Agricultural incomes could halve after Brexit unless the UK strikes a free-trade agreement with the EU, according to a new report that urges farmers to prepare for Britain’s departure from the bloc by boosting their productivity.
The average UK farm is predicted to have its income fall from a current level of £38,000 per year to £15,000 should the UK unilaterally open its borders to low-cost food producers, said the Agriculture and Horticulture Development Board, an advisory body to British farmers.
The AHDB, which is funded by a levy on farmers, also found that in a second scenario of the UK erecting protectionist trade barriers, farm incomes would fall to £20,000.
However, if the UK succeeded in its objective of securing a free trade deal with the EU, the AHD said the average farm income could rise slightly to £41,000, because an increase in trading expenses would push up costs of imports and therefore the prices that farmers can charge for their products.
Phil Bicknell, market intelligence director at the AHDB, said: “The extremes of putting up protectionist barriers or opening up trade unilaterally to low-cost competition from around the world is bad news for the viability and profitability of UK farms on average.”
The AHDB predicted in its report to be published on Wednesday that dairy farmers’ incomes should rise after Brexit if there is a free-trade agreement with the EU or a protectionist regime involving World Trade Organisation tariffs, because increased costs could be passed on to consumers.
However, dairy farmers’ incomes could drop sharply should the UK unilaterally open its borders to low-cost producers.
Farmers dependent on exports — such as those rearing beef cattle and sheep — would see stable incomes after Brexit if the UK strikes a free-trade agreement with the EU.
But their incomes would plunge were Britain to open its borders to overseas producers of its own accord or introduce a protectionist regime, said the AHDB.
The AHDB report found that whatever the sub-sector, the most productive farms would be the most resilient in each of the three main Brexit scenarios outlined.
The top 25 per cent of farms, based on their productivity, have an annual average income of £110,000.
Mr Bicknell said: “Whichever scenario is chosen, higher-performing farms remain profitable in every sector. These farms are best placed to weather the negative impacts of any of the Brexit scenarios. They are capable of generating positive incomes when the lower-performance farms are making losses.” He urged farmers to improve productivity before the UK leaves the EU.
The AHDB report said: “While details of the trade and policy framework are unclear, this should not stop farmers taking action to prepare for Brexit.”
The report makes the assumption that agricultural subsidies would be cut by 75 per cent in the protectionist regime scenario — reflecting how farmers’ incomes would be supported by less competition — and reduced by 50 per cent in the unilateral liberalisation option.
UK farmers are dependent on €3.1bn of annual payouts from the EU’s common agricultural policy, mostly through farm income support.
The average British farmer depended on such subsidies for 86 per cent of their income in 2016, according to the Department for Environment, Food and Rural Affairs.
The government has guaranteed to make up for lost EU payments until 2020, but has not specified whether this money would be allocated in the same way as the bloc’s subsidies are currently disbursed.
“In sectors where direct support accounts for a significant proportion of farm business income, this impact assessment shows the dramatic immediate impact of reduced support levels on business profitability,” said the AHDB report.
Apart from subsidies, trade also has big implications for farm incomes, reflecting how the UK is a net importer of food and the EU is its biggest trading partner.
The AHDB report said: “In areas such as dairy and pigs, the scenarios show that farmers may benefit from rising prices, reflecting the rising costs of trade.
“In sectors where exports are significant, such as cereals and sheep meat, rising costs of trade for UK products into EU markets will mean downward pressure on domestic farmgate prices. In turn, this is reflected in farm business income levels.”
The AHDB report is likely to raise concerns about the viability of many farms. The number of farms in England has fallen by more than 20 per cent over the past decade, according to the Campaign to Protect Rural England.
The lobby group found that the smallest farms — those of 20 hectares or under — were most at risk.
In a report published in August, the Campaign to Protect Rural England argued that diversity in the size of farms was crucial for a resilient and healthy sector.
The number of farms in England fell from 132,400 in 2005 to 104,200 in 2015, according to Defra.