Brexit scenario modelling for UK dairy

Published 16 October 17

The latest edition of AHDB’s Horizon series is now available for download on the AHDB website. The report models the effect of three Brexit scenarios on Farm Business Income (FBI), with scenarios designed to encompass the potential outcomes of the Brexit negotiations.

Scenario 1: Evolution is the ‘business as usual’ option with regulations and trading relationships as close to the status quo as possible, given that the UK will be leaving the single market. Dairy FBI increases 29% under this scenario driven by trade friction increasing the price of imports, allowing domestic milk prices to rise.

Scenario 2: Unilateral Liberalisation a scenario in which the UK adopts WTO rules but reduces import tariffs to 0% for agricultural products within set quotas. EU regulations are adopted but reduced over time. Dairy FBI falls by 35% under this scenario, driven by a removal of Pillar I payments and higher costs associated with labour.

Scenario 3: Fortress UK where WTO Most Favoured Nation tariffs apply, retaining a proportion of the EU’s existing Tariff Rate Quotas. Non-UK labour is restricted to 50% of current levels and regulations are unchanged. FBI increases by 33% under this scenario with imports subjected to WTO tariffs allowing the price of domestic milk to rise. This more than offsets an increase in fixed labour costs.

This pattern is much the same across all farm sizes and performance levels, with Scenario 1 and Scenario 3 improving FBI above the baseline and Scenario 2 bringing FBI below the baseline. Whilst these findings should not be considered forecasts, they do shed light on how different policy decisions in the Brexit negotiations could affect UK dairying. 

2017.10.19 horizon