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

5 Key Messages

The results presented in this report relate to the ten species and trade codes specific to each species modelled, under a set of scenarios developed for analytical purposes. The scenarios are not predictions of what will happen in the future, but they are stylised alternative worlds that have been developed for analytical purposes. Not all trade in each species is covered, and not all trade in fish and fishery products is included. The key assumptions in Section 3.5 should be referred to.

The key messages that emerge from the analysis are summarised below.

Impact of trade measures

• The liberalisation of trade modelled in Scenario 1 (zero tariffs and a reduction in NTMs) results in an increase in both exports and imports, and a decrease in the UK price index for all species, which is expected to benefit consumers. Despite this scenario representing a very substantial liberalisation of the UK’s seafood trade, the changes are modest, with the largest increase in exports being for salmon at 3.5%.
• In the absence of changes to TAC or quota allocation in line with the zonal attachment principle, the impact of increased tariffs and non-tariff measures (under Scenarios 2–4) is negative for the UK. Exports decline for all species modelled, and quantity and value of output, and imports, decline for all species except haddock. The aggregate reductions in output, exports and imports for the UK are 2.3%, 5.9% and 3.7% respectively under Scenario 4, for MFN tariffs and an increase in NTMs. Prices for all species rise, driven by the increase in tariffs and non-tariff measures, ranging from less than 1% (for crab), to over 5% (for herring) under Scenario 4.
• Both tariffs and NTMs contribute to these trade impacts, with the relative contribution variable across species and scenarios, according to the magnitude of the change relative to the baseline. Under Scenario 2 ( EU-Norway level tariffs), NTMs have a bigger impact than tariffs for many species, however in Scenarios 3 and 4 ( MFN tariffs), tariffs and NTMs have a similar magnitude of effect at the levels modelled, reflecting the higher level of tariffs in this scenario compared to scenario 2.

Impact of zonal attachment

• The results suggest increases in production from a reallocation of quotas in line with the zonal attachment principle dominate the results and outweigh the impact of the imposition of tariffs and NTMs for the species and trade codes modelled. This results in an aggregate increase in output of 10% and increase in exports of 12%, even with the imposition of MFN tariffs on trade with the EU (Scenario 3). There is also a reduction in imports of 5%. For Scenario 1, the aggregate increase in output is 12% and increase in exports is 17%, with a 0.4% reduction in imports.
• The sensitivity analysis indicates that if fisheries production and landings do not respond as readily to changes in demand, the changes in output and trade are more muted, reducing the magnitude of impacts of each of the scenarios modelled. If UK fish and seafood products are a prime product in the EU market (less substitutable with similar products from other sources), the output changes are moderated (lower gains in Scenario 1, and smaller losses in Scenario 4). This is likely to be the case for fresh fish and shellfish for European markets.

Observations on species and sectors

• The impacts on prices, output, imports and exports vary across species, reflecting differential impacts on different fleet sectors and the aquaculture industry, mostly determined by the potential gains (or not) from zonal attachment reallocation of quotas.
• For the scenarios that include reallocation of quotas based on the zonal attachment principle, the resulting increases in output and exports, and reductions in imports, are most significant (in percentage terms) for those species where the UK stands to gain significant increases in quota compared to the current Relative Stability-based allocation. Hake, herring, mackerel and saithe all stand to gain significant percentage increases in quota allocation under zonal attachment.
• Fleet sectors targeting non-quota species (crab and scallop) and the salmon aquaculture industry, which do not stand to gain from zonal attachment quota increases, suffer the negative impacts of higher tariffs and NTMs without the benefits of an increase in production. Therefore, they experience a contraction in output value with the imposition of EU-Norway type tariffs (and non-tariff measures), and a greater contraction with MFN tariffs and non-tariff measures. These are of the order of –0.6% for salmon and –4.4% for scallop (under Scenario 4).
• The impact on salmon is moderated by the large proportion of exports that go to non- EU countries (mainly the USA), and the low level of EU MFN tariffs on less processed forms of salmon (2% on fresh and chilled fish and fresh, chilled fillets and frozen fillets). Trade with most of the non- EU countries are already on the basis on MFN tariffs, therefore it is not affected by the move from Scenario 3 to Scenario 4.
• Without a change to quota allocations, the largest negative impacts are on cod, hake, herring and saithe, due to the large proportion of exports that go to the EU, together with the relative increase in the level of tariffs (which are greater for herring) (Scenario 4).
• The focus on ten species and the trade codes that relate specifically to those species means that the impact on trade for more mixed and generic categories, including frozen fillet blocks which are used as inputs to the processing industry, are not modelled. The modelling therefore does not capture the impact on the processing sector from changes to trade in these categories. However, the UK would be able to set its own tariffs for imports of these trade codes, and as a frozen product it would be less affected by non-tariff measures that might result in border delays.

Wider economic impacts

• The direct impacts in Scotland of Scenario 1, for the ten species modelled, would be an increase in economic output of around £320 million, of which the majority comes from processing. The indirect impacts add a further £170 million and the induced impacts another £50 million. The total impact is a £540 million or 21% increase in economic output linked to the seafood sector. This would be associated with a total increase of 5,000 FTE jobs including direct, indirect and induced effects.
• The direct impacts of MFN tariffs and increased NTMs, with no changes to quota allocation (Scenario 4) on Scotland’s economy are a decrease in economic output of around £50 million. Again, it is the processing sector that accounts for most of the impact. The indirect impacts subtract a further £27 million and the induced impacts another £8 million in economic output from the Scottish economy. The total impact is an £85 million or 3% decrease in economic output linked to the seafood sector. This would be associated with a decrease of 218 direct FTE jobs. The total decrease in FTE jobs, including indirect and induced jobs, is 429, of which 44% is attributable to changes in the processing sector and 43% to the fishing sector.
• Under Scenario 1, total Scotland economy-wide GVA (direct, indirect and induced) would increase by £210 million, and under Scenario 4 it would fall by £20 million.
• The sectors of the economy that are most affected by the indirect effects (purchases by the directly affected sectors) are the fishing, fish and fruit processing, and aquaculture sectors themselves (as fish and fruit processing 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 probably associated with co-processing with seafood, such as food and packaging. Transport, power and fuel, and financial services sectors are also in the top ten sectors. Together, the top ten affected sectors represent 72% of the indirect impact.

Areas for future improvements to seafood trade modelling

• This project has successfully developed seafood trade models for ten individual fish and shellfish species. However, a number of data limitations were encountered which offer the potential for future improvements to the seafood trade models.
• Changes to quota allocation need further detailed scientific assessment of zonal attachment and the full extent of the quota increases modelled may be difficult to achieve for a variety of reasons.
• The FAO Fisheries Commodities Production and Trade data have recently (November 2017) been released up to 2015 (previously they were only available to 2013), and these could be used to update the underlying production data for the trade codes in the models.
• Worldwide average prices for each trade code have been used, these could be refined to country-specific prices.
• Models for additional species could be developed, to further broaden the applicability of the approach. Additionally, the development of models that incorporate trade codes that are important to parts of the processing industry (e.g. frozen block fillets) could be explored, to increase the coverage of the 1604 category. An alternative approach to modelling these categories may be required, due to the lack of production data for such codes.
• Additional scenarios could be modelled, to increase understanding of the potential outcome of different trade and access arrangements.