Brexit scenarios Q&A: Why we must prepare for less important UK market
This would increase the impact on the Irish agri-food industry.
In the current edition of the TResearch magazine published by Teagasc, Principal Research Officers Trevor Donnellan and Kevin Hanrahan in the Teagasc Agricultural Economics and Farm Surveys Department say the UK government faces two big policy decisions — what agricultural policy will the UK pursue, and what agri-food trade relationship will the UK have with the EU27 and the rest of the world.
A conservative reform could create a British Agricultural Policy similar to the current Common Agricultural Policy (CAP).
This would be favoured by many UK farmers.
Support from Brussels would be replaced by funding from Westminster for CAP-style schemes.
However, the UK government has regularly advocated radical reform of the CAP, typically involving a much reduced budget.
It is unlikely that the UK will radically alter its agricultural policy in the short term. However, over the medium to longer term, the level of support for UK agriculture is uncertain.
A radical ‘New Zealand style’ reform, where UK agricultural support is completely eliminated, is unlikely.
However, some reduction may occur, and the remaining support may be channelled towards provision of agri-environmental services.
The devolved nature of UK agriculture policy may result in differing agricultural policies across the UK.
Scotland, Northern Ireland and Wales may favour a greater level of public support for agriculture than in the case of England.
Just as in Ireland, the dependence of UK farm incomes (particularly drystock farms) on financial aid is considerable. Changes in support could have significant  implications for UK agricultural production and the UK’s food import requirements.
The UK’s future trade deal with the EU could mean that it would be within or outside the European single market.
If the UK is outside the single market, then there would be some increase in the costs of exporting to and  importing from the UK, for the Irish agri-food sector.
Outside the single market, it is clear that UK exporters would face the so-called EU common external tariff (WTO tariff) when exporting goods to Ireland and other EU member states.
However, with the UK outside the single market, it is not clear what tariffs Irish exporters to the UK market would face.
The UK government would decide between two options:
* No tariffs on imports to the UK: This would mean that Irish exporters would face greater competition in the UK, as countries such as Argentina, Australia, Brazil and New Zealand would now also have tariff-free access to the UK market.
The cost of Irish exports to the UK would not change, but the cost of imports coming from non-EU exporters would fall, as they would no longer be subject to tariffs.
* EU/WTO tariffs on  imports to the UK: again, this would mean that Irish exporters would face greater competition in the UK.
Irish and other EU suppliers would face new export barriers with the UK that are similar to those currently faced by Argentina, Australia, Brazil and New Zealand.
The cost of Irish exports in the UK would increase due to the imposition of tariffs and could exceed the price of exports to the UK from lower-cost non-EU countries.
What is clear is that both of these UK trade policy outcomes would reduce the differential between the price of Irish exports to the UK and exports to the UK from non-EU countries.
The outcome would depend on several factors.
* the size of the reduction of direct income support under a future British Agricultural Policy, compared to the CAP.
* the supply response from UK farmers to reduced levels of decoupled direct payments (by how much would UK production contract?)
* Â the trade policy setting (whether Irish exports to the UK face tariffs, and whether other non-EU suppliers faces higher or lower tariff barriers).
Lower UK output of beef, sheep meat, butter or cheese might create opportunities for Irish exporters.
However, the competitiveness of Irish exports to the UK market would depend on the tariff levels applied by the UK.
The Brexit policy uncertainty facing the Irish agri-food sector is unlikely to be resolved rapidly.
The UK will be slow to trigger Article 50, the formal notification that opens its exit negotiation.
In the meantime, uncertainty concerning future access to Ireland’s most important market could persist to 2020 and possibly beyond then.
The challenge faced by the Irish agri-food sector (and Irish agri-food policy makers) is to prepare for a world where the UK is not as important or lucrative a market for Irish agri-food exports as it is right now.
