Brexit and British farmers

07.09.2017

On August 31, the third round of negotiations on the terms of Brexit ended.

The position of British side begins to focus around the cornerstone - Brexit should have a minimal impact on the daily life of people or doing business in the country, at least during the transition period until 2021. In this regard, Brexit process can move from a geopolitical initiative to a tactical step by Britain to optimize its position in the "European family". For instance, British Labor Party intends to advocate that Britain should not leave the single European market and the customs union after the completion of all the Brexit procedures.

One must assume that the basis for such British position is the assessment of various socio-economic results from the UK decision to withdraw from the EU, adopted by the country on June 23, 2016.

In this regard, the possible consequences for British farmers in the framework of three scenarios for the development of international trade agreements of Great Britain after Brexit, conducted by the Agri-Food and Biosciences Institute (AFBI), located in Belfast, Northern Ireland are significative.

The following three scenarios and their characteristic positions were singled out:

1/ Stipulated Free Trade Agreement with the EU

• The UK maintains tariff and quota-free access to EU markets, and the EU also maintains tariff and quota-free access to the UK market.

• Great Britain supports the EU tariff structure in foreign trade for the rest of the world.

• 5% of costs for the UK-EU trade facilitation.

2/ Transition to WTO regulations

• Most-favored-nation (MFN) tariffs are applied to trade between the EU-UK.

• Tariff rates quotas (TRQ) from third countries maintain.

• No changes in the tariff structure for exports to the rest of the world.

• 8% of costs for the UK-EU trade facilitation.

3/ Unilateral trade liberalization

• Zero tariffs applied to imports to the UK from both the EU and other countries of the world.

• Most-favored nation (MFN) tariffs are applied to the UK exports to the EU.

• No changes in the tariff structure for exports to the rest of the world.

• 8% of costs for the UK-EU trade facilitation.

The results of calculations for possible changes in prices, volumes and production costs of basic farm products are summarized in the table below.

In accordance with the first scenario, prices for farm products (producer price) will remain largely unchanged, ranging from -1% to + 3% depending on goods. This will also not affect consumer prices significantly.

In the second scenario, one can expect a significant increase in producer prices for some products, especially milk and dairy products (+30%), pork (+18%) and beef (+17%), with a corresponding increase in production and production cost.

This would increase self-sufficiency of the UK in these sectors, as imports from the EU would become more expensive, but this would also lead to an acute increase in consumer prices.

However, tariffs would undermine the competitiveness of major British exports. There would be a fall in production and the decrease in incomes for farmers that grow sheep (producer price -30%), wheat (-4%) and barley (-5%).

If the British government abolishes food import duties, while British trading partners keep MFN tariffs on British exports (scenario 3), prices for British consumers will drop, British market will open for cheap imports from around the world. And as a result of this step, British farmers will suffer. For instance, producer prices for beef would fall by 45%, for lamb - by 29%. Although, this is the most extreme estimate, in general prices and production volumes of all British agricultural goods will drop significantly in physical and value terms.

British side began to act in the mainstream of the first scenario - the most "soft" and acceptable for the stability of British economy. On August 21, the government web portal published the document, relating the position of London in negotiating with the EU's (Position Paper) entitled "Continuity in the availability of goods for the EU and the UK".

The main proposals - requirements are as follows:

  1. goods that were present in the Single Market before the official withdrawal from the Union must continue to be freely distributed in the UK and the EU without additional requirements or restrictions;
  2. keep in force all permits for the sale of goods issued before March 2019, and not duplicate them;
  3. maintain constant supervision of goods;
  4. if the supply of goods is accompanied by the supply of services, there should be no restrictions on provision of these services, which may undermine the agreement on goods.

In general, after Brexit the UK government proposes to introduce a "new customs system", which should minimize problems after the exit and provide free and unimpeded trade with the EU, preferably on the same terms, but the UK will be able to start trade negotiations with non-EU countries.

Today, the UK and EU conduct an extensive trade in agricultural products and food. At the same time, Great Britain is a net importer of agro-food commodities. While the EU imported agricultural goods, fishery and food products from the UK at EUR 16.6 billion. In 2016, exports to the UK reached EUR 39.8 billion (+140%). More than 70% of the annual imports of agri-food products to Great Britain come from the EU.

Presumably, these figures will appear to be significant arguments for the EU representatives to pay full attention to the proposals of London. No doubt, Britain will persistently, not in words, but in fact defend the interests of its economy and producers in the Brexit negotiations with the EU.

 

UkrAgroConsult

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