UK oilseeds and grains farmers should prepare for tougher competition and possible falling incomes as the country’s impending exit from the EU draws closer, a UK business analyst warns.
Average farm business income (FBI) in the UK – at the moment set at £43,796 (US$60,563) for cereal farms – could drop by as much as 80%-100%, according to the ‘Global Outlook 2018’ published by UK agriculture and food market analysis firm IEG Vu.
“The UK’s decision to leave the EU has created a great deal of uncertainty for the agricultural sector,” the report stated, adding that “steps to improve productivity and performance would enable farmers to mitigate potentially negative impacts of leaving the EU, even before details on agricultural trade or policy emerge”.
Based on an October 2017 study by Informa Agribusiness Consulting, part of the same group as IEG Vu, the report laid out three possible scenarios for Brexit, titled ‘Fortress UK’, ‘Unilateral Liberalisation’ and ‘Evolution’.
In the Fortress UK scenario, the UK would implement protectionist trade barriers, which could decrease FBIs by 103% to a negative -£1,341 (US$1,854).
The Unilateral Liberalisation scenario considered an outcome where the UK opened its borders to low-cost food producers elsewhere in Europe and which would see FBIs fall 81% to £8,216 mainly due to the removal of EU funding from the sector.
The business-as-usual Evolution scenario posited that the UK would match most of the current policies, regulation and trade deals it had with the EU, but even this outcome could cause FBIs to shrink 9% to £39,788 (US$55,020).
“The 9% decrease is driven mainly by decreases in the output values for oilseed rapeseed and barley, caused by the loss of export potential, which is not compensated for by the smaller increase in the value of the output. The FBIs of farms relying on these two crops will be especially vulnerable,” IEG Vu predicted.
But UK Agricultural and Horticultural Development Board (AHDB) senior analyst Sarah Baker urged reasonable caution, saying that the calculations based on the October 2017 study considered only an unprepared market.
“The study is made under the assumption that farmers do nothing, so if this scenario happened tomorrow, this is what would happen. We know how flexible and resilient farmers are, so this is very much a static analysis that farmers will do nothing in response to Brexit,” said Baker.
She warned nonetheless that while the calculations were static, no one wanted the agri industry to “sleepwalk into Brexit”.
Jack Watts, lead analyst at AHDB, added that the possible imposition of tariffs on UK trade could create a more complex domestic marketplace with “mixed fortunes” for different crops and quality grades, with competition from countries such as Ukraine expected to be fierce.