Written by John Swire
With the UK due to leave the EU on 31st October and the possibility of a No-Deal Brexit becoming more likely, The Andersons Centre (Andersons) recently conducted research on behalf of the BBC to assess its potential impact on the profitability of UK farming, 9-12 months after Brexit taking place.
To undertake this analysis, Total Income from Farming (or TIFF) is a useful measure to look at the farming industry as a whole. It is an aggregate, so hides differences between sectors and individual businesses, but provides a simple measure of the profit of ‘UK Agriculture Plc’. In technical terms, TIFF shows the aggregated return to all the farmers in UK agriculture and horticulture for their management, labour and their own capital in their businesses. To allow for yearly variations in weather conditions and exchange rates for example, a three-year average (2016 to 2018) was used as the basis for comparison.
Taking into account previous studies, some of which have been undertaken by Andersons, a top-level assessment of the impact of both a Brexit Deal and a No-Deal on the output of each farming sector was compiled in addition to an estimation of the effects of both Brexit scenarios on key costs which are incurred by UK farming. This assessment considered the potential impact of tariffs (including the UK’s March 2019 announcement on its No-Deal Brexit tariff schedule), non-tariff barriers and tariff rate quotas. Importantly, it was assumed that support levels to UK farming were kept constant as the UK Government has committed to farming receiving current levels of support until the end of this parliament (scheduled to be 2022).
Under a Brexit Deal scenario, a small decline in profitability (3%) is projected; however, under a No-Deal, an 18% decline is forecast.
An 18% decline in profitability would equate to a hit to UK farming generally of almost £850 million. With many farms already struggling to break-even, the projected hit on profitability in some cases likely to significantly surpass the industry average, the viability of many farming businesses will be in jeopardy. Unsurprisingly, grazing livestock farms (particularly sheep) would be the most exposed given the output declines mentioned above, but a No-Deal would also result in a significant downturn for dairy farming in Northern Ireland, given its reliance on having its milk processed in the Republic of Ireland.
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