As Brexit approaches, AHDB has modelled the effect different scenarios would have on the industry.
Alex Black takes a look at the details.
LABOUR costs will hit farm business incomes whichever version of Brexit the UK decides on, even in sectors where production prices rise.
According to AHDB modelling, Farm Business Incomes would fare much better under a UK-EU Free Trade Agreement than under a no-deal scenario, but incomes would drop under both scenarios for nearly all farm types.
AHDB looked at longer term impacts, modelling the effect on incomes in 2022.
AHDB analyst Tom Hind said: “Change is coming under any scenario. It is just a question of when.”
He added there was ‘little doubt’ there would be a greater impact under a no-deal scenario.
Labour was going to be the key factor hitting farm business incomes, with the modelling assuming seasonal non-UK labour was possible under an expanded Seasonal Agricultural Workers Scheme type arrangement but permanent non-UK labour being restricted to 50 per cent.
AHDB highlighted top farms remained profitable regardless of the scenario and businesses were encouraged to look how they pull themselves up into the top 25 per cent.
Farm incomes in less favoured areas would not be affected dramatically by a UK-EU free trade agreement as they may be best placed to benefit from new payments for delivering public goods.
But production revenues would plummet by more than £10,500 on an average farm if the UK left with no deal.
AHDB analyst Sarah Baker also highlighted there was no direct correlation between farm size and income in their analysis, with medium-sized farms outperforming large ones in a World Trade Organisation rules scenario.
“Large farms are more dependent on direct payments,” she said.
She added high performing farms were making almost £50,000 of Farm Business Income, even in the most stringent scenario.
However, lowland farms would not see the same benefits from changes to subsidy payments.
Beef and sheep had slightly different scenarios, with beef a net importer. Ms Baker said this would normally mean they would expect domestic prices to rise.
But as tariffs would be lower than the EU’s, and there was a 30,000-tonne quota, prices would be pushed down.
For sheep, imports were expected to continue but the UK could find itself with an oversupply of light lambs if it cannot export these to the EU.
Labour costs were the main concern in the dairy industry, with production revenues up under both scenarios. The UK was currently a net importer of dairy.
Increases in variable and fixed costs would more than offset any gains, with the main driver the increased costs for workers.
However, Ms Baker did highlight these results were for 2022 and there may be negative price movements over the short-term due to trade disruptions.
Increasing costs would hit cereal farm incomes under both scenarios but defaulting to World Trade Organisation rules would cause incomes to drop further.
And Farm Business Incomes would be higher if the UK was a net importer of cereal, rather than an exporter.
With direct payments significant in this sector, AHDB’s model presumes they would receive similar amounts through the new public goods schemes. But without this payment, incomes would be negative in a WTO scenario and close to £0 with a free trade deal.
Hikes in labour costs would wipe out any improvement to pig production revenues in an UK-EU free-trade agreement scenario.
The industry would benefit from displacing imports but the pig sector would be hit particularly hard by increasing labour costs.
Ms Baker said: “Under World Trade Organisation [WTO] rules, we will start seeing pig meat from the rest of the world. There will be significant reductions in production revenues under that scenario.”
For poultry, increased costs would wipe out profit margins, with farmers losing £32.60 per 1,000 birds in a free trade agreement or making just a penny in WTO, despite production revenues rising as the UK was currently a net importer.
FBI falls under both scenarios from the baseline £1,337 per hectare to £900 per hectare under UK-EU FTA and just over £1,000 a hectare for WTO:UK tariffs.
Increased labour costs are a contributory factor in both scenarios but increased production revenues are seen in the WTO:UK tariffs scenario, as trade friction increases the cost of imported potatoes.
Baseline FBI per hectare is £1,640, falling to £1,300 under UK-EU FTA and £1,445 under WTO:UK tariffs. Production revenues are seen as increasing due to rising carrot prices as a result of trade friction costs on imports but labour costs would rise by £486 per hectare.