Brexit - agricultural sectors: analysis of impacts

7. Brexit Impact – Beef and Sheep

7.1 Tariff Impacts

7.1.1 UK Imports

The percentage impact of the UK's Global Tariff (GT) on imports of the top-five beef and sheepmeat products from the EU and non-EU regions are shown in Table 7‑1. In general, it shows the import tariffs have a greater percentage effect on imports from the EU27 than from non-EU. This is primarily because prices for EU imports tend to be lower. Take for example, fresh/chilled boneless beef. The AVE for EU imports is 66%, which is 18 percentage points higher than non-EU. The price per tonne of EU imports (£4,649) is lower than for non-EU (£7,108) so when the fixed component of the UK tariff (£2,530/t) is applied, it has a smaller impact on the higher value products.

Similar trends are also evident across other beef and lamb products and illustrates that imports from the EU will be disadvantaged if tariffs become applicable. For some products (e.g. chilled beef and lamb carcases), imports do not come in from non-EU countries, partly due to the distances involved which make it more economical to import value added products which contain less waste (e.g. unwanted bone, fat trimmings etc.) whilst also bearing in mind the influence of TRQs (see next section).

Table 7‑1 – Impact of UK Tariffs (in AVE terms) on Imported Trade for Selected Commodities

		EU		Non-EU*
HS Code	Description	£/t	AVE%	£/t	AVE %
02011000	Chilled beef carcases or half-carcases	3,192	58%	n/a	n/a
02012090	Chilled beef cuts, with bone in	6,009	49%	18,809	24%
02013000	Chilled boneless beef	4,649	66%	7,108	48%
02023010	Frozen beef boneless forequarters, whole or cut	1,545	132%	4,044	58%
02023090	Frozen beef boneless meat (excl. forequarters)	3,346	88%	4,081	74%
02041000	Chilled lamb carcases and half-carcases	3,186	57%	n/a	n/a
02042250	Chilled sheep legs	6,562	15%	5,784	15%
02042300	Chilled boneless cuts of sheep	3,105	20%	7,000	16%
02044250	Frozen sheep legs	4,452	43%	4,652	42%
02044310	Frozen meat of lambs, boneless, frozen	2,849	81%	3,905	62%

Sources: HMRC and The Andersons Centre (2020)

* Refers to all non-EU countries on aggregate.

Note: AVEs have been calculated based on 2017-2019 average price per unit values.

n/a: refers to insufficient trade taking place for the commodity code during 2017-19 to give a tariff value.

7.1.2 UK Exports

Table 7‑2 shows that for UK and Scottish exports, the impact of the EU CET would be substantial, and is estimated at 67% for chilled boneless beef and 87% for chilled beef carcases. The fact that export prices for these products are significantly lower than the corresponding import prices shown in Table 7‑1 above is the key reason for the higher AVE impact. This is because the EU CET includes both a percentage component (12.8%) and a fixed component, which ranges from between €1,768 to €3,041 per tonne across the commodities selected, which results in a much higher AVE tariff for lower-priced products.

For sheepmeat, the AVE tariffs are lower than for beef (as prices are higher) but still range from 44% to 63%. This would render Scottish exports of lamb uncompetitive in a No Deal scenario. Given that exports to the EU represent over 31% of UK lamb output (see Table 4‑3), it is evident why participants in the Scottish sheepmeat sector are gravely concerned about what would happen under a No Deal scenario.

Table 7‑2 – Impact of EU Common External Tariff (in AVE terms) on UK Exports

HS Code	Description	Price £/t	AVE %
02011000	Chilled beef carcases or half-carcases	2,120	87%
02012090	Chilled beef cuts, with bone in	3,803	75%
02013000	Chilled boneless beef	5,000	67%
02023010	Frozen beef boneless forequarters, whole or cut	799	259%
02023090	Frozen beef boneless meat (excl. forequarters)	2,875	107%
02041000	Chilled lamb carcases and half-carcases	4,179	49%
02042250	Chilled sheep legs	6,246	45%
02042300	Chilled boneless cuts of sheep	5,561	63%
02044250	Frozen sheep legs	4,740	44%
02044310	Frozen meat of lambs, boneless, frozen	4,466	60%

Sources: HMRC and The Andersons Centre (2020)

Note: AVEs have been calculated based on 2017-2019 average price per unit values.

n/a: refers to insufficient trade taking place for the commodity code during 2017-19 to give a tariff value.

7.2 TRQ Impacts

In this section, the focus is on existing beef and sheep meat TRQs that the UK was party to when it was an EU Member State. Section 7.5 provides an analysis of the impact of new TRQs for beef which the UK could potentially introduce in the future.

When the UK was part of the EU, there were approximately 186,904 tonnes available via WTO-notified TRQs for beef and associated edible beef offal (this excludes FTA TRQs such as the recent 50,000t hormone-free TRQ that the EU negotiated with Canada under CETA). Some of these are allocated to individual countries (e.g. Australia) or groups of countries (e.g. 11,500 tonnes of 'Hilton' beef quota available to the US and Canada). Based on the proposed splitting of the EU28 TRQs between the UK and the EU27 in December 2018^[23], approximately two-thirds were allocated to the EU27 (124,373t) and one-third to the UK (62,531t). Of these amounts, Table 7‑3 shows there would be just 64,280 tonnes which the UK could potentially access to export to the EU27 under a No Deal scenario. However, there would be limitations in terms of the types of beef (e.g. frozen) and the types of cuts/products (e.g. thin skirt) which could be potentially exported from the UK to the EU27.

Based on the conditions laid out under EU Commission regulations, beef exported to the EU under TRQs would have to be frozen, and a significant proportion (19,748 tonnes) would have to be used for processing. In recent times, just over 18,400 tonnes of UK beef are exported to the EU as frozen product, the majority (circa 60%) is exported as fresh/chilled beef and veal. This implies a reorientation towards frozen exports for processing. It would exclude the UK from high-end markets such as Italy and France where fresh/chilled trade is more prevalent. In such instances, it is likely that these previously exported tonnages would be used domestically to substitute imports coming from the Irish Republic for example.

In assessing potential for future market access under TRQs, as well as size of TRQ and in quota tariff, there are other terms and conditions which also need attention. For example, the method of allocation is important as TRQs can be administered in different ways. In the EU, TRQs tend to be set for an annual period (e.g. having a July-June year period or an April-March year period). From there, applications for licenses tend to be open to eligible applicants each quarter on a first-come-first-served basis. To be eligible for TRQs, applicants' plants must be EC-approved and are also required to have been active in the production of processed products containing beef throughout the 12-month period prior to application and the 12 months prior to that. They can only apply in the EU Member State in which they are VAT registered and are required to lodge a security (€6/100kg) which would be forfeited if their TRQ allocations are not used. Each application must not exceed 10% of each quantity available and meat brought in under the TRQ must be processed within 3 months of import at a designated establishment. These rules would curtail the extent to which Scottish businesses could trade freely with the EU, in comparison with the status quo and it would require a greater planning of production activities throughout the year. Scottish processors would also need to pay close attention to ensuring that all administration relating to TRQs is undertaken diligently, because a loss of TRQ allocations due administrative errors could have a major bearing on operations.

Table 7‑3 – Comparison of EU Beef Products TRQs Available to UK versus UK Exports to EU

Product / Quota	Commission Regulation	Order No.	Total TRQ Tonnage (EU28)	EU27 Share (Available to UK)	UK Share (Available to EU)	UK Exports to EU	Duty / Tariff
Frozen beef for processing	412/2008	09.4057	50,000	15,500	34,500	18,406*	20%
		09.4058	13,703	4,248	9,455		20% + specific duty
Frozen beef (GATT)	431/2008	09.4003	54,875	43,732	11,143		20%
Frozen thin skirt ('hampe')	748/2008	09.4020	800	800	0	207~	4%
Sub-Total	TRQ Available		119,378	64,280	55,098	16,834
UK Fresh/chilled beef exports						78,325
UK Other beef and beef offal exports						35,994
UK Total UK beef product exports to EU						131,153

Sources: The European Commission (2018) and The Andersons Centre (2020)

* This figure refers to total frozen beef exports to the EU27 per annum averaged over 2017-19.

~ Includes thick and thin skirt products (relates to 2016-18).

From a beef import perspective, the proposed divisions set-out in Table 7‑3 would also mean that there would be 55,098t available to EU27 Member States such as Ireland, based on existing TRQs alone. In addition, there is also the possibility that the UK could announce a new beef TRQ similar to the ~230Kt (at a 0% tariff) it had announced in March 2019 in the event of a No Deal Brexit at that time. On that occasion, the TRQ was going to be made available on an ERGA OMNES basis (i.e. to both EU27 and non-EU countries). If another such TRQ were to be introduced, it would have major implications for the competitiveness of Scottish produce, particularly if it was accessible to the likes of Brazil.

It also needs to be emphasised that the provisions of the NI Protocol which would permit frictionless trade on the island of Ireland to continue could result in significant volumes of Irish cattle being brought into Northern Ireland for slaughter. Once processed, this product could be shipped to the GB market and qualify as UK produce, as it would have undergone significant transformation in the UK. This would give rise to the possibility of significant volumes of Irish beef entering the UK tariff-free via Northern Ireland as tariffs between Dublin and Holyhead (GB) would be prohibitive.

Table 7‑4 sets out the proposed division of sheepmeat EU28 TRQs between the UK and the EU27. It suggests that only around 378t would be accessible for UK exporters to the EU (available on an 'Erga Omnes' or 'Other 'basis). This is miniscule in comparison with current UK sheepmeat exports to the EU (circa 97Kt). Post-Brexit, sheepmeat imports via TRQs would still take place as the existing EU28 TRQs would be divided up between the proportion that the UK would take on and the proportion to be taken on by the EU27 (i.e. available to UK exporters) as Table 7‑4 also illustrates. It shows that the existing EU28 TRQs are to be allocated evenly between the UK (49%) and the EU (51%) meaning that up to 137,326t of sheepmeat could be imported into the UK from elsewhere post-Brexit, of which, New Zealand would have an 83% share.

Table 7‑4 – Proposed Division of EU28 Sheepmeat Import TRQs between EU27 and UK

Description	Country	Order No.	EU28 (t)	EU27 (t)	EU27 Share (%)	UK (t)	UK Share (%)
Meat of sheep or goats, fresh, chilled or frozen	Argentina	09.2011	23,000	17,006	74%	5,994	26%
As above	Iceland	09.0790	600	349	58%	251	42%
As above	Bosnia & Herzegovina		850	410	48%	440	52%
As above	Australia	09.2012	19,186	3,837	20%	15,349	80%
As above	Chile	09.1922	3,000	2,628	88%	372	12%
As above	Greenland	09.0693	100	48	48%	52	52%
As above	New Zealand	09.2013	228,389	114,184	50%	114,205	50%
As above	Uruguay	09.2014	5,800	4,759	82%	1,041	18%
As above	Other	09.2015	200	200	100%	0	0%
As above	Erga Omnes	09.2016	200	178	89%	22	11%
	Total		281,325	143,599	51%	137,726	49%

Source: Council of the European Union (2018)

7.3 NTM Impacts

Drawing upon the methodological approach outlined in Chapter 2 and the accompanying detailed methodological assumptions underpinning the NTMs model (see Annex I), Table 7‑5 sets-out the estimated NTMs costs in AVE terms for selected beef and sheepmeat products. Due to space constraints, these are set-out on a probabilistic basis only for beef and sheep products and additional information on checked load NTM AVEs is provided in Annex III. As with previous chapters, probability-based estimates are averaged out over 100 loads and takes account of physical check rates (10% under an FTA, similar to CETA and 15% under a No Deal for beef and sheepmeat products). A proportion of physically checked loads are also subject to sampling (5% in an FTA (0.5% of all loads) and 10% under No Deal (1.5% of all loads). Loads which are subject to sampling are also assumed to experience value deterioration, set at 5% under an FTA and 20% under No Deal.

Under an FTA, assumed here to be a trade deal similar to CETA, the NTM estimates presented in Table 7‑5 are much lower (ranging from 0.7% to 7.6% on UK exports to the EU) than those applying under a No Deal (1.3% to 12.2%). This is because for key regulatory checks (e.g. physical checks under the auspices of Defra), the check rates under a comprehensive FTA (e.g. 10% for beef) are significantly lower than those applying under a No Deal (assumed to be 15%). This, in turn, influences the number of shipments which are subject to sampling and the value deterioration resulting from delays which are significantly higher under a No Deal.

The results suggest that for most products, the estimated NTM costs are lower than those which have been assumed in previous studies (e.g. 5% under an FTA and 8% under a No Deal by van Berkum et. al. (2016). This also reflects primary research feedback obtained during this study which suggests that although NTM costs remain a significant concern, they are not deemed to be as problematic as a few years' back. Of significance here is the fact that the physical check rate for red-meat under a No Deal scenario has decreased from 20% to 15% based on EU Commission guidance^[26]. It also appears that companies are getting a greater understanding of the requirements involved in the past year or so and whilst sampling can cause significant delays, they would only affect a minority of loads.

That said, if a load is selected for the full range of regulatory checks including sampling, the estimated NTM costs can become substantial on chilled meat products and would surpass 25% in most instances under a No Deal scenario (see Annex III). This creates a disproportionate impact on SMEs because of they are likely to export fewer shipments and are less likely to be Authorised Economic Operators (AEOs) which can help in making some of the customs-related regulatory procedures less onerous.

Whilst the NTM costs provided below have been given on a weighted basis, it was decided that for a No Deal scenario, due to the tariffs imposed, any beef that might be traded between the UK and the EU27 which does not avail of a TRQ, is likely to be in carcase (or half-carcase) form. Accordingly, under a No Deal, the assumed NTMs costs for imports from the EU27 is 2.2% for both beef and lamb (RoRo). For exports to the EU27, NTM AVEs of 3.1% and 1.8% are assumed for beef and sheepmeat respectively.

Table 7‑5: NTM AVEs for Selected Beef and Sheep Products for UK-EU Trade (Probability-Based)

HS Code	Description	UK Imports from EU27		UK Exports to EU27
		FTA	No Deal	FTA	No Deal
02011000	Chilled beef carcases or half-carcases (LoLo)	2.0%	3.4%	2.9%	5.0%
02011000	Chilled beef carcases or half-carcases (RoRo)	1.2%	2.2%	1.7%	3.1%
02012090	Chilled beef cuts, with bone in (LoLo)	1.1%	2.0%	1.6%	2.9%
02012090	Chilled beef cuts, with bone in (RoRo)	0.7%	1.4%	1.0%	1.9%
02013000	Chilled boneless beef (LoLo)	1.4%	2.5%	1.3%	2.3%
02013000	Chilled boneless beef (RoRo)	0.8%	1.5%	0.7%	1.4%
02023010	Frozen beef boneless forequarters (LoLo)	4.0%	6.4%	7.6%	12.2%
02023010	Frozen beef boneless forequarters (RoRo)	2.3%	3.8%	4.4%	7.3%
02023090	Frozen boneless beef (excl. forequarters) (LoLo)	1.9%	3.1%	2.2%	3.6%
02023090	Frozen boneless beef (excl. forequarters) (LoLo)	1.1%	1.8%	1.3%	2.1%
	Beef Weighted (RoRo only)	1.1%	1.9%	1.2%	2.2%
02041000	Chilled lamb carcases and half-carcases (LoLo)	2.0%	3.4%	1.5%	2.7%
02041000	Chilled lamb carcases and half-carcases (RoRo)	1.2%	2.2%	0.9%	1.8%
02042250	Chilled sheep legs (LoLo)	1.1%	2.2%	1.2%	2.3%
02042250	Chilled sheep legs (RoRo)	0.7%	1.5%	0.8%	1.6%
02042300	Chilled boneless cuts of sheep (LoLo)	2.0%	3.5%	1.2%	2.1%
02042300	Chilled boneless cuts of sheep (RoRo)	1.2%	2.2%	0.7%	1.4%
02044250	Frozen sheep legs (LoLo)	1.4%	2.3%	1.3%	2.2%
02044250	Frozen sheep legs (RoRo)	0.8%	1.4%	0.8%	1.3%
02044310	Frozen meat of lambs, boneless, frozen (LoLo)	2.2%	3.5%	1.4%	2.3%
02044310	Frozen meat of lambs, boneless, frozen (RoRo)	1.3%	2.1%	0.8%	1.4%
	Lamb Weighted (RoRo only)	1.1%	2.0%	0.9%	1.7%

Source: The Andersons Centre (2020)

Note: Corresponding NTM AVEs on a Checked Load Basis are presented in Annex III.

7.4 Labour

As outlined in Section 3.4 (and Annex II), the usage of migrant labour in the Scottish red meat processing sector is substantial. With over half of the unskilled workforce consisting of migrants and with Free Movement soon ending, there is significant concern amongst industry participants that it will become more difficult to source employees in future. That said, there was an acknowledgement amongst some interviewees that a significant proportion of the 40-45% of migrant workers in the beef and sheep processing sectors would be eligible for Settled Status. However, there was also acceptance that the meat processing sector is less attractive to work in than most other sectors. Therefore, staff turnover is higher resulting in a greater need to source new recruits.

At the time of the interviews there was also concern that the salary thresholds advised by the Migration Advisory Committee (MAC) for the UK's post-Brexit immigration system. However, these concerns have been addressed to some degree with the MAC's recent suggestion that butchers should be added to the UK-wide Shortage Occupation List^[28]. That said, there are other roles within abattoirs (e.g. lairage operators) where it will remain challenging to recruit migrant workers. There were also concerns with sourcing veterinarians although industry participants recognised the work that the Scottish Government and Food Standards Scotland (FSS) are doing on this (e.g. getting more private sector involvement).

Overall, it would appear that whilst some key concerns are being addressed, labour issues will continue to feature prominently post-Brexit. Although some processors have had some success with introducing apprenticeship schemes (e.g. for butchers), these continue to be considered marginal. That said, there was a consensus that more needed to be done to recruit indigenously. Accessing migrant labour is not thought to be that problematic at farm level but could be a challenge in individual cases^[29].

7.5 Effects on UK and Scottish Output and Trade

The results presented in Table 7‑6 show the projected short-run and long-term Brexit impacts at a UK level by scenario for beef and sheepmeat with further discussion in the sections underneath. As sensitivity analysis was requested on potential TRQs for beef, an additional scenario has been added. The 'Core' No Deal scenario assumes that 196Kt of a new UK TRQ would be made available to importers on an 'Erga Omnes' basis. This figure was based on the UK's net trade for beef with the EU27 during 2017-19. The sensitivity scenario is based on the new TRQ halving to 98Kt to determine the extent to which a changed TRQ would impact output and trade.

Table 7‑6: Projected Brexit Impacts by Scenario on UK Beef and Sheepmeat (% Change vs Base)

Commodity and Parameter	2017-19 Baseline	FTA 2021	FTA 2025	'Core' No Deal 2021*	'Core' No Deal 2025*	No Deal 2021 (98Kt) TRQ^	No Deal 2025 (98Kt) TRQ^
Beef
UK Production (£m)	2,899	1.1%	1.3%	16.9%	18.8%	20.7%	23.2%
UK Production (Kt)	907	0.0%	0.2%	-0.2%	3.4%	-0.3%	3.7%
UK Consumption (Kt)	1,103	0.0%	0.0%	-1.2%	-1.0%	-1.3%	-1.1%
Price (£/t)	3,195	1.1%	1.1%	17.2%	14.9%	21.1%	18.8%
Exports (Kt)	147	0.0%	0.6%	7.6%	11.3%	7.6%	13.1%
Imports (Kt)	342	0.0%	-0.2%	-1.4%	-7.0%	-1.4%	-7.8%
Sheepmeat
UK Production (£m)	1,240	1.0%	1.2%	-28.5%	-35.8%	N/A	N/A
UK Production (Kt)	308	0.0%	0.3%	-1.8%	-12.9%
UK Consumption (Kt)	299	0.9%	1.0%	36.5%	35.2%
Prices (£/t)	4,021	1.0%	0.9%	-27.2%	-26.3%
Exports (Kt)	102	-0.9%	-0.4%	-24.4%	-45.6%
Imports (Kt)	92	0.0%	-2.1%	37.6%	8.3%

Sources: The Andersons Centre and Wageningen University and Research (WUR)

*Assumes a 196Kt TRQ is available for beef to all importers (Erga Omnes basis) which approximates the net trade position 2017-19.

^ Additional sensitivity analysis scenario which assumes that new UK TRQ is half the 'Core' No Deal scenario.

7.5.1 Beef

Similar to previous studies, the projected impacts on beef and sheepmeat output and trade under a Brexit Deal scenario are projected to be relatively minor as depicted in Table 7‑6.

FTA Scenario

• Domestic production: monetary value of production rises by 1.1% in the short-term and by 1.3% in 2025 vis-à-vis the Baseline. This is chiefly driven by higher domestic prices as production quantity changes minimally in the short-run and a slight (0.2%) rise is projected in 2025. The main driver of this change is the imposition of NTMs on imports from the EU, making them slightly less competitive. As the NTM AVEs compiled during this study are smaller than previous studies' estimates, the output increases have not been as significant. Of course, there are key caveats to be aware of when interpreting these results. Firstly, NTMs have been estimated on the basis that the UK's standards remain the same as the EU's. Divergences in standards would increase NTM costs as more border checks would be needed. Secondly, the FTA scenario does not consider additional FTAs that the UK might agree with other countries (e.g. US, Australia). As prices tend to be lower in these countries, their increased participation in the UK market will lower prices for domestic producers thus eroding any gains under an FTA scenario.
• Consumption: minimal changes are projected as trade with the EU can largely continue. Price changes may have some marginal effects on consumption, however, this will also be contingent on relative price changes in other meat products (notably pork and poultry). As NTM costs tend to be higher in AVE terms for these commodities, the effects of such substitution in the FTA scenario are not anticipated.
• Prices: small increases of just over 1% are forecast and mainly due to NTMs as outlined above.
• Exports: a slight increase is forecast long-term and this is driven by increases in dairy output, meaning more dairy-beef. Increased domestic production is also likely to lead to increased exports of lower-value products (fifth-quarter, offal etc.).
• Imports: down very slightly (-0.2%) due to NTMs making them more expensive. But it is a minimal change overall.
• Short-term impacts: due to the configuration of Agmemod, it has not been possible to model potential disruptions to trade which might occur in the first few weeks and months of the Transition Period ending. This could involve delays at the border driving up NTM costs. Whilst some delays have been envisaged in calculating the NTM AVEs shown above, provision for more exception delays (e.g. long queues en-route to Dover) have not been formally estimated. That said, Annex IIII gives information on the projected NTM costs of a load subject to the full range of regulatory checks and associated delays. If similar delays take place in early 2021, then potential NTM costs could rise to the region of 8-11% for beef. This would have a severe negative impact on exports which are particularly important for the Scottish beef processing industry.

No Deal Scenarios

The comments below primarily relate to the 'Core' No Deal, however where the Sensitivity TRQ scenario is commented on, it is highlighted in italics.

• Domestic production: relatively small changes are projected in 2021 and this is due to the nature of beef production as the animals being slaughtered in 2021 were largely born in 2019/20. Longer term, an increase of 3.7% is projected. This is driven by a few factors. Firstly, specialised beef producers react to the higher prices. The expansion of dairy production discussed in Chapter 0 means that there will be more dairy beef available. As the UK is a net beef importer and the new UK TRQ assumed under the No Deal scenario (196Kt) covers net trade, NTM costs still apply, this should help the competitive position of UK producers, unless import prices are significantly lower. Under the Sensitivity No Deal scenario, the production increase is only marginally higher, as the slight additional increase under this scenario (versus Core No Deal), induces some additional domestic production. However, these projected increases are based on UK's existing trading arrangements with non-EU countries remaining largely the same. As noted above, the impact of FTAs that the UK undertakes with other countries will have a major influence on future British beef output. Increased market access for third countries will erode, and likely reverse, any gains that UK producers might make under a No Deal where trade barriers make imports from the EU more expensive. Another complicating factor is the impact of the NI Protocol as it might mean that additional volumes of live cattle will be shipped from the Republic of Ireland to Northern Ireland for slaughter.This meat could then potentially 'qualify' for unfettered access to the UK market. This would mean that more Irish beef would find its way into the UK and being classified as UK production. This issue is anticipated to feature prominently if Irish beef exports have difficulty in accessing the UK market via any new TRQ that is introduced (i.e. other third countries have more competitive prices and out-compete Irish producers). There would arguably be more pressure for this to occur under the Sensitivity No Deal scenario as there would be less TRQ to access the UK (GB) market directly.
• Prices: with the UK being a net importer and barriers on EU imports, prices are projected to rise substantially. Short-term, a 17.2% rise is projected and although this diminishes somewhat longer-term, prices in 2025 would still be 14.9% above the baseline. However, as noted above, these price increases will be reversed if the UK completes FTAs with third countries where prices (and standards) are much lower. Prices increase further in the Sensitivity scenario, up by over 21% in the short-term and in 2025, prices are projected to be 18.8% ahead of the Baseline. This reflects reduced supplies of cheaper overseas beef on the UK market.
• Exports: are forecast to rise by 7.6% in the short-term and by 11.3% in 2025. Longer term, as dairy production expands, more cows will be slaughtered and as consumption is limited in the UK, overseas markets will need to be found. Also, any expansion in domestic UK production will mean that there are parts of the carcase not consumed in the UK and would also be available for export, most likely in non-EU markets due to the CET and limited availability of TRQs. This is a contributory factor as to why long-term exports are forecast to rise be over 13% in the Sensitivity No Deal scenario.
• Imports: imports are forecast to fall as they get substituted by expanded domestic production, despite a 196Kt TRQ applying. This is primarily anticipated to occur on imports from the EU. Although Agmemod does not report the split of imports between the EU and non-EU, it is conceivable that under the Sensitivity No Deal scenario, that imports from the EU would be further curtailed as they would not be competitive if tariffs were imposed. However, some imports from Latin America might be competitive, even with a tariff, but this would be contingent on these products meeting the UK standards.
• Short-term impacts: as discussed previously in the FTA scenario, short-term delays in the weeks after the Transition Period ending have not been factored into consideration for the Agmemod analysis. These arguably could be even more pronounced under a No Deal as the imposition of regulatory checks on trade would be greater. This would result in more delays and more danger of value deterioration. As Annex III illustrates, NTM AVEs for beef loads subject to the full range of regulatory checks would surpass 25%. This coupled with tariffs would kill-off exports to the EU.

7.5.2 Sheepmeat

FTA Scenario

• Domestic production: asChapter 4 has shown, sheepmeat production is much more reliant on exports to the EU market than beef. Under the FTA scenario, minimal changes are forecast to production volumes in the short-term and a small rise is projected long-term, driven mainly by import substitution and greater efforts to "Buy British".
• Prices: are forecast to rise by approximately 1%. Here, the imposition of NTM costs on any imports from the EU has a (small) effect. The bigger influence is that NTM costs are also anticipated on products such as pork and poultry and this means some marginal increases in lamb prices. This, in turn helps to increase monetary value of output by 1.2% long-term.
• Exports: decline somewhat as NTMs on exports to the EU affect trade. However, a decline of under 1% is projected short-term and as time passes, a partial recovery takes places but exports would still be lower than the Baseline.
• Imports: minimal change in the short-term as most imports come from non-EU countries. Longer-term, a 2.1% decline occurs as import substitution takes place.
• Short-term impacts: as with beef above, any teething problems at the UK-EU border in early 2021 have not been accounted for in the Agmemod results as calculating such impacts is speculative. Again, Annex III contains estimates on checked load NTM AVEs for sheepmeat under an FTA scenario which are just over 8% for chilled lamb carcases. If such costs were to be imposed on UK sheepmeat exports to the EU, then there would be a more pronounced decline in exports in 2021.
• Overall: the impacts under the FTA scenario are quite minimal and this mirrors primary research feedback. In comparison with interviews undertaken in previous studies, there appears to be a lowering of concerns around NTMs more generally and industry appears to be more accepting that these will need to be "taken on the chin" as a result of Brexit. That said, most industry participants, particularly in grazing livestock urged that Scottish/UK standards are not lowered as this would be to the detriment of both existing sales (within the UK and to the EU) as well as building new export markets.

No Deal

• Domestic production: a relatively small (1.8%) decline is projected in the short-run as a significant proportion of the lamb crop produced in 2021 would be planned in 2020. However, in 2025, a substantial 12.9% decline in production quantity is projected as exports to the EU, subject to tariffs, collapse and the EU27 is better positioned to expand its own domestic supply. This long-term decline is still low relative to the proportion of the lamb crop that is exported to the EU (circa 25-40% depending on the size of the UK lamb crop). This is because sheep are grazed on marginal lands with few alternative uses, making sheep production relatively price inelastic.
• Prices: given the UK's reliance on export markets and the ability to engage in import substitution relatively limited, a short-term decline of 27.2% is projected and the situation only improves slightly in 2025 (26.3% decline) as the UK attempts to engage in some import substitution as well as compete with substitutes meats.
• Domestic consumption: is projected to rise by over 36% in the short-run as the UK lamb price collapses leading to an increased propensity amongst consumers to purchase it. Especially, as substitute products such as pork and poultry will have tariffs imposed on imports into the UK. Consumption also appears to hold-up longer term, forecast to be 35% above the Baseline in 2025.
• Domestic output: unsurprisingly falls in monetary terms given the impact on prices especially. Short-term declines of 28% deteriorate further to nearly 36% in 2025. This will result in vast swathes of the UK sheepmeat sector becoming uncompetitive. Some farms may focus on expanding beef production, whilst many others are likely to exit the industry.
• Exports: unsurprisingly diminish substantially with long-term , dropping by over 45%. Within this, exports to the EU will be devastated and whilst the UK would have a large excess supply which it will need to place onto world markets, at lower prices, exports overall will suffer major declines.
• Imports: curiously rise in volume terms in the short-run, however, this is likely to be a reaction by Agmemod to the substantial reductions in domestic prices. It is questionable whether, with so much domestic lamb available, that more imported lamb would be brought into the UK. Although the rise in imports versus the Baseline continues in 2025, it is much less pronounced (+8.3%).
• Short-term impacts: again, short-term delays in the weeks after the Transition Period ending have not been factored into consideration. As Annex III shows, NTM AVEs for sheepmeat subject to onerous delays would be in the region of 25%. For sheepmeat, these could conceivably become more pronounced than for beef given the UK's dependence on exports to the EU and finding new customers at short notice would be difficult, unless significant discounts were made. If this were then coupled with the Covid Crisis, where lockdowns mean that food service outlets were unavailable, then the impact could become even more severe.
• Overall: a No Deal would have major ramifications for the UK and Scottish sheepmeat sectors as significant swathes of farms would simply become unviable. Although sheep production has traditionally been price inelastic, a No Deal would force farmers to take a hard look at how their land is used. This could spur a further increase in tree-planting which has been rising consistently in Scotland in recent years.

7.5.3 Implications for Scottish Output

To give an indication of the projected impact of each Brexit scenario on Scottish beef and sheep meat production and monetary output, Figure 7‑1 shows the effects of the projected changes to production if these were applied to Scottish output, using 2017-19 as a proxy.

The monetary value of beef output rises strongly under a No Deal to surpass £683 million in 2025 in comparison with the 2017-19 baseline (£575 million), a £108 million increase. Conversely, the value of sheepmeat output declines by £76 million long-term under No Deal to £137 million. Under the FTA scenario, slight increases are projected for both beef and sheepmeat, driven mainly by increased domestic consumption in the case of sheepmeat and by price increases for beef.

In tonnage terms, the projected changes mean that production remains relatively stable under the FTA scenario and in the short-term under a No Deal, as farmers have largely committed to producing the forthcoming beef and lamb crops. Longer-term, given the significant price decreases for sheepmeat, it is unsurprising that its production declines to 53Kt (from 61Kt) and for beef there is a corresponding 6Kt increase versus the 2017-19 Base.

On the face of it, the results look positive under a No Deal for beef but this scenario gives rise to major concerns for the viability of Scottish sheepmeat production. As highlighted above, any new FTAs that the UK strikes with other countries will severely erode any gains for the beef sector.

Furthermore, based on primary research input, there are also significant concerns around the impact of the ending of Free Movement will have on processing operations, where there is a strong reliance on migrant labour. Whilst most workers will be in a position to achieve Settled Status, there will be challenges in recruiting new workers. Getting skills such as butchery onto the Shortage Occupation List has helped somewhat as has relaxing the salary thresholds. However, significant challenges remain and interviewees believe that the industry needs greater certainty on this issue which has become much more pressing for processors in recent months.

Chart Description

Shows the impact of both Brexit scenarios on Scottish beef and sheepmeat output in both monetary and tonnage terms for 2021 and 2025 against the 2017-19 Baseline.

Sources: The Andersons Centre and Wageningen University and Research (WUR)

7.6 Implications For Scottish Beef & Sheep Farming

Taking the price change projections from the Agmemod model in conjunction with additional assumptions derived from the primary research and previous studies, the impacts under both Brexit scenarios were assessed at the farm-level using information obtained from the Scottish Farm Business Income (FBI) annual estimates^[30]. Further detail on the assumptions used is set-out in Annex IV where additional farm-level analysis using Andersons' Meadow Farm Model is also provided. As the latest year for the FBI is 2018/19, this has been used as the Base against which the Brexit impacts have been assessed. Sections 7.6.1 and 7.6.2 summarise the "before" and "after" results for Less-Favoured Area (LFA) and Lowland beef and sheep farms respectively. As the projections, taken to occur in the first full financial year after each scenario commences, simply look at the percentage changes vis-à-vis the Base.

7.6.1 Scottish LFA Beef and Sheep Farming

Table 7‑7 summarises the projected farm-level impacts of each Brexit scenario for Scottish LFA Beef and Sheep farms and is followed by an overview of the key impacts associated with each scenario. It is estimated that there are around 14,900 LFA cattle and sheep holdings in Scotland, over five times the number of lowland cattle and sheep farms (2,850 holdings)^[31]. Notably, the focus of this analysis is on agricultural output and associated activities (support receipts) only. It does not include other income from contracting and diversification activities which themselves are also likely to be subject to significant Brexit-related impacts (outside the scope of this study). Also, as the results are based on short-term projections, it does not consider any expansion of beef for instance of a decrease in sheep. Accordingly, the focus is on beef and sheep farming and associated agricultural activities (e.g. ancillary cereals enterprises). In terms of total agricultural output, there is an even split between cattle (47%) and sheep (46%) with the remaining 7% going to a range of other small-scale enterprises.

• Livestock output: increases slightly in an FTA scenario driven by the price increases noted above arising from the imposition of NTMs. Under No Deal, overall livestock output is forecast to decline by 4.6% due to the proportionately larger influence of falling lamb prices which more than offsets the cattle price increases. This reflects the exposure of many Scottish grazing livestock farms outside of the lowland areas, a trend that would be exacerbated if the UK adopts a more liberalised approach to imports from third countries.
• Livestock variable costs: rise slightly in the FTA scenario due to increased veterinary and medical costs (+5%) and casual labour (+4%) as previous studies and primary research suggest that availability will be curtailed once Free Movement ends and more veterinary staff are needed for border control tasks. Under No Deal, veterinary and casual labour costs increase further, by 15% and 8% respectively but the major factor behind the 0.7% decline across variable costs is the declining feed prices resulting from the price decreases for barley, noted in Chapter 5. Here, consideration was given to the balance of wheat (33%) and barley (67%) used in feed and it was assumed that half of any price drops would be passed on to farmers. Accordingly, feed and fodder prices are projected to fall by about 3%.
• Livestock Gross Margin: improves by 1.5% against the Base in the FTA scenario but declines by 9.9% under No Deal, due to the significant fall in lamb prices.
• Total agricultural output: reflects livestock trends as there is limited cropping on LFA farms.
• Fixed Costs: rise by just 0.2% in the FTA scenario, chiefly driven by a 2% increases in permanent labour, taken to be approximately half the rise in casual labour (as seasonal workers will be more of a premium due to shortages in horticulture). In No Deal, paid Labour is forecast to rise by 7.5%, again half the casual labour cost rise, due to restrictions on labour availability. However, as employed regular labour is not heavily utilised, overall fixed costs only rise by 0.8%.
• Margin from Production: reflecting the situation of many Scottish beef and sheep farms, this farm makes a production loss of over £46,300 in the Base period. A slight (0.8%) improvement is forecast under the FTA scenario but a 12.1% fall is projected under No Deal.
• Support: assumed to remain unchanged in both scenarios. However, the estimates in Table 7‑7 show just how reliant LFA Beef and Sheep farms are on support and if this declined significantly, many would be placed in a perilous position.
• Business Surplus: increases by 1.7% under the FTA scenario. Under No Deal, a ~24% decline is projected. In an industry where production margins are already negative to a significant degree, any further losses would put many farmers under additional financial strain. Whilst LFA farms on the whole are projected to generate over £17,622 of a surplus under No Deal, this is only because of the support provided. It does not leave much scope for reinvestment in the business for the long-term or any long-term structural changes which would be required (e.g. switching from lamb to beef production) in the event of a No Deal.

Table 7‑7: Projected Impact of Brexit Scenarios on LFA Scottish Beef & Sheep (£/Farm)

Parameter	18/19 (Base)	FTA	% Ch.	No Deal	% Ch.
Livestock Output (excluding support)	104,180	105,272	1.0%	99,338	-4.6%
Livestock-Specific Variable Costs	59,610	60,018	0.7%	59,179	-0.7%
Livestock-Specific Gross Margin	44,570	45,255	1.5%	40,160	-9.9%
Total Agricultural Output	112,024	113,114	1.0%	107,039	-4.4%
Total Agricultural Variable Costs	70,811	71,323	0.7%	70,716	-0.1%
Total Agricultural Fixed Costs	87,602	87,795	0.2%	88,327	0.8%
Margin from Agricultural Production	-46,389	-46,004	+0.8%	-52,003	-12.1%
Agricultural Support	69,626	69,626	0.0%	69,626	0.0%
Agricultural Business Surplus	23,236	23,621	1.7%	17,622	-24.2%

Source: Scottish Farm Business Survey (2018/19)

7.6.2 Scottish Lowland Beef and Sheep Farming

As with LFA Beef and Sheep above, Table 7‑8 depicts the projected Brexit impacts for Scottish lowland grazing livestock farms. Again, agricultural enterprises are the focus with contracting and diversification activities have been removed from the analysis. The assumptions underpinning the projected percentage changes under both scenarios are the same as those presented in the previous section. However, due to differences in enterprise mix and utilisation of resources, key differences emerge. On lowland farms, cattle production accounts for 60% of agricultural output. Sheep and wool has a relatively low (15%) share and is almost surpassed by barley (14%).

As with LFA farms, the impacts under an FTA scenario is relatively limited, with slight increases in output and variable costs leading to improved livestock gross margin of 2%. The margin from production is again negative, but to a much lesser degree than for LFA farms. However, support is also much lower meaning that the overall production margin stands at just under £10,000 in the base period. This improves by 5.6% to almost £10,100 in the FTA scenario.

Under No Deal, as cattle are relatively more important on lowland farms, their projected price increases have a much more positive impact on output, with an 8% increase projected. As variable costs decline by 1.5% again due to lower feed costs as described above, the resultant livestock gross margin is over 20% higher than the base. This contributes to a 24% improvement in the margin from production loss (to just under £18,100). Keeping support constant means that the agricultural business surplus (£15,231) improves by over 59%. As highlighted several times above, whilst the imposition of the UKGT on imports from the EU will assist domestic beef production, this will be severely eroded and reversed if the UK opens-up to imports from third countries. When coupled with severe lamb price declines, this would have a hugely damaging impact on Scottish farm incomes in the grazing livestock sector.

Table 7‑8: Projected Impact of Brexit Scenarios on Lowland Scottish Beef & Sheep (£/Farm)

Parameter	18/19 (Base)	FTA	% Ch.	No Deal	% Ch.
Livestock Output (excluding support)	95,426	96,447	1.1%	103,068	8.0%
Livestock-Specific Variable Costs	54,170	54,371	0.4%	53,354	-1.5%
Livestock-Specific Gross Margin	41,256	42,076	2.0%	49,714	20.5%
Total Agricultural Output	126,083	127,098	0.8%	131,894	4.6%
Total Agricultural Variable Costs	73,167	73,558	0.5%	72,965	-0.3%
Total Agricultural Fixed Costs	76,668	76,760	0.1%	77,015	0.5%
Margin from Agricultural Production	-23,752	-23,220	+2.2%	-18,086	23.9%
Agricultural Support	33,318	33,318	0.0%	33,318	0.0%
Agricultural Business Surplus	9,566	10,098	5.6%	15,231	59.2%

Sources: Scottish Farm Business Survey, Andersons

7.7 Concluding Remarks

There are limited changes in the FTA scenario with scope for slight increases in output as NTMs affect EU imports. The prospects for beef and sheep enterprises are divergent under No Deal. However, the extent to which the beef sector will realise any gains will be predicated on the UK continuing to support the sector with respect to trade policy. This means that long-term, Scottish farmers would not be further exposed to overseas imports, particularly from non-EU. There is a danger that in the immediate aftermath of a No Deal that prices rise for beef, farmers then invest in new buildings etc. and having these investments are undermined by the opening UK to overseas competition.

The prospects to sheep under No Deal are alarming and would have grave consequences for the viability of many Scottish farms, with obvious implications for the processing sector and the wider Scottish rural economy, particularly in the uplands and highlands.

Given the potential trajectory of UK trade policy new FTAs are likely to be signed with non-EU countries (such FTAs were not within the scope of this study). Any gains for the beef sector arising from No Deal are highly uncertain and likely to be eroded as time progresses. This coupled with devastating impacts on sheep production would suggest that an FTA with the EU and continued adherence to the high food safety, animal welfare, environmental and labour standards within Scotland, and the UK generally, would put the sector on a firmer long-term footing for both farming and the wider rural economy.