Implications of a UK exit from the EU for British agriculture
LEI Wageningen Institute for the NFU (National Farmers Union)
A recent report from the main British farmers union, the NFU, caused a stir at the approach of the referendum to be held on 23rd June. In this impact study commissioned by the union at an agricultural research institute in the Dutch Wageningen University (LEI), the authors examined the consequences of the United Kingdom leaving the European Union.
In an excerpt from the study reproduced here1, the authors present the main consequences with different scenarios for border protection and direct aid that the British might adopt. In the event of total liberalization, prices and production would fall sharply, including sheep production which would be in deficit.
However, if there was a free trade agreement with the EU or the UK simply sticking to the commitments it made to the WTO, agricultural prices should generally increase given the low degree of self-sufficiency. This increase will not compensate for the reduced income that would result from the elimination of CAP direct aid. The report reminds us that today direct aid represents 2/3 of farm incomes and that all livestock farms have negative income without direct aid.
For Sir Peter Kendall, former president of the NFU, the LEI study is simply further evidence that British farmers should remain within the EU2, it also confirms that despite noisy speeches and hostile positions towards the CAP by most politicians across the Channel, UK farmers benefit from the CAP.
momagri Editorial Board
Three trade and agricultural policy scenarios on UK agriculture have been designed to estimate possible effects on the UK agricultural sector of a Brexit. Price effects are caused by the introduction of trade facilitation costs, which effectively result in higher farm gate prices as the UK is an net-importing country for most agricultural products. In addition, the UK will lose access to EU’s preferential imports which has a similar price increasing effect.
The agricultural product prices are projected to increase in the FTA and WTO scenarios. These price increases have a positive impact on supply and farm revenue and income, but have a negative impact on domestic use and consumer (or user) expenditure. At the level of the society this implies a loss of consumer welfare.
A UK Trade Liberalisation scenario significantly impacts on UK meat and dairy prices as current import tariff rates are higher for these products. Consequently, the overall effect of the Trade Liberalisation scenario is a price decline for animal products which leads to less meat and milk production in the UK.
Due to lower levels of production in the livestock sector, less feed use will lead to an increase in the UK’s net export position on barley and an improvement of UK’s net-import position on (soft) wheat.
Due to less production and higher domestic use, the UK’s net imports will increase for beef, poultry, butter and milk powder, whereas the trade balance for sheep meat will turn from positive into negative. The deterioration of the UK’s net trade position is largely due to higher imports of a number of livestock products mainly coming from outside the EU due to the significant price difference between the EU and the UK. As a matter of fact, UK prices for these products will tend to be lower than in the EU, making it difficult for the EU to be a competitive exporter to the UK.
The UK currently contributes an estimated €7.9bn to the CAP budget, from which its farmers receive €3.8bn. A Brexit would save the UK budget expenditure on agriculture: the declines in budget expenditure vary from €4.1bn (-52%) to €7.3bn (-93%), depending on whether the UK’s new agricultural policy will maintain 100% direct income payment, reduces payments by 50% or abolishes them.
Being member of the EU implies the UK is part of a large EU market on which trade occurs at
relatively low transaction costs. A Brexit would cause trade costs to increase. Comparing the impacts on trade of the different scenarios simulated in this research the FTA and WTO scenarios show a kind of anti-trade bias, as they add to transaction costs in trade, and - in case of the WTO scenario – imply a loss of benefits from cheap imports under the EU’s preferential trade arrangements. In the Trade Liberalisation scenario, the reduction in the external import tariff levels assumed leads to declining prices, less production and more imports of a number of products, and as such to more openness to trade.
Farm income results
Price changes due to Brexit have a positive impact on farm incomes in all sectors under the FTA and WTO default scenario. In case of a UK Trade Liberalisation scenario, the livestock sector will face price declines, and subsequently its income is negatively affected.
The positive price impacts on farm incomes in the FTA and WTO default scenario will be offset by the loss of direct payments, in case these trade scenarios are combined with reduced agricultural support.
A reduction of direct payments or their complete elimination further aggravates farmers’ income effects under the UK Trade Liberalisation scenario.
In case of the abolition of direct payments a large share of farms will have negative income effects.
Consequently, the viability of a substantial share (15-25%, depending on the scenario) of farms will be negatively affected by this policy change.
Livestock sectors in particular are heavily dependent on direct income payments: 2012/2013 FADN data indicate that without these payments their income would be negative. Also mixed farms and field crop farms greatly rely on direct payments for their income. Overall, two-third of the UK’s farm income relies on direct payment support.
All UK regions would show on average a decline in farm incomes in case the UK government fully abolished the direct payments. A 50% reduction of subsidies shows more diverse results with better results under the WTO default scenario than under the FTA scenario.
Again the UK TL scenario shows the most significant changes. Farm incomes decline in all regions, except for England-East where half of the UK horticultural farms are located and which are little affected by the reduction of direct income payments. Farm incomes are most severely affected in Scotland
1 The entire study is available from