What would Brexit mean for farmers' incomes? The NFU Report - What it actually said.

The NFU’s Report – What it actually said

If the UK votes to leave the EU the Government will have to decide how it will run its agricultural policy, both its trade relationships and farmer direct payments.

The NFU funded report prepared by economists from Wageningen modelled the farm income effects of three possible trade arrangements that might follow Brexit.

The first option is that the UK agrees a Free Trade Arrangement (FTA) with the EU, and with this scenario the economists concluded that most farm commodity prices would be improved by 5% (though only by 2% for sheep meat).

In the absence of FTA, the UK Government can apply tariffs to imports at a maximum rate which is set by the World Trade Organisation (WTO). Under this option prices were forecast to rise for all commodities by between 7% (the lowest increase was for eggs) and 11% (the highest increase was for sugar).

In the report's words: “Price changes due to a Brexit have a positive impact on farm incomes in all sectors under the FTA and WTO-default scenario.”

However, it would be an option for the Government to choose to lower the tariffs it applied and the Wageningen study looked at UK Trade Liberalisation (TL), a scenario based on halving import tariffs. It reports that under this option:

“the UK will see an increase in the producer prices of its main arable crops (except for sugar) and to a lesser extent also for most dairy products, while the prices of sugar and all types of meat will show a net decline.”

This table shows their estimated price changes under the three different scenarios:

The table below shows the effect of these price changes on farm incomes for different farm types:

Wageningen estimates1 of farm income increase as a result of Brexit (Euros)

The paper then examines the effects of three different levels of direct payments: status quo, i.e. a continuation of all direct payments, 50% reduction of direct payments and no direct payments. It has assumed there is no change in the level of environmental payments to farmers.

Not surprisingly, the authors discover that lowering direct payments decreases profitability.

“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… Overall, two-third of the UK’s farm income relies on direct payment support.”

The Issues

Contrary to a number of claims, the Wageninen paper does not identify which policy option might result after Brexit but it does provide the analysis which allows farmers to identify where the potential problems may lie.

It is now clear that there is not a danger from a potentially hostile EU as David Cameron and Liz Truss have tried to imply by suggesting that the protective levies that the EU might apply would be disastrous for farmers. The Wageningen report shows that this is not true.

Indeed, Brexit would allow farmers to do better if the Government continues with the current level of area payments and the Government would be better off too. The UK currently contributes an estimated €7.9bn to the CAP budget, from which its farmers receive €3.8bn. The current level of area payments can be retained with a saving of €4.1bn.

“A Brexit would save the UK budget expenditure on agriculture”

Also there could also be significant income from tariff revenues which have not been quantified.

But the policy options that the UK chooses are vitally important. Obviously the most challenging scenario for the industry would be for area payments to be discontinued and tariff barriers dismantled. This would lead to declining prices, less production and more imports of a number of products. But that would only happen if the UK Government decides that is what it wants. Would the public want that?

In addition to the effect on farmers, the countryside and food industry, there are a whole number of consequences of the Government going down that route, including compromised national food security (in the situation where the UK already only produces 60% of consumption), loss of control of food quality, dietary consequences of cheaper food, environmental impacts and loss of import levy revenue, which would have to be taken into account. Even David Cameron has said that he would support a continuation of area payments after Brexit, despite this being detrimental to his pro-EU campaign.

“Project Fear” is desperately trying to make farmers believe that this is the inevitable outcome of Brexit. But it is not. Britain will be able to choose what policies it adopts and this report highlights that there are options for better returns for farmers than are available under the CAP.

What is clear is that after Brexit the official attitudes to area payments can be much more positive. The UK will no longer be giving its money away to support farmers in the rest of the EU.

But it is a great shame that the largely objective attempt to examine the economic issues raised by Brexit has been distorted by the NFU in its presentation to its members, apparently to feed “Project Fear”. There seems to be an attempt to obscure the possible positive benefits of Brexit in the NFU summary of the report and to focus on the worst possible outcome. In the South West David George told NFU members that the Wageningen report concluded that all three scenarios would probably result in farm incomes falling despite this being completely untrue. He also suggested that the report identified trade liberalisation and abolition of support payments as the most likely outcome – it did no such thing.

1 Income effects compared to 2012/2013 average income taken from Figure 6.3 of Wageningen text