Survival mode: New report sets out harrowing impacts of a ‘hard Brexit’
New Brexit modelling highlights the urgent need for farmers to take action to ensure their businesses survive, showing as much as 40% could be wiped off the average farm’s profits.
Trading on World Trade Organisation terms with the EU coupled with higher labour costs could see average farm business income (FBI) in England drop by more than a third over the medium term.
The levy body is urging farmers, growers to talk to their advisers about the steps they can take to help their businesses survive.
AHDB chief strategy officer Tom Hind said: “Amid the current uncertainty around a deal or no deal, a ‘wait-and-see’ approach might seem logical for most farmers.
“But change as a result of Brexit is a certainty and, whether it takes place over three or eight years, it will come.
Our modelling may make for sober reading. It’s important though to recognise that these are projections, not predictions. Our industry is dynamic and responsive to change.
“Deal or no deal, AHDB stands ready to help farmers navigate a successful path through Brexit. Our website provides a one-stop shop for relevant government advice on no-deal planning.
“What our analysis continues to reveal is that top-performing farms are best placed to survive no matter what politicians throw at them.
“While there is little the industry can do to control Brexit negotiations, the key factors that mark out top performers are in their control:
- Knowing your market;
- Knowing your costs;
- How you compare;
- Paying attention to detail.
“Our soon-to-be-revamped Brexit impact calculator enables businesses to look at how they might fare under different scenarios. And we’ve produced a range of tools that businesses can use to increase their resilience.
“Our monitor and strategic farm events remain an important way in which producers can learn from others. And, for those who can’t attend these, we’ve set up a dedicated inbox for Brexit-related questions: [email protected].”
The first – UK-EU FTA – assumes a free trade deal has been agreed, while the second – WTO:UK tariffs – assumes UK produce will face EU Most Favoured Nation tariffs while imposing its own tariff regime on imports.
While a free trade agreement with the EU creates more stable conditions post-Brexit, higher labour costs, trade friction and changes to policy in England are expected to have a negative impact on farm incomes under both scenarios.
The analysis also highlights the dependency some sectors have on direct payments, which are set to disappear over the medium term as a result of policy changes in England.
How it will affect farm income?
The modelling also considered how the latest policy announcements and direction of travel would affect average farm business income (FBI) by scenario and sector in 2022.
Findings were as follows:
Less favoured area (LFA) beef and sheep
Under UK-EU FTA, incomes remain roughly at the baseline FBI of around £24,000 but under WTO:UK tariffs a drop of about £10,600 was expected.
For beef, this is primarily due to a new tariff rate quota of 0% on 230,000t of imports, allowing cheaper imports onto the UK market, even when taking into consideration trade friction costs.
For lamb, this is due to over-supply on the domestic market due to exports becoming uncompetitive in the face of EU tariffs.
Lowland beef and sheep
Baseline income of £16,683 falls to £15,000 under UK-EU FTA but more than halves to £7,100 under WTO:UK tariffs.
Removing direct payments away puts income as negative in both scenarios, at around -£1,200 and -£9,000, respectively.
A steep decline in returns in the WTO:UK tariffs scenario is the key downward driver, though the loss of direct support is partly mitigated by an expected increase in agri-environment payments within the model.
Baseline FBI of £36,578 decreases in the UK-EU FTA scenario, to just over £21,200 with direct payments and £11,000 without.
Labour costs and competition with cheaper imports are major contributors to the fall under the WTO:UK tariffs scenario.
There are drops in income across both scenarios from the baseline FBI of £70,694 to £58,000 under UK-EU FTA and £55,000 under WTO:UK tariffs.
However, as a net importer of dairy products, increased trade friction costs could benefit domestic revenues.
Baseline FBI falls 19% from £48,902 to just over £39,000 in the UK-EU FTA scenario. Under WTO:UK tariffs, it falls by 29% to just under £35,000.
The cereals sector is particularly susceptible to the removal of direct payments in this scenario causing a negative income.
Increased labour costs are a significant cause of the falls in both scenarios, with inputs costs also rising in the event of WTO:UK tariffs.
High tariffs are expected to effectively close off market access to the EU causing a decline in revenue from barley.
General cropping (arable crops including field-scale vegetables)
Baseline FBI falls from £78,478 to just over £55,000 in the UK-EU FTA scenario and to just over £51,000 under WTO:UK tariffs.
This is driven by increased labour costs, which make up a higher proportion of costs than cereals farms.
As a net importer of most these crops, there may be a small increase in production revenues as imports would be at a higher cost due to trade friction.
FBI falls under both scenarios from the baseline £1,337/ha to £900/ha under UK-EU FTA and just over £1,000/ha for WTO:UK tariffs.
Increased labour costs are a contributory factor in both scenarios but increased production revenues are seen in the WTO:UK tariffs scenario, as trade friction increases the cost of imported potatoes.
Baseline FBI per hectare is £1,640, falling to £1,300 under UK-EU FTA and £1,445 under WTO:UK tariffs.
Production revenues are seen as increasing due to rising carrot prices as a result of trade friction costs on imports but labour costs would rise by £486/ha.