Brexit - agricultural sectors: analysis of impacts

2. Project Methodology

2.1 General

Figure 2‑1 shows the key methodological steps which consist of a combination of desk-based and primary research followed by economic modelling using a combination of the Agmemod partial-equilibrium model, representing the agricultural sector of the UK and the EU-27 at Member State level, as well as additional MS-Excel based analysis. The results are then analysed in terms of the implications for UK-EU trade and at the farm-level for Scottish agriculture. Section 2.2 outlines each methodological step with more detail in Annex I.

Chart Description

Sets out the key methodological steps undertaken in this study. These include: the inception meeting, desk-based research and data gathering, literature review, interim report update, primary research, economic modelling, research analysis, report writing and final report presentation.

Sources: The Andersons Centre

2.2 Methodological Steps

1 Inception Meeting: Andersons and the Project Steering Group clarified, at the outset, the project's priorities, timelines, datasets and other resources which could help the study.

2 Desk-Based Study: this stage consisted of two strands;

a. Data Gathering: upon project commencement, numerous data sources were identified. Some were under the auspices of RESAS and the Scottish Government. Numerous other data sources were also used to meet the project's objectives. These sources included organisations such as the UK Government (Defra, Department for International Trade), HMRC, SRUC and SAC Consulting, Levy Boards, the EU Commission, EUROSTAT, WTO, trade associations, the National Farmers' Union Scotland (NFUS), OECD, UN FAO and others. Further data sources are associated with the Agmemod framework (see Step 5). Additional data sources managed by Andersons were also made available, such as;

• Andersons' NTMs Model: uses 25-30 cost sub-categories to assess NTMs' costs NTMs on UK-EU trade as well as third country trade entering the UK. It assesses NTMs costs on both a "checked load" (subject to the full range of regulatory checks) and on a probabilistic basis (i.e. averaged over 100 loads to account for checking rates etc.).

Chart Description

Outlines the various NTM cost categories considered by Andersons in compiling its NTMs model. These relate to product and commercial arrangements, transportation and handling, 3rd party services such as freight forwarding, and regulatory procedures including Sanitary and Phytosanitary checks and customs. NTM costs are then set out on a cost per load, cost per tonne and ad-valorem equivalent (AVE)  basis. Costs in this study are mainly examined in AVE terms.

Source: The Andersons Centre

Note: NTMs costs in this study are primarily expressed in AVE terms.

• Andersons' Model Farms: in use since the early 1990's, these Scottish Model Farms have been used in addition to the FADN farm incomes data to project the implications of the Agmemod modelling results for Scottish farming incomes.
• ABC Books: 90^th edition data was used to assess the farm-level impacts of Brexit in the horticultural sector (Chapter 8).

b. Literature Review: identified and examined what overlapping or supporting work was undertaken in recent years, thus preventing a repetition of effort and resources. It primarily focused on the Scottish or wider UK agricultural industry but also considered wider economic impacts. Andersons combined existing knowledge from previous studies with updated analyses to produce a thorough review of the best available knowledge on this topic. Chapter 3 summarises the key findings. Annex II contains the full Literature Review. It serves as a useful backdrop and grounding for most of the chapters in the report.

The inputs from both the Literature Review and Data Gathering stages were used to establish the baseline situation for UK and Scottish agriculture in terms of output and sales by geographic market. By using 2017-19 as the baseline, it precludes the impact of Covid-19 (Covid Crisis) thereby removing any odd effects arising from the pandemic (e.g. loss of food services exports to EU markets). That said, some additional commentary has been provided on the impact of the Covid Crisis within each sector and chiefly draws upon the study's primary research.

3 Interim Report Update: was submitted upon completion of the Literature Review, summarising the key findings to date and provided initial insights from the Primary Research.

4 Primary Research: collected evidence from industry experts to ascertain the specific impacts of Brexit on each Scottish agricultural sector. This helped to provide a greater Scottish context to the economic modelling. In total, 17 in-depth discussions (circa 30-45 minutes' duration) took place with a variety of stakeholders as summarised in Table 2-1. Additional shorter discussions on specific points were also held with several industry participants, partly based on the recommendations of initial interviewees. Some participants also provided supplementary information which helped to further expand the data gathered over the course of the study.

Table 2-1 – Summary of Primary Research Interviews Undertaken

Key Assumptions	No. of Interviews	Stakeholder Type
Beef and Sheep	5	Includes 2 processors & 3 trade/farming associations
Dairy	3	1 processor, 1 farming organisation, 1 trade association
Cereals	4	1 trade association, 1 inputs supplier, 1 trader and 1 maltster
Horticulture	4	3 growers/suppliers and 1 trade association
Other / General	1	Trade association specialising in logistics
Total	17

Source: Andersons

5 Economic Modelling: combined partial equilibrium modelling (using Agmemod) and MS Excel-based analyses to quantify the impact of Brexit at a UK sectoral level (i.e. effects on domestic output, impacts on supply, demand, prices and trade). Subsequently, additional Excel analysis was run on a Scottish farm-level to ascertain the potential Brexit impacts.

Agmemod is a partial equilibrium modelling system focusing on the agricultural, food (and fisheries) sectors in the EU and neighbouring countries (e.g. the UK). For each country, it covers key agricultural commodities in detail. Although the scope of the commodity coverage varies between countries reflecting agricultural output in each nation, it captures in detail, the key interactions in each agricultural sector including overseas trade.

It is used each year by the European Commission to generate its Market Outlook series. It has also been used to assess potential changes in agricultural policy. On several occasions, it has been deployed to assess the impacts of Brexit on UK-EU trade and resultant impact on UK agricultural output. As it has detailed coverage of most of the commodities being focused on in this study (i.e. wheat, barley, dairying, beef, sheep and potatoes) and benefits from a collaborative network of research organisations in more than 30 countries, it was selected as the basis of the economic analysis presented in Chapters 5 to 8. See Annex I for more detail.

Additional Excel-based analysis was used with agricultural costings data to quantify the potential Brexit impacts for cauliflower, broccoli and strawberries (see Chapter 8).

To undertake the Agmemod economic modelling simulation, Andersons was supported by Wageningen University and Research (WUR). It has extensive experience in using Agmemod over 20 years and has completed several Brexit-related studies concerning both the UK^[4] and the Netherlands^[5]. Therefore, the economic modelling has built on the collective experience that both Andersons and WUR have obtained during past studies. Several of these have involved both specialist econometric modelling and Excel-based analysis. The Agmemod sectoral level modelling consisted of the following elements:

a. Baseline data: used a combination of historical data on UK and EU output and trade contained within Agmemod and data obtained from the Data Gathering stage. The latter consisted of obtaining both UK level data (e.g. Defra AUK data and HMRC) as well as Scottish specific data (e.g. ERSA and Scottish TIFF^[6]) in addition to EU data obtained from the EU Commission's agri-food data portal^[7] and EUROSTAT. It is against this baseline (Base) that the effects of the trade-related changes were assessed under each scenario.

b. Tariff impacts: were assessed with respect to UK exports to the EU and the imposition of the UK's Global Tariffs (UKGT) on imports from the EU27 and non-EU countries. The EU Common External Tariff (CET) schedule was used to assess the impact of tariffs on UK exports to the EU. Where several tariffs would be potentially applicable to a sector (e.g. beef) and vary significantly by commodity code, a weighted average of the top-5 traded products was also considered. This was based on UK HMRC trade data. These tariff impacts were then converted into an Ad-Valorem Equivalent (AVE) price impact which was considered in the Agmemod modelling.

c. Tariff Rate Quota (TRQ) impacts: for each commodity, the projected impact of the reallocation of existing EU28 TRQs based on historic import trade between third countries with the UK and the EU27 was assessed. Whilst it is acknowledged that some WTO members rejected this proposed division, no alternative has been put forward. Therefore, the proposed UK-EU27 allocations have been assumed. This involved an examination of TRQ volumes which would be potentially available for UK (and Scottish) exporters post-Brexit as some TRQs are open to everyone (i.e. not allocated to specific countries).

Consideration was also given to the impact of potential new TRQs that the UK could potentially make available to importers. Although it was thought that the UK Government would have announced this by September 2020, details are still awaited. Therefore, in a No Deal scenario, it was assumed that the UK would introduce TRQs for beef only based on average net annual imports during the Baseline period (196Kt). This 'new' TRQ would be made available to imports from all countries (i.e. on an Erga Omnes basis), provided they could meet the UK's regulatory standards. A sensitivity analysis was also undertaken which assumed that the TRQ offered by the UK would be half the net import volume (i.e. 98Kt). This would again be made available on an Erga Omnes basis.

d. Non-Tariff Measure (NTM) costs: were calculated for each commodity using Andersons' NTMs model. For some sectors, notably beef, lamb and dairying, several products were assessed. In this report, NTM costs have been quantified in terms of ad-valorem percentages. However, Andersons' NTMs model also produces pounds (£) per tonne and cost per load NTM estimates. See Annex III.

It is noted that the Government has recently announced that some regulatory procedures will not become applicable to UK imports from the EU until April or July 2021. As this study is focusing on the impacts from 6-12 months onwards, the NTM cost calculations were based on the full imposition of regulatory controls. For any trade moving from Scotland to Northern Ireland (NI), it is envisaged that EU regulatory controls would be applied as products enter NI, but that the recently announced Trader Support Service^[8], should help to mitigate a significant proportion of these costs. NTM costs in the opposite direction (NI to Scotland) were also considered, but these are likely to be subject to fewer restrictions based on the UK Government's "unfettered access" commitment.

e. Trade Impact Modelling: drawing upon the estimates on tariffs, TRQs and NTMs, the Agmemod model was deployed to estimate the potential impact of these trade barriers on post-Brexit trade under an FTA and No Deal scenario. The overall modelling approach consisted of the following key steps with further detail on the methodology and results provided in Annexes I and IV respectively. The Agmemod modelling focused solely on the trade-related aspects of Brexit and kept agricultural policy support payments constant as this is expected to be the situation in Scotland until 2024.

f. Quantify impact on Scottish farm-level performance: was compiled based on the trade impact modelling analysis. This was done using both the Scottish Farm Business Income dataset and Andersons' Model Farms. For horticulture (Chapter 8), insights from the Scottish Farm Management Handbook and the ABC Book were used to compile a Brexit impact analysis for cauliflower, broccoli and strawberries. This is because Agmemod only provides projections for potatoes at a UK-level.

6 Research Analysis: was done in conjunction with the Report Development stage, based on the economic modelling results and farm-level assessments. This was accompanied by a commentary on the implications for Scottish agriculture. Here, insights from the Primary Research were also used to ascertain the impact on Scottish agri-food trade, particularly with the EU27. Consideration was also given to the short-term impact (6-12 months) and the longer-term impacts (after 1 year or more) from application of the policy measures.

7 Report Development & Finalisation: the draft summary report, with accompanying Annexes, were compiled to set-out the study's findings. The draft report was peer-reviewed internally by Andersons colleagues. Feedback was incorporated into the report which was submitted to the Project Steering Group. Thereafter, a presentation and feedback session was completed and agreed refinements were incorporated into the final report.