’) approach with practically all trade conducted on the basis of WTO Most Favoured Nation (MFN) tariffs.

Restriction of access to migrant farm labour – widely forecast to be an outcome of new UK migration rules after Brexit – would also put pressure on farm profits, especially for the horticulture and livestock sectors.

These are among the conclusions of a new study conducted for the UK Agricultural and Horticultural Development Board (AHDB) by Informa Agribusiness Consulting, part of the same group as IEG Policy, in association with Promar International (download the full report here).

Three scenarios modelled

Entitled 'Quantitative Modelling For Post-Brexit Scenarios', the report does not make any assessment of the likelihood of any particular outcome for the UK’s agriculture and trade policies after it leaves the EU, but models the possible impact on Farm Business Incomes (FBI) in England of three specific modelled scenarios.

  • Scenario 1, dubbed ‘Evolution’, is essentially a status quo scenario, albeit with additional costs of trading assumed as a result of the UK’s departure from the Single Market.
  • Scenario 2 (‘Unilateral Liberalisation’) assumes the end of Pillar One payments, with Pillar Two-type increased to equal 50% of total current P1+P2 support. The UK unilaterally removes tariffs on all imports, while UK exports would be subject to WTO MFN tariffs. Migrant labour would be reduced by 50% for regular employment and there would be a small saving from some relaxing of the regulatory framework.
  • Scenario 3 (‘Fortress UK’) would see no more P1 payments, P2 supports cut to 25% of current total (P1+P2) support, and also almost all agricultural trade carried out on the basis of WTO MFN tariffs. As with Scenario 2, migrant labour would be restricted by 50%, but this time for regular and casual positions.

Under Scenario 1, the average Farm Business Income (FBI) for all farms in England would rise from a baseline of £38,405 to some £41,197. Under Scenario 2, however, this would fall to £15,401, and to £20,162 under Scenario 3. (‘Farm Business Income’ is a standard measure of farm profitability used by the Department for the Environment, Food and Rural Affairs (Defra)).

“At the all-farms level, Pillar I support is an important driver of change in FBI under the different scenarios,” the study comments, noting that on average this amounts to some £24,696 per farm.

Under Scenario 2, whereby P1 payments are removed and imports of agricultural products fully liberalised, FBI would fall for all farm types, with the exception of pig farms. Scenario 3, with WTO tariffs applied to all imports, would also lead to FBI reductions for all farm types with the exception of dairy and pigs.

The report notes that those sectors which have the least reliance currently on P1 payments – horticulture and pigs – would logically be least impacted by their removal. Beef and sheep producers would be very sensitive to subsidy reductions, although upland producers in particular would be somewhat protected in scenarios where P2 payments were retained at higher levels than at present.

Top quartile of farms remain profitable

Despite the obviously serious impact of subsidy removal, the research nevertheless indicates that the most efficient 25% of farms retain positive FBI – in other words, they continue to farm profitably - under all scenarios.  A key finding of the study, is that all farms, large or small, should take steps to improve their operational efficiency to protect themselves from the downside risks of Brexit.

The AHDB report will offer food for thought for Defra and its counterparts in Scotland, Wales and Northern Ireland as ministers and officials consider what policy instruments should replace those of the CAP from 2019 onwards.

Defra Secretary Michael Gove has been increasingly vocal in his assertions that P1 payments in their current form should be phased out after Brexit, with a much greater emphasis on payments for environmental goods, and to support vulnerable landscapes.

“The scenarios [presented in the report] are not meant to be definitive policy options – in reality, the final agreement may well have aspects drawn from different scenarios presented here,” the report comments.

“Between them the scenarios, and the analysis of the impacts arising from them, is intended to enable the AHDB to prepare its levy payers for the most likely future operating environment,” it adds.

'Quantitative modelling for post-Brexit scenarios' is published by the UK Agricultural and Horticultural Development Board (AHDB) and produced by Informa Agribusiness Consulting, in association with Promar International.

For more information on the the agri-food economic & policy analysis services offered by Informa Agribusiness, follow this link: 

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