Economic impacts for Scottish and UK seafood industries post-Brexit: report

4 Results

The results are presented as follows:

• Section 4.1: UK aggregate impacts (across the ten species) from modelling scenarios for trade and quota sharing arrangements.
• Sections 4.2 to 4.5: the results for each scenario, including details for each of the ten species modelled.
• Section 4.6: the wider economic impacts on Scotland’s economy for Scenarios 1 and 4, including the changes in direct, indirect and induced output, gross value added ( GVA) and employment for the seafood industry, as well as an identification of other sectors of the economy likely to be affected.

4.1 Aggregate UK and EU trade impacts

Summary results for aggregate changes in UK output, exports and imports are provided in Table 4.1 for each of the scenarios. This is based on aggregating the results of the ten species modelled. The table gives the percentage change for each of the variables. The results indicate a 12% increase in output and 17% increase in exports under Scenario 1, and a 2% contraction in output and 6% reduction in exports under Scenario 4.

Table 4.1. Aggregate impact on UK output and trade value for the ten species for each Scenario (percentage change)

Detail		UK Percentage Change in			EU Percentage Change in
		Output	Exports	Imports	Output	Exports	Imports
1	Tariff changes only	0.36	0.84	1.08	–0.07	–0.20	0.00
	Tariffs + NTMs	0.88	2.01	2.20	–0.16	–0.49	0.00
	Tariffs + NTMs + ZA	11.62	17.17	–0.40	–8.25	–11.30	1.84
2	Tariff changes only	–0.64	–1.56	–0.61	–0.07	–0.60	–0.09
	Tariffs + NTMs	–1.21	–3.14	–1.37	–0.19	–1.38	–0.18
	Tariffs + NTMs + ZA	10.59	13.57	–3.93	–8.25	–12.04	1.75
3	Tariff changes only	–1.41	–3.01	–1.33	–0.08	–1.22	–0.22
	Tariffs + NTMs	–2.42	–5.89	–2.73	–0.31	–2.67	–0.38
	Tariffs + NTMs + ZA	10.14	11.92	–5.29	–8.29	–13.02	1.63
4	Tariff changes only	–1.31	–3.01	–2.33	–0.08	–1.22	–0.22
	Tariffs + NTMs	–2.32	–5.89	–3.74	–0.31	–2.67	–0.38

There are several features which emerge from these results. The first is that the substantial changes in quota allocation from zonal attachment dominate the results. Hence in all the scenarios with quota allocation changes between the UK and EU, there are substantial increases in the value of UK output of fish, and in UK fish exports, with a more modest decline in imports. This is not surprising as the changes in allocations in favour of the UK are in many cases substantial. Several issues are worth noting with regard to this. The first is that the changes in the quota allocations modelled here correspondingly have a negative impact on EU output and trade. For example, in Scenario 3, where there is an increase in UK output of 10% and an increase in UK exports of 12%, the corresponding change for the EU is a decrease in output of 8% and a decrease in exports of 13%.

The second is in terms of the modelling of the scenarios themselves. For example, Scenario 3 involves the simultaneous modelling of an increase in the UK’s quota via the changes in quota allocation and the imposition of MFN tariffs on trade between the EU and the UK. In some cases the current quotas may not be binding ^[20] , and it is therefore possible that production and exports may not increase even where a given quota has increased. This may be because the quota was not (very) binding initially, because there are mixed fishery considerations that are not accounted for in the modelling, because the simultaneous imposition of tariffs reduces trade, or because of other factors that mean that new quota levels are not fulfilled. As we do not know whether this will be the case or not, we have assumed that UK output will expand to fill the quota ^[21] . This should therefore be seen as an outer-bound estimate and the impact may well be smaller than this.

The third feature which emerges from these aggregate results and from the more detailed results presented later on is that the net effects are driven by changes in trade policy both with regard to UK imports and with regard to UK exports. Suppose tariffs of 10% are introduced on trade between the EU and the UK, hence UK imports and exports now face a tariff of 10%. While the tariff is the same on both imports and exports the net effect on the industry (or species) does not cancel out. This is because the net effects will depend on the underlying pattern of trade. If the UK exports are substantially bigger then UK imports, then the introduction of the tariff will have a much bigger impact on exports, and consequently on net UK production. If tariff (or NTM) changes with other countries are then introduced in the model, then the drivers of the net changes become even more complex.

If we set aside the changes in quota allocations, then we see that all the scenarios, except for Scenario 1, which allows for the greatest reduction in trade barriers, result in a decline in UK output, exports and imports. These changes are largest in the case of Scenario 4, and lead to reductions in output, exports and imports of 2.3%, 5.9%, and 3.7% respectively. These negative impacts arise both from the changes in tariffs, and from the changes in non-tariff measures.

These aggregate results, of course, mask the detailed results by species and these can be seen in Sections 4.2 to 4.5 which provide a more detailed breakdown of the results. The overall picture from these more detailed results is that, as seen with the aggregate results the modelled, changes in quota allocation account for the much bigger changes to the outcomes – typically output and exports increase, imports go down. The impact on the UK price index is more mixed.

With no changes in quota allocation, the impact on the UK with regard to output, trade and prices is more mixed and more muted. In Scenario 1, we see UK output rising in five out of the ten sectors, and in each case by less than 1%. In the ‘no deal’ scenario (Scenario 4), output declines in all but one sector (haddock) with the biggest decline for hake — a reduction of 15% (since 99% of UK exports of hake currently go to the EU). The UK price index rises for all fish species in this experiment, with the biggest increase for herring at just over 5%.

4.2 Scenario 1

In this scenario, the UK maintains existing access to the EU market (hence no change in tariffs or NTMs); and in addition the UK establishes free trade with the rest of the world, hence there are no tariffs on the imports or exports of seafood products with all countries. Quota allocations (for catch quotas in fisheries) change to being based on the zonal attachment principle rather than the current Relative Stability, resulting in quota increases for the UK and decreases for the EU.

In order to show the relative impacts of the different elements of this scenario, the results are set out in three tables which provide results for the UK. Table 4.2 gives the changes in prices, output, export and imports arising from the change in tariffs only. Table 4.3 adds in the changes from the non-tariff measures, and Table 4.4 includes the changes from quota increases.

Essentially the first part of this experiment (Table 4.2) involves a reduction in the UK’s tariffs (leading to a decline in the UK price index), and a reduction in the tariffs faced by the UK in its export markets. Those tariff reductions on UK exports lead to an increase in exports and also an increase in imports. As discussed earlier, the net effect on production (output) is therefore variable across species depending on relative changes in exports and imports. For some species, there is an increase while in others a decrease. Haddock is the most negatively affected in terms of output, with herring, salmon and mackerel experiencing the largest increases in output. Despite this representing a very substantial liberalisation of the UK’s trade, the changes are modest.

However, when quota redistribution is introduced (Table 4.4), exports increase substantially and imports decline for most species. The change in output is most pronounced for those species that will experience the largest quota gains under the zonal attachment principle, with non-quota species (crab, salmon, scallop) experiencing very small increases or reductions in output value, which are driven by changes in tariffs and NTMs.

Table 4.2. Scenario 1: Percentage change in each variable for the UK from tariff changes

Species	Zero UK Tariffs Levied and Faced with All Countries					MFN Tariffs
	UK Price Index	Output (Quantity)	Output (Value)	Exports (Value)	Imports (Value)
Cod	–0.54	0.54	0.44	0.62	2.55	11.5
Crab	–0.12	0.25	0.20	0.34	1.64	7.8
Haddock	–0.78	–0.56	–1.11	0.21	–0.16	7.5
Hake	–2.57	–0.13	–0.27	0.01	1.10	12.3
Herring	–0.11	1.02	0.80	0.81	0.21	14.3
Mackerel	–0.13	0.70	0.55	0.59	0.25	14.5
Nephrops	–0.70	0.26	–0.15	–0.01	0.60	16
Saithe	–0.02	0.00	–0.01	0.00	0.03	7.5
Salmon	–0.26	0.94	0.72	1.63	0.25	4.9
Scallop	–1.69	–0.22	–0.45	0.02	1.04	16

Table 4.3. Scenario 1: Percentage change in each variable for the UK from tariff changes and change in NTMs

Species	Zero UK Tariffs Levied and Faced with All Countries +Decrease in NTMs Between UK and World					NTM AVE ( EU; RoW)*
	UK Price Index	Output (Quantity)	Output (Value)	Exports (Value)	Imports (Value)
Cod	–1.09	0.80	0.66	0.91	5.24	5%; 10%
Crab	–0.23	0.45	0.36	0.60	3.18	5%; 10%
Haddock	–2.60	–1.84	–3.66	1.03	–0.55	5%; 10%
Hake	–4.06	–0.20	–0.42	0.03	1.73	5%; 10%
Herring	–0.19	2.41	1.85	1.88	0.37	5%; 10%
Mackerel	–0.21	2.93	2.02	2.16	0.40	5%; 10%
Nephrops	–0.98	0.37	–0.18	0.02	0.83	5%; 10%
Saithe	–0.74	–0.31	–0.63	0.03	1.53	5%; 10%
Salmon	–0.63	2.03	1.53	3.58	0.60	5%; 10%
Scallop	–2.43	–0.30	–0.64	0.03	1.49	5%; 10%

* Baseline NTMs are EU 5%; RoW 15%, i.e. a reduction in NTMs with RoW of five percentage points is modelled.

Table 4.4. Scenario 1: Percentage change in each variable for the UK from tariff changes, changes in NTMs and changes in quota allocation

Species	Zero UK Tariffs Levied and Faced with All Countries +Decrease in NTMs Between UK and World +Changes in Quota Allocations					Change in Quota*
	UK Price Index	Output (Quantity)	Output (Value)	Exports (Value)	Imports (Value)
Cod	–1.12	8.78	6.99	7.37	5.09	8.8%
Crab	–0.23	0.45	0.36	0.60	3.18	–
Haddock	–4.50	21.17	12.38	26.80	–7.59	21.2%
Hake	–6.60	65.94	61.31	62.59	–5.25	166%
Herring	8.31	118.97	88.92	88.96	–18.10	219%
Mackerel	5.41	53.39	37.68	37.43	–20.84	53.4%
Nephrops	–1.48	4.80	2.99	3.53	–2.53	4.8%
Saithe	–47.21	85.91	37.70	108.64	–67.90	186%
Salmon	–0.63	2.03	1.53	3.58	0.60	–
Scallop	–2.43	–0.30	–0.64	0.03	1.49	–

* Change in quota relates to the calculated change in production value.

The results suggest that:

• With no changes in quota allocation, the price index in the UK goes down for all species, so consumers are expected to benefit. With changes in quota allocation this is not always the case, and this will be driven by the changes in both UK supply and also supply from other markets.
• All species except scallop experience an increase in UK output (when tariffs, NTMs and quota reallocation are included). The reduction in UK scallop output is driven by the increase in imports from non- EU countries (as a result of the reduction of the currently high tariff, the highest of the non-quota species), which leads to a reduction in the price index.
• The changes in quota allocation result in large increases in exports and reductions in imports, (in percentage terms) for those species where the UK stands to gain significant increases in quota allocation compared to the current quota allocation under Relative Stability (hake, herring, saithe).

The trade impacts (tariffs and NTMs, without considering quota reallocation) are highly variable across species. Output increases for some species and decreases for others. This is driven by the changes in both imports and exports and prices; whether output goes up or down depends on the net impacts. When quota reallocation is also considered, there are significant increases in UK output value for those species that will benefit from a redistribution of quotas, with larger impacts seen for those species with greater quota percentage increases. The non-quota species crab, salmon and scallop, and also cod and Nephrops for which the anticipated quota increase is more muted, see much smaller increases in output and exports.

4.3 Scenario 2

In this scenario, it is assumed that the UK enters into an agreement with the EU similar to Norway’s EEA membership, in which tariffs are imposed on fish and fishery products, but they are negotiated to be below MFN levels. There is an associated increase in NTMs with the EU, but these are minimised through mutual recognition of standards and testing and certification. Quota allocations (for catch quotas in fisheries) change to being based on the zonal attachment principle rather than the current Relative Stability, resulting in quota increases for the UK and decreases for the EU. Trade arrangements (tariffs and NTMs) with the rest of the world remain as they are currently – all the changes in trade arrangements are with the EU.

In order to show the relative impacts of the different elements of this scenario, the results are set out in three tables which provide results for the UK. Table 4.5 gives the changes in prices, output, export and imports arising from the change in tariffs only. Table 4.6 adds in the changes from the non-tariff measures, and Table 4.7 includes the quota changes.

The results suggest that:

• With no changes in quota allocation, there is an increase in prices for all species, driven by the increase in tariffs and NTMs. As a result of the introduction of tariffs on EU exports, the price of UK imports from the EU rises. As these prices rise, UK production adjusts as do imports from other suppliers. As the production and imports change, this will also impact on the prices that these suppliers charge. Hence the change in the average price of any given fish species in the UK will be a weighted (by the share of each supplier in the UK market) average of all these price changes. With changes in quota allocation included, the results are more mixed with prices going up for some species (notably herring and mackerel), but down for others (saithe and hake, which are species with significant quota allocation changes).
• With no changes in quota allocation, the quantity and value of output declines for all species, driven by the higher tariffs levied by the EU, except for haddock (which is particularly important for the UK market and so a lower proportion of landings are exported than for other species). When quota allocation changes are included, the output for quota species increase.
• When allowing for the changes in quotas, exports increase for all quota species, driven by the greater levels of UK landings, and decline for all non-quota species as a result of higher tariffs and NTMs. Imports decline across all species.
• As with Scenario 1, where there are positive outcomes for some species; these derive from the substantial changes in quotas which have been modelled. These positive outcomes for quota species are accompanied by negative outcomes for non-quota species, which do not benefit from quota increases under the zonal attachment principle. Both the feasibility of achieving the changes in quotas modelled and the differential impacts across species will need to be weighed up by policy makers as they affect different fleet sectors, processing sectors, and fisheries and aquaculture sectors in a heterogeneous manner.

Table 4.5. Scenario 2: Percentage change in each variable for the UK from tariff changes

Species	EU-Norway Tariffs Between UK and EU					Tariffs
	UK Price Index	Output (Quantity)	Output (Value)	Exports (Value)	Imports (Value)
Cod	0.02	–0.29	–0.23	–0.35	–0.08	0.57
Crab	0.02	–0.54	–0.35	–0.89	–0.31	2.27
Haddock	0.03	0.01	0.03	–0.14	0.01	0.3
Hake	0.25	–2.75	–2.52	–2.71	–0.11	3.3
Herring	1.53	–3.35	–2.66	–2.71	–2.91	6.8
Mackerel	2.03	–2.21	–1.61	–1.84	–3.78	9.7
Nephrops	0.26	–0.65	–0.12	–0.21	–0.22	1.6
Saithe	0.01	–0.10	–0.07	–0.18	–0.02	0.3
Salmon	0.96	–0.67	–0.21	–1.71	–0.92	4.1
Scallop	0.74	–3.26	–1.41	–2.19	–0.46	7.6

Table 4.6. Scenario 2: Percentage change in each variable for the UK from tariff changes and change in NTMs

Species	EU-Norway Tariffs Between UK and EU +Modest Increase in NTMs Between UK and EU					NTM AVE ( EU; RoW)*
	UK Price Index	Output (Quantity)	Output (Value)	Exports (Value)	Imports (Value)
Cod	0.16	–2.71	–2.19	–3.25	–0.73	10%; 15%
Crab	0.07	–1.65	–1.08	–2.76	–0.96	10%; 15%
Haddock	0.52	0.18	0.59	–2.37	0.10	10%; 15%
Hake	0.61	–6.63	–6.07	–6.55	–0.26	10%; 15%
Herring	2.60	–5.58	–4.45	–4.53	–4.89	10%; 15%
Mackerel	3.01	–3.22	–2.36	–2.69	–5.56	10%; 15%
Nephrops	1.05	–2.59	–0.50	–0.87	–0.90	10%; 15%
Saithe	0.15	–1.72	–1.24	–3.10	–0.31	10%; 15%
Salmon	2.07	–1.41	–0.42	–3.64	–2.00	10%; 15%
Scallop	1.20	–5.22	–2.27	–3.55	–0.74	10%; 15%

* Baseline NTMs are EU 5%; RoW 15%, i.e. an increase in NTMs with EU of five percentage points is modelled.

Table 4.7. Scenario 2: Percentage change in each variable for the UK from tariff changes, changes in NTMs and changes in quota allocation

Species	EU-Norway Tariffs Between UK and EU +Modest Increase in NTMs Between UK and EU +Changes in Quota Allocation					Change in Quota*
	UK Price Index	Output (Quantity)	Output (Value)	Exports (Value)	Imports (Value)
Cod	0.06	8.78	6.96	6.13	–0.75	8.8%
Crab	0.07	–1.65	–1.08	–2.76	–0.96	–
Haddock	–1.06	21.18	15.78	21.41	–6.40	21.2%
Hake	–2.56	65.94	61.67	61.99	–8.11	166%
Herring	11.96	118.97	88.83	88.76	–23.81	219%
Mackerel	8.48	53.39	37.53	36.77	–27.48	53.4%
Nephrops	–1.40	4.79	3.22	3.29	–6.18	4.8%
Saithe	–47.64	85.91	37.06	107.08	–69.39	186%
Salmon	2.07	–1.41	–0.42	–3.64	–2.00	–
Scallop	1.20	–5.22	–2.27	–3.55	–0.74	–

* Change in quota relates to the calculated change in production value.

4.4 Scenario 3

The main change introduced by this scenario is the imposition of MFN tariffs between the UK and the EU, as well as an increase in NTMs between the UK and the EU as a result of UK exit from the EU Single Market. As in Scenarios 1 and 2, quota allocations (for catch quotas in fisheries) change to being based on the zonal attachment principle rather than the current Relative Stability, resulting in quota increases for the UK and decreases for the EU.

In order to see the relative impact of the different elements of this scenario, the results are set out in three tables which provide results for the UK. Table 4.8 gives the changes in prices, output, export and imports arising from the change in tariffs only. The changes from tariffs and NTMs are shown in Table 4.9. Table 4.10 gives the changes from tariff, non-tariff measures and quota changes.

The results suggest that:

• The picture in relation to prices is quite mixed. Once again, these results will be driven both by the policy changes but also the underlying base structure of trade. The increase in the price index of herring and mackerel reflects the large proportion of imports from the EU. Cod and haddock, two of the species most consumed in the UK, experience small increases and decreases in prices, respectively. Salmon experiences a larger increase in price of 3.3%.
• Output increases significantly for quota species, despite the increase in MFN tariffs and NTMs with the EU, and decreases for non-quota species. Once again this is driven the substantial changes in quotas which have been modelled here.
• In line with the increases in output, exports increase for quota species, and decrease for non-quota species. Imports of all species fall, as a result of a combination of higher tariffs and NTMs and the increase in UK output.
• Crab, salmon and scallop – the non-quota species – do not experience the production increases of quota species from the zonal attachment principle, and output and exports decline, due to the higher tariffs in place. The increase in output and exports for Nephrops (a quota species) is modest because the anticipated change in production from quota reallocation is relatively small, based on an increase in quota from Area VII grounds; quotas in the North Sea and West of Scotland are unlikely to change much under the Zonal Attachment principle and current levels of uptake from these areas are low.

Table 4.8. Scenario 3: Percentage change in each variable for the UK from tariff changes

Species	MFN Tariffs Between UK and EU					MFN Tariffs
	UK Price Index	Output (Quantity)	Output (Value)	Exports (Value)	Imports (Value)
Cod	0.31	–5.34	–4.32	–6.42	–1.45	11.5
Crab	0.07	–1.77	–1.16	–2.96	–1.03	7.8
Haddock	0.72	0.25	0.83	–3.30	0.14	7.5
Hake	0.88	–9.51	–8.72	–9.41	–0.38	12.3
Herring	3.13	–6.65	–5.31	–5.41	–5.84	14.3
Mackerel	2.97	–3.18	–2.33	–2.66	–5.49	14.5
Nephrops	2.42	–5.90	–1.18	–2.06	–2.09	16
Saithe	0.21	–2.38	–1.72	–4.33	–0.44	7.5
Salmon	1.14	–0.79	–0.25	–2.03	–1.09	4.9
Scallop	1.50	–6.48	–2.84	–4.43	–0.93	16

Table 4.9. Scenario 3: Percentage change in each variable for the UK from tariff changes, and changes in NTMs

Species	MFN Tariffs Between UK and EU + Increase in NTMs Between UK and EU + Changes in Quota Allocations					NTM AVE ( EU; RoW)*
	UK Price Index	Output (Quantity)	Output (Value)	Exports (Value)	Imports (Value)
Cod	0.55	–9.25	–7.54	–11.20	–2.53	15%; 15%
Crab	0.16	–3.75	–2.48	–6.33	–2.20	15%; 15%
Haddock	1.59	0.56	1.82	–7.19	0.31	15%; 15%
Hake	1.50	–15.94	–14.67	–15.83	–0.64	15%; 15%
Herring	5.14	–10.49	–8.43	–8.59	–9.34	15%; 15%
Mackerel	4.82	–4.99	–3.69	–4.22	–8.77	15%; 15%
Nephrops	3.76	–9.01	–1.88	–3.25	–3.27	15%; 15%
Saithe	0.46	–5.15	–3.76	–9.44	–0.96	15%; 15%
Salmon	3.28	–2.19	–0.61	–5.69	–3.20	15%; 15%
Scallop	2.31	–9.86	–4.40	–6.86	–1.44	15%; 15%

* Baseline NTMs are EU 5%; RoW 15%, i.e. an increase in NTMs with EU of ten percentage points is modelled.

Table 4.10. Scenario 3: Percentage change in each variable for the UK from tariff changes, changes in NTMs and changes in quota allocation

Species	MFN Tariffs Between UK and EU + Increase in NTMs Between UK and EU + Changes in Quota Allocations					Change in Quota*
	UK Price Index	Output (Quantity)	Output (Value)	Exports (Value)	Imports (Value)
Cod	0.32	8.78	6.92	3.71	–2.23	8.8%
Crab	0.16	–3.75	–2.48	–6.33	–2.20	–
Haddock	–0.52	21.17	16.26	15.58	–6.33	21.2%
Hake	–2.27	65.94	61.67	61.42	–9.45	166%
Herring	15.38	118.97	88.69	88.53	–28.66	219%
Mackerel	10.35	53.39	37.44	36.46	–30.97	53.4%
Nephrops	–2.81	4.80	3.17	2.57	–12.32	4.8%
Saithe	–49.30	85.91	35.17	104.25	–71.02	186%
Salmon	3.28	–2.19	–0.61	–5.69	–3.20	–
Scallop	2.31	–9.86	–4.40	–6.86	–1.44	–

* Change in quota relates to the calculated change in production value.

4.5 Scenario 4

In Scenario 4, there is no change to quota allocation, but there is the imposition of MFN tariffs between the UK and EU and Rest of the World, and an increase in the level of NTMs.

The results for the UK of the changes in prices, output, export and imports arising from the change in tariffs only is shown in Table 4.11. The changes from both tariffs and NTMs are shown in

Table 4.12. As this experiment involves the imposition of tariffs and NTMs on trade between the EU and the UK it is perhaps not surprising that the effects on output and exports are almost invariably negative.

Table 4.11. Scenario 4: Percentage change in each variable for the UK from tariff changes

Species	MFN Tariffs Between UK and EU + Increase in NTMs Between UK and EU					MFN Tariffs
	UK Price Index	Output (Quantity)	Output (Value)	Exports (Value)	Imports (Value)
Cod	0.95	–5.35	–4.35	–6.42	–4.34	11.5
Crab	0.07	–1.77	–1.16	–2.96	–1.03	7.8
Haddock	2.58	1.62	3.53	–3.30	0.50	7.5
Hake	1.34	–9.48	–8.67	–9.41	–0.57	12.3
Herring	3.24	–6.65	–5.31	–5.41	–6.03	14.3
Mackerel	2.98	–3.18	–2.33	–2.66	–5.51	14.5
Nephrops	2.42	–5.90	–1.18	–2.06	–2.09	16
Saithe	1.20	–1.94	–0.85	–4.33	–2.53	7.5
Salmon	1.14	–0.79	–0.25	–2.03	–1.09	4.9
Scallop	1.56	–6.47	–2.82	–4.43	–0.97	16

Table 4.12. Scenario 4: Percentage change in each variable for the UK from tariff changes and changes in NTMs

Species	MFN Tariffs Between UK and EU + Increase in NTMs Between UK and EU					NTM AVE ( EU; RoW)*
	UK Price Index	Output (Quantity)	Output (Value)	Exports (Value)	Imports (Value)
Cod	1.20	–9.27	–7.57	–11.20	–5.41	15%; 15%
Crab	0.16	–3.75	–2.48	–6.33	–2.20	15%; 15%
Haddock	3.47	1.95	4.58	–7.19	0.66	15%; 15%
Hake	1.96	–15.91	–14.61	–15.83	–0.84	15%; 15%
Herring	5.26	–10.48	–8.43	–8.59	–9.53	15%; 15%
Mackerel	4.84	–5.01	–3.69	–4.22	–8.79	15%; 15%
Nephrops	3.76	–9.01	–1.88	–3.25	–3.27	15%; 15%
Saithe	1.46	–4.71	–2.89	–9.44	–3.07	15%; 15%
Salmon	3.28	–2.19	–0.61	–5.69	–3.20	15%; 15%
Scallop	2.37	–9.85	–4.38	–6.86	–1.48	15%; 15%

Baseline NTMs are EU 5%; RoW 15%, i.e. an increase in NTMs with EU of ten percentage points is modelled.

The results suggest that:

• Prices for all species rise and these range from less than 1% (for crab), to over 5% (for herring).
• UK output declines for all species except haddock; haddock is extremely important for the UK market and almost all UK production is sold domestically rather than exported. Increasing tariffs on exports therefore do not impact on domestic production, whereas tariffs applied to imports protect the UK industry allowing it to expand.
• Exports also decline for all species, with the greatest decline of 16% for hake, for which nearly all of the UK’s exports currently go to the EU, and so this species is relatively more affected by the change in trade regime. Hake experiences a similar decline in overall output. The smallest decline in exports is for Nephrops, of just over 3%. Imports also decline for all species except haddock.
• Differences between quota and non-quota species are less visible in this scenario, as there is no change in quota allocation; the results are driven by the change in tariffs and NTMs. The species that experience the greatest impacts are those with higher tariff levels such as hake, cod and herring. Shellfish species, such as scallop and Nephrops, have relatively smaller impacts despite their high tariff levels, because of the lower substitution elasticity assumed for these species in model, which reflects the importance of fresh or live shellfish in the EU market.

4.6 Sensitivity analysis

In simulation models such as the ones used for this study, certain assumptions are required regarding underlying parameters. In this case, the key parameters are the elasticity of demand, the elasticity of substitution and the elasticity of supply. Inevitably the model results are sensitive to these elasticity parameters, and therefore it is good practice to conduct sensitivity analysis or different runs of the model to establish how changes to these assumptions affect the results. This also helps to give a picture of the broad range of possible outcomes.

The sensitivity analysis focussed on changes in the supply elasticity and the elasticity of substitution. This is because these are the elasticity parameters for which underlying econometric estimates from the literature were not available. With regard to the elasticity of supply, in the base this is set equal to 1. For the sensitivity, simulations were run where it is set to 3, and to 0.5 respectively. For the elasticity of substitution, the assumed elasticity is probably at the upper end, so for the sensitivity analysis the implications of halving this are explored.

Table 4.13 shows the aggregate impact on UK output, imports, and exports, and also on EU output for the sensitivity analysis. This is presented for both Scenario 1 and for Scenario 4 as these can be thought of as comprising the extremes of the scenarios modelled. Partly for comparative purposes and partly because the changes in quota allocations dominate the results, the experiments we run here involve the combined impact of changes in tariffs and non-tariff measures only (i.e. no change to quota allocation). The full sets of results of the sensitivity experiments including quota allocation changes for Scenario 1 can be found in Appendix J.

Table 4.13. Sensitivity analysis – aggregate impact for Scenarios 1 and 4 for output, export and import value (percentage change)

Scenario	Detail	UK			EU
		Output	Exports	Imports	Output	Exports	Imports
1 (Tariff and NTM changes only)	Base	0.88	2.01	2.20	-0.16	-0.49	0.00
	Supply elasticity = 3	2.51	5.30	5.54	-0.39	-1.19	0.00
	Supply elasticity = 0.5	0.43	1.04	1.12	-0.09	-0.27	0.00
	Substitution elasticity is halved	0.77	1.62	1.96	-0.09	-0.26	0.00
4	Base	–2.32	–5.89	–3.74	–0.31	–2.67	–0.38
	Supply elasticity = 3	–4.93	–12.86	–9.07	–1.01	–6.43	–0.85
	Supply elasticity = 0.5	–1.25	–3.24	–1.92	–0.12	–1.41	–0.20
	Substitution elasticity is halved	–1.22	–3.72	–3.27	–0.42	–2.11	–0.22

From the table it can be seen that, relative to the base:

• Increasing (decreasing) the supply elasticity increases (decreases) the magnitude of the impact on output, exports and imports, but less than proportionately. Hence tripling the supply elasticity leads to changes which are less than three times bigger. Halving the supply elasticity leads to changes which are approximately half the size.
• Reducing the substitution elasticity moderates some of the output changes, so if EU countries are more dependent on the purchase of UK fish and shellfish, the impacts on UK output and exports will be reduced.
• The aggregate impact on output for the UK ranges from an increase of 0.88% to 2.51% for the first scenario; and a contraction in output of between 1.2% to 4.9% with regard to Scenario 4.

4.7 Wider economic impacts

The assessment of wider economic impacts focuses on the impacts on the Scottish economy of changes in production and trade patterns under Scenarios 1 and 4. The results presented are the resulting changes to current estimated ^[22] output, GVA and employment in Scotland – see Table 4.14. This section does not take into account the effects of EU-Exit on labour availability, the cost of finance, or any other non-fish trade economic effects, therefore results are likely to overstate the wider economic impacts.

The trade model outputs, in the form of percentage changes in prices, output quantity, output value, imports and exports are used to estimate absolute changes in output, GVA and employment in Scotland’s fishing, aquaculture and processing sectors, and in the sectors supplying them. The estimations make use of input-output tables from which multipliers have been derived; accounting tables which show the relationship between GVA and output; purchasing tables, showing purchases by the fishing and fish processing sectors; data sources on employment in fishing, aquaculture and processing; and data on processing by fish type (demersal, pelagic and shellfish) (see Section 3.4). Note that the trade model does not capture all trade in each species, due to the exclusion of trade codes that relate to mixed species groups (see Section 3.5).

Table 4.14. Estimated current levels of output, GVA and employment in Scotland for species in the trade models

Species	Total Output, £1,000s	Total GVA £1,000s	Total Employment FTEs
Cod	61,105	19,373	466
Crab	82,791	23,207	860
Haddock	114,287	35,168	557
Hake	52,394	15,858	321
Herring	107,505	22,892	926
Mackerel	343,607	91,685	2,849
Nephrops	119,641	41,486	1,071
Saithe	50,505	13,564	216
Salmon	1,591,174	205,123	3,586
Scallop	131,986	39,556	1,230
Total	2,654,995	507,912	12,084

In the tables that follow, the indirect and induced impacts have been estimated for Scenarios 1 and 4, and the results are reported in terms of changes in output, GVA and employment. For output and GVA, a breakdown of the indirect effect across the ten sectors experiencing the greatest impacts is also given.

Two aspects of this approach to assessing wider economic impacts should be noted:

• The Scottish and UK input-output (I-O) tables include sectors that relate to the two primary industries of fishing and aquaculture production, as well as the secondary industry of fish processing. The outputs of the trade model were apportioned between the relevant primary industries and the processing industry, so that they could be mapped to the lines of the I-O tables and associated multipliers. Details of the apportionment methodology can be found in Appendix I.
• A standard criticism of multipliers is that they over-estimate wider impacts because they do not adequately account for the response of other sectors and potential constraints in the labour and other factor markets. For example, if jobs are lost in the original sector, the labour market adjusts and re-employs some of those out of work, perhaps after a period of transition. In this example, there might be less of a change in employment than the multiplier suggests, and wages might fall, which the multiplier does not record.

4.7.1 Wider output impacts

The UK value of fishing, aquaculture and processing output of the ten species modelled is around £4.1 billion per year, of which Scotland accounts for £2.7 billion. Salmon accounts for around half of UK output (by value) of the ten species (production and processing). The next largest by value is mackerel, at around an eighth of output. UK GVA for fishing, aquaculture and processing of the ten species is around a quarter of the output, at £1 billion. Scotland accounts for about half of the GVA. Total employment in Scotland in fishing, aquaculture and processing related to the ten species modelled is around 12,000 persons (from a total of 14,500 persons, Marine Scotland 2017).

Table 4.15 shows that under Scenario 1, the overall wider output impacts are positive at £546 million. This figure is composed of mostly positive effects across the ten modelled species. The largest wider output impacts are attributed to mackerel (£218 million) and herring (£162 million), while the only negative change is to scallops (–£1.4 million).

Under Scenario 4, the majority of effects on species are negative. The aggregate wider output impacts for the 10 species under Scenario 4 is a fall in output of £85 million. In Table 4.16, haddock a species that is very important to the UK market and with a smaller proportion of landings exported compared to other species, is the only species that makes a positive change to the wider output of Scotland’s economy of £9 million. This follows on from the outputs of the trade model in which increasing tariffs on exports under scenario 4 do not impact on domestic production (as most production is not exported), whereas tariffs applied to imports protect the UK industry allowing it to expand.

Table 4.15. Wider output impacts, Scenario 1

Species	Direct, £1,000s	Indirect, £1,000s	Induced, £1,000s	Total, £1,000s
Cod	4,271	2,264	661	7,196
Crab	298	162	48	508
Haddock	14,149	7,545	2,210	23,904
Hake	32,123	17,185	5,041	54,349
Herring	95,594	51,872	15,322	162,788
Mackerel	129,471	68,545	20,005	218,021
Nephrops	3,577	1,860	538	5,975
Saithe	19,041	10,408	3,085	32,534
Salmon	24,345	14,382	3,658	42,385
Scallop	–845	–453	–133	–1,431
Total	322,023	173,770	50,436	546,229

Table 4.16. Wider output impacts, Scenario 4

Species	Direct, £1,000s	Indirect, £1,000s	Induced, £1,000s	Total, £1,000s
Cod	–4,625	–2,452	–716	–7,793
Crab	–2,050	–1,113	–329	–3,492
Haddock	5,234	2,791	817	8,842
Hake	–7,657	–4,096	–1,202	–12,955
Herring	–9,063	–4,918	–1,453	–15,434
Mackerel	–12,691	–6,719	–1,961	–21,370
Nephrops	–2,245	–1,167	–338	–3,750
Saithe	–1,459	–797	–236	–2,492
Salmon	–9,680	–5,718	–1,455	–16,852
Scallop	–5,785	–3,102	–911	–9,798
Total	–50,021	–27,291	–7,782	–85,095

The wider output effects can be split into effects arising from changes in the processing sector, the fishing sector and the aquaculture sector. Table 4.17 shows that, under Scenario 1 and Scenario 4, the largest share of impact is attributed to the processing sector – 71% and 69%, respectively. Overall impacts are positive under Scenario 1, representing an increase in wider economic output of £546 million across Scotland’s economy (compared to the current situation or baseline), and negative under Scenario 4, representing a decrease in wider economic output of £85 million across Scotland’s economy, compared to the current situation or baseline.

Table 4.17. Wider output impacts, by sector experiencing direct changes

Sector	Scenario 1		Scenario 4
	Total Impact £1,000s	Percentage of Total Impact	Total Impact £1,000s	Percentage of Total Impact
Fishing	143,193	26%	–20,011	24%
Aquaculture	17,056	3%	–6,782	8%
Processing	385,980	71%	–58,302	69%
Total	546,229		–85,095

4.7.2 Wider GVA impacts

Under Scenario 1, the wider GVA impact of fishing, aquaculture and fish processing, which includes direct, indirect and induced effects, increases by £212 million (Table 4.18). Under Scenario 1, most species contribute to increasing the wider GVA impacts. The largest wider GVA impacts under Scenario 1 are attributed to mackerel and herring. Only saithe and scallop make negative contributions to wider GVA impacts. The negative impact of scallops arises from negative impacts on price and output under the scenario, while the negative impact of saithe arises from falling price index, despite an increase in output under the scenario.

Scenario 4 would reduce the wider GVA impact of fishing, aquaculture and fish processing by £17 million, as shown in Table 4.19. All species, except for haddock and salmon, contribute to the reduction in GVA impacts under this scenario. Salmon makes a positive contribution to wider GVA impact (of £4.3 million), due to the increase in the price index (despite a decline in output), as both volume and price changes contribute to GVA. Haddock makes a positive contribution to wider GVA impacts of £4 million under this scenario because of increased output and prices. Scallop contributes the largest fall in economy-wide GVA of £6.4 million.

Table 4.18. Wider GVA impacts, Scenario 1

Species	Direct, £1,000s	Indirect, £1,000s	Induced, £1,000s	Total, £1,000s
Cod	1,465	1,043	435	2,942
Crab	51	42	18	111
Haddock	5,527	4,084	1,706	11,318
Hake	8,720	6,576	2,751	18,047
Herring	31,400	24,245	10,158	65,802
Mackerel	56,559	36,651	15,172	108,382
Nephrops	1,348	858	355	2,561
Saithe	–252	–220	–93	–565
Salmon	2,845	2,332	658	5,835
Scallop	–1,077	–824	–345	–2,246
Total	106,587	74,788	30,814	212,188

Table 4.19. Wider GVA impacts, Scenario 4

Species	Direct £1,000s	Indirect £1,000s	Induced £1,000s	Total £1,000s
Cod	–1,585	–1,128	–470	–3,183
Crab	–835	–693	–292	–1,820
Haddock	1,932	1,428	596	3,957
Hake	–2,261	–1,705	–713	–4,680
Herring	–1,323	–1,021	–428	–2,772
Mackerel	–366	–237	–98	–701
Nephrops	–2,319	–1,476	–610	–4,405
Saithe	–450	–393	–166	–1,009
Salmon	2,080	1,705	481	4,265
Scallop	–3,050	–2,334	–977	–6,361
Total	–8,176	–5,855	–2,677	–16,709

Under Scenario 1, all the three sectors fishing, aquaculture and processing contribute to increasing the wider GVA impacts on Scotland’s economy (Table 4.20). Fish processing accounts for the largest share of the increase in wider economic impact – 53% of the wider GVA impacts. Under Scenario 4, the fishing and processing sectors contribute to reducing the wider GVA impacts on Scotland’s economy, while aquaculture makes a positive contribution.

Table 4.20. Wider GVA impacts, by sector experiencing direct impact

Sector	Scenario 1		Scenario 4
	Total Impact £1,000s	Percentage of Total Impact	Total Impact £1,000s	Percentage of Total Impact
Fishing	93,095	44%	–8,048	38%
Processing	113,258	53%	–12,926	62%
Sub-Total			–20,974
Aquaculture	5,835	3%	4,265	100%
Total (Overall)	212,188		–16,709

4.7.3 Wider employment impacts

Under Scenario 1, the wider employment impacts (direct, indirect and induced), are positive, as shown in Table 4.21. Under this scenario, employment in Scotland could increase by up to 5,000 full time equivalent ( FTE) jobs. The largest proportion of the increase in wider employment would stem from mackerel (2,122 FTE jobs), followed by herring (1,622 FTE jobs) and hake, (377 FTE jobs). Scenario 4 has an overall negative impact on wider employment in Scotland. Wider employment could decrease by 429 FTE jobs. Mackerel would contribute the largest fall in wider employment in Scotland – 118 FTE jobs.

The sectoral breakdown of wider employment impacts exhibits a similar pattern to wider GVA and output impacts, as shown in

Table 4.23. Under Scenario 1, the largest contribution to increasing wider employment across Scotland derives from the fish processing sector – 63%. Under Scenario 4, the fishing and processing sectors both make similar contribution to the reduction in wider employment across Scotland – 43% and 44%, respectively.

Table 4.21. Wider employment impacts, Scenario 1

Species	Direct, FTEs	Indirect FTEs	Induced FTEs	Total FTEs
Cod	38	22	9	69
Crab	2	1	1	4
Haddock	112	77	32	221
Hake	198	127	52	377
Herring	743	618	260	1,622
Mackerel	1,060	750	312	2,122
Nephrops	37	26	11	74
Saithe	184	146	61	391
Salmon	54	50	19	123
Scallop	–1	–1	–0	–3
Total	2,426	1,817	757	5,000

Table 4.22. Wider employment impacts, Scenario 4

Species	Direct FTEs	Indirect FTEs	Induced FTEs	Total FTEs
Cod	–18	–13	–5	–37
Crab	–5	–4	–2	–10
Haddock	6	4	2	12
Hake	–23	–18	–7	–49
Herring	–31	–23	–10	–64
Mackerel	–65	–38	–15	–118
Nephrops	–33	–21	–9	–63
Saithe	–5	–4	–2	–11
Salmon	–27	–22	–6	–56
Scallop	–17	–13	–5	–35
Total	–218	–151	–60	–429

Table 4.23. Wider employment impacts, impact by sector

Sector	Scenario 1		Scenario 4
	Total Impact FTEs	Percentage of Total Impact*	Total Impact FTEs	Percentage of Total Impact
Fishing	1,810	36%	–184	43%
Aquaculture	40	1%	–56	13%
Processing	3,150	63%	–189	44%
Total	5,000		–429

* Total does not sum to 100 due to rounding.

4.7.4 Sectors affected

Table 4.24 shows the ten sectors that account for the largest indirect output effects under Scenario 1. Fishing, fish and fruit processing, and aquaculture account for the largest increase in purchases from the direct impacts from the trade and quota increases modelled – 19%, 16% and 9%, respectively. This is because the fish and fruit processing sector purchases both from the fishing and aquaculture sectors, as well as from itself. Other sectors in the top ten relate to the purchase of items associated with co-processing of fish, such as food and packaging. Transport, fuel and financial services are also in the top ten sectors indirectly affected.

Under Scenario 4, the fishing sector would have the largest decrease in purchases, followed by fish and fruit processing, and aquaculture. The other sectors affected are similar in Scenario 4 to Scenario 1, although land transport replaces the financial services sector in the top ten.

Table 4.24. Top 10 most affected sectors under Scenario 1, indirect output effect

Rank	Sector	Changes in Purchases, £1,000	% of Total Changes from Top 10 Sectors
1	Fishing	40,851	19%
2	Fish & fruit processing	34,686	16%
3	Aquaculture	20,734	9%
4	Other food	13,060	6%
5	Other transport equipment	10,572	5%
6	Rubber & Plastic	10,059	5%
7	Paper & paper products	9,024	4%
8	Coke, petroleum & petrochemicals	8,150	4%
9	Dairy products, oils & fats processing	6,066	3%
10	Financial services	5,683	3%
Total		220,294

Table 4.25. Top 10 most affected sectors under Scenario 4, indirect output effect

Rank	Sector	Changes in Purchases, £1,000	% of Total Changes from Top 10 Sectors
1	Fishing	–6,171	18%
2	Fish and fruit processing	–5,242	15%
3	Aquaculture	–3,611	11%
4	Other food	–1,976	6%
5	Rubber and Plastic	–1,539	4%
6	Other transport equipment	–1,529	4%
7	Paper and paper products	–1,364	4%
8	Coke, petroleum and petrochemicals	–1,163	3%
9	Other land transport	–1,014	3%
10	Dairy products, oils & fats processing	–916	3%
Total		–34,319

Table 4.26 shows changes in purchases, due to the indirect GVA effect, from sectors across the Scottish economy that are part of the seafood supply chain supplying fishing, aquaculture and seafood processing. As with the output effect, the three sectors in Scenario 1 that have the largest increases in purchases are fishing, fish and fruit processing and aquaculture. Other sectors in the top ten relate to the purchase of items associated with co-processing with fish, such as food and packaging. Transport and fuel are also in the top ten sectors.

Under Scenario 4, the fall in GVA for fishing, aquaculture and seafood processing results in decreases in purchases from the relevant supply chains (see Table 4.27). The fishing sector has the largest decrease in purchases, of £2 million, followed by fish and fruit processing and other food. The other sectors affected are similar in Scenario 4 to Scenario 1, with the dairy products, oils & fats processing sector replacing electricity in the top ten.

Table 4.26. Top 10 most affected sectors under Scenario 1, indirect GVA impacts

Rank	Sector	Changes in Purchases, £1,000	% of Total Changes from Top 10 Sectors
1	Fishing	15,337	17%
2	Fish & fruit processing	13,022	14%
3	Aquaculture	7,786	8%
4	Other transport equipment	6,280	7%
5	Other food	5,019	5%
6	Coke, petroleum & petrochemicals	4,615	5%
7	Rubber & plastic	3,827	4%
8	Paper & paper products	3,395	4%
9	Electricity	2,678	3%
10	Financial services	2,549	3%
Total		92,254

Table 4.27. Top 10 most affected sectors under Scenario 4, indirect GVA effect

Rank	Sector	Changes in Purchases, £1,000	% of Total Changes from Top 10 Sectors
1	Fishing	–1,750	22%
2	Fish and fruit processing	–1,482	19%
3	Other food	–553	7%
4	Other transport equipment	–482	6%
5	Rubber and Plastic	–404	5%
6	Coke, petroleum and petrochemicals	–397	5%
7	Paper and paper products	–386	5%
8	Aquaculture	–270	3%
9	Dairy products, oils & fats processing	–260	3%
10	Financial services	–224	3%
Total		–7,849