Brexit: Breaking Away – Would it Pay?

Abstract

SummaryIn the event of a Brexit the UK would have to redefine its trade relationship with the EU and develop its own agricultural policy. We analyse the impacts of a UK–EU Free Trade Arrangement (FTA); a WTO MFN tariff rates scenario; and a UK Trade Liberalisation scenario (UK TL). In each scenario the effects of three different levels of direct payments to farmers are estimated: current levels, 50 per cent reduction and no direct payments. In the FTA and WTO scenarios, UK prices for agricultural products would increase due to the higher trade facilitation costs and the UK's loss of access to EU preferential import regimes, with positive impacts on producers but negative on consumers or users. In the UK TL scenario, prices for animal products tend to decline, while crop prices show an increase relative to the status quo. The effects on farm incomes reflect these changes in prices but incomes ultimately are strongly dependent on choice of agricultural policy with regard to direct payments. Full abolition of direct payments generally more than offsets the positive effects of output price increases on farm incomes. Direct payments of 50 per cent of current levels have more diverse impacts on farm incomes.