Report reveals trade scenarios

Prof John Davis, Dr Myles Patton and Dr Siyi Feng
Prof John Davis, Dr Myles Patton and Dr Siyi Feng

Independent economic modelling carried out by Agri-Food and Biosciences Institute (AFBI) staff, in conjunction with colleagues at the University of Missouri, points to a more than significant strengthening of farmgate dairy and beef prices in Northern Ireland, should World Trade Organisation (WTO) default trade tariffs kick-in after Brexit.

This is one of three possible scenarios referenced in a report published this week under the aegis of the FAPRI-UK project.

One of the publication’s three authors, Dr Myles Patton, confirmed that farmgate milk price increases in the region of 18% could be envisaged by 2025, assuming a hard Brexit and the introduction of WTO default tariffs.

“This projection takes account of the fact that the UK is a net importer of cheese and butter,” he said.

“Under these circumstances milk output in the UK is projected to increase by 17% between now and 2025.”

Similar analysis points to a 17% increase in farmgate beef prices being achieved by 2025, with the caveat that increases in the direct aftermath of Brexit could be in the region of 19%.

“Again, these trends reflect the UK’s current dependence on beef imports,” said Patton.

“However, we project that farmgate sheep prices in Northern Ireland will fall, assuming a hard Brexit and the introduction of default WTO tariffs. This is because the UK is a net exporter of sheepmeat.”

The report assesses two other post-Brexit trading options for the UK: A Bespoke Free Trade Agreement (FTA) with the EU and Unilateral Trade Liberalisation.

The continuing free trade scenario would see the continuation of tariff and quota-free access for UK exports to the EU plus tariff and quota-free access for imports into the UK from the EU. However, additional trade facilitation costs are envisaged. These arise due to cross-border administration paperwork plus sanitary and phytosanitary inspections at ports.

The results indicate that the impact on producer prices varies across all commodities, but the changes are relatively small, probably in the region of +/- 3% compared to baseline.

The AFBI team examined a radical version of unilateral trade liberalisation in which the UK sets zero tariffs on imports from both the EU and the rest of the world, while exports from the UK face trading partners’ Most Favoured Nation (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.

A large increase in imports is envisaged in these sectors from the rest of the world with significant downward pressures on UK prices and production resulting. 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.

The Ulster Farmers’ Union says the FAPRI report from AFBI is a sound foundation for a much needed debate. It stresses however that the options considered are theoretical, and that the final outcome is unlikely to be as clear cut as the analysis.

“Farmers need to look cautiously at the conclusions drawn,” said UFU chief executive, Wesley Aston.

The UFU says that while the analysis of trade based on WTO tariff rates might look attractive to primary producers, in terms of increasing prices and keeping out some imports from Europe, the final outcome will be driven more by politics than economics.

“We have warned from the outset that a big threat to agriculture would be imports from third countries, such as Brazil, where reduced agricultural tariffs could be used to buy a bigger industrial deal,” said Mr Aston.

“Given that the government will not want food prices to rise for consumers, since that would undermine confidence in Brexit, farmers need to be cautious of backing the WTO option, just because it initially could, in theory, boost returns for the key farm commodities.”

The Northern Ireland Meat Exporters’ Association (NIMEA) has welcomed the publication of the FAPRI report. However, the organisation’s chief executive Conall Donnelly believes that the ‘No Deal’ scenario is not an option.

He added: “If there is no EU deal and we find ourselves trading under WTO rules, our export trade will be decimated due to extremely high and unavoidable outbound tariffs. The report also demonstrates how the red meat sector would be decimated under a cheap food policy, where inbound tariffs are unilaterally reduced. This would have immediate and devastating consequences for jobs in farming, processing and the wider rural economy.

“The report shows that the industry should take little or no comfort from the possibilities offered by a protectionist approach under WTO rules, whereby both imports and exports are subject to the same high level of tariffs. Under this scenario the report forecasts higher beef prices in the short run, with these gains declining over the longer term.

“Due to our higher levels of self-sufficiency, it would also appear that no amount of protection would be sufficient to offset the damage caused to the sheep sector caused by exclusion from the EU export market. In any case, while a captive UK market may appear attractive, this must be considered a very unlikely scenario given the political consequences of sharp increases in food prices.

“This all goes to show the importance of striking a Free Trade Agreement with the EU and while the report shows that the impact of an FTA is more benign than the WTO alternative, the industry is still looking at significant increases in costs through non-tariff barriers to trade which can only be minimised through a commitment to maintaining equivalent standards and a responsible import policy.”