Average family farm income to drop by 18% in 2021 if no trade deal agreed

If no trade deal is agreed between the EU and the UK for Brexit, the average family farm income in 2021 would decrease by 18%, a new report from Teagasc has warned.

The Teagasc Outlook 2021, Economic Prospects for Agriculture, was published today, Tuesday (December 1), at the annual Teagasc Economic Outlook Conference, which took place online.

While the average family farm income increased by 6% in 2020, next year is a very different scenario, the agricultural authority warns.

Looking ahead to 2021, no major movements in international agricultural commodity and agricultural input prices are foreseen.

While there have been positive developments with respect to a number of Covid-19 vaccines, further disruption to economic activity due to the pandemic cannot be ruled out, the Teagasc report warns, as the Covid-19 vaccination process “represents a major logistical task that will extend well into the second half of 2021”.

Considerable uncertainty exists due to concerns about future EU/UK trade, once the UK’s Brexit transition period ends on December 31 of this year. Irish agriculture faces an enormous challenge in 2021 if no post Brexit trade deal emerges.

Tariff disruption

The absence of a trade deal would mean that sizable tariffs would apply to imports, which would have major negative consequences for the extent of EU/UK agricultural trade.

Aside from tariffs, which might be avoided in a trade deal, there will be additional trade costs, such as customs and regulatory checks, which will be inevitable as the UK leaves the single market, it was added.

With the imposition of tariffs, Irish exports to the UK would decline and output prices are projected to fall by almost 20%, 8%, and 7% respectively for cattle, pigs and milk in 2021.

By contrast, Irish lamb prices are projected to rise by 7% in 2021, as the exclusion of UK lamb exports from the EU lamb market would lead to an increase in EU and Irish lamb prices.

International prices for cereals at harvest 2021 are expected to be slightly lower than 2020 harvest prices overall, due to projected increases in supply.

However, given that Ireland is a net importer of cereals, the imposition of tariffs on grain imports from the UK, could offset some of the otherwise negative impact on Irish cereal prices in 2021.

In the absence of a trade deal, the largest income reductions in 2021 would occur on Irish beef farms, where the average income could drop by 40%. The average Irish dairy farm income could drop by 13% in 2021.

Even though Irish lamb prices are expected to increase in 2021, the average sheep farm income would still fall by 4% in 2021, as many sheep farms also have a cattle enterprise which would experience significant losses.

A recovery in cereal yields in 2021 would be sufficient to offset a fall in cereal prices, leaving the average cereal farm income up 3%.

Under this no trade deal outcome, the average family farm income in 2021 would decrease by 18% to €20,200.

It is projected that this would amount to an income reduction in excess of €690 million for the agriculture sector in aggregate in 2021.

This no trade deal Brexit scenario assumes that no additional support is made available to the agriculture sector to address the impact on incomes of the reduction in output prices that would occur.

However, it is likely that additional support would be provided by the EU and the Irish government and the forecast provides an indication of the amount of money that could be required to offset the potential income reductions across the sector, the Teagasc outlook report concludes.