Milk prices are expected to rise when the UK leaves the European single market, according to the new AHDB report Brexit Scenarios: An Impact Assessment. The cost of imported dairy products would increase outside the single market, creating a favourable environment for domestic milk prices to go up. However, this is what is called ‘evolution’, just one of three scenarios that AHDB explored for the UK dairy industry post Brexit.

Three scenarios:

  • Evolution: This is the ‘business as usual’ scenario. Policy, regulatory framework and trading relations stay as close to the status quo as possible, despite the fact that the UK will not be part of the single market.
  • Unilateral liberalisation: In this scenario, the UK adopts a liberal approach to trade, increasing competition from imports outside the EU. This would also involve a lesser amount of support payments and restrictions on migrant labour.
  • Fortress UK: Trade would only take place under WTO Most Favoured Nation tariffs in this scenario. Farm payments would be more reduced and there would be further restrictions on migrant labour.
  • Income

    The baseline Farm Business Income for dairy farms in the UK was £72,482 in the models used. Under ‘evolution’ FBI increases to £93,853.

    Similarly, if one was to predict that trade post Brexit would fall under the World Trade Organisation (WTO) Most Favoured Nation rules, this would also be positive news for the dairy industry. FBI would increase by 33%, as all imports would have WTO MFN tariffs. In the report, AHDB said that the “increase in the value of production would be sufficient to compensate for an increase in fixed costs, as the cost of regular paid labour increases”. However, this scenario would not be favourable for the UK consumer.

    Meanwhile, a liberalisation of trade would be the most unwelcome scenario for the dairy industry, resulting in a 35% fall in FBI.

    While the dairy industry is not as reliant on direct payments as some sectors, the FBI fall is as a result of their removal. In this scenario, variable costs would be lower due to savings on compliance costs and livestock feed. However, labour costs would go up.

    AHDB said that this scenario would be a “very challenging outcome for the dairy sector, which would lead to a permanent adjustment in its structure”.