How Irish farm incomes could be affected in the ‘worst case’ Brexit scenario

Brexit presents many threats to the Irish agri-food sector, according to Teagasc’s Kevin Hanrahan.

One of the most worrying threats facing the sector is the potential fall in Irish farm incomes in a post-Brexit world.

The Teagasc Economist highlighted a number of areas of worry for Irish farmers at today’s Teagasc Annual Review and Outlook for 2017.

This include exchange rate volatility, falling CAP payments, tariffs and non-tariff barrier changes and agri-food policy changes in the UK.

Basing his analysis on tariff-free trade, predictions from the UK on falling prices and National Farm Survey data from 2013 to 2015, Hanrahan said that the Irish beef sector would be hardest hit once the UK leaves the European Union.

The work was also based on static levels of production on Irish farms.

In the worst case scenario, he said, the income generated from Irish cattle rearing enterprises could fall by a whopping 37% or €4,000-5,000 on an annual basis.

The beef sector will experience the greatest shock post-Brexit, he said, as current trade tariffs offer some degree of protection, while Irish beef exports are also highly dependent on the UK market.

“Farm incomes on cattle farms are very dependent on CAP subsidies,” he said.

Meanwhile looking at the impact on Irish dairy farm incomes, Hanrahan said the income generated on the average Irish dairy farm could drop by 20% (€13,000), due in part to a small reliance on subsidies and falling cattle prices.

Dairy farms are specialised in producing milk, but the average dairy farm also produces cattle and that will take a much bigger impact of the hit from Brexit.

In addition, he said, the income generated on sheep farms could potentially fall by 21% (€7,000) in a post-Brexit era, as many sheep farmers operate a sheep and cattle enterprise side-by-side.

Finally, he said, the tillage sector could be least impacted by Brexit, as Irish and European farmers focus on the world market rather than the UK.

“The UK is not a major importer or exporter of grain, so the UK leaving would not have a major impact on the supply balance in the EU and Ireland,” he said.

However, if the worst case scenario does present itself, the income generated on Irish tillage farms might fall by €3,000 on the average holding – a drop of 22%.

However, despite the dire predictions on farm income, he said that there is still a large degree of uncertainty surrounding Brexit

We think it is almost inevitable that it will be reflected in lower farm-gate prices for Irish farmers in the future.

“We don’t know the precise terms of the UK’s exit, but what we do know is that it certainty endangers the positioning of businesses investment decisions,” he said.

How has Brexit affected Ireland this year?

The impact on Irish agri-food exports to the UK for the year-to-date has been surprisingly small, he said.

“Irish agri-food exports for the year through to September are down about 5.5% or €390m. About half of that €390m is in dairy exports.

“And that lower level of value is driven by what is happening on international dairy commodity markets, as opposed to Brexit,” he said.

The majority of the rest of the fall in the value of exports is in prepared consumer foods. The value of meat exports is actually largely unchanged compared to last year.

“We haven’t seen a big change in the value, but we know that volumes have been higher, so unit values have come back this year compared to last year,” he said.

How will it affect the CAP budget?

Meanwhile, the other dimension of the UK leaving the EU that warrants consideration is the impact that it will have on the CAP budget.

He said that the UK currently provides 10% of the overall EU budget.

“Changes in the European budget will almost certainly be reflected in changes in the CAP budget, given that the CAP budget still accounts for two fifths of European expenditure.

“The UK leaving will almost certainty lead to reduced CAP spending and reduced CAP spending here in Ireland,” he said.

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