Economic modelling highlights need for sensible Brexit timescale

by Nick Fenwick, FUW head of policy

Computer models have put men on the moon, designed new vaccines for infectious diseases, and are now routinely used in almost every walk of life. In their most fallible form they can cause devastation – as happened in the run up to the financial crash of 2008, when models prioritising profit over risk were a major contributor to financial collapse on a global scale. But without them we are left with little more than intuition and blind faith.

In the world of agriculture, the rolls-royce of models is the FAprI model, developed by the university of missouri more than thirty years ago, and adapted by Queen’s university Belfast to analyse the impacts on uK agriculture of various different events.

on August 16 the results of the latest FAprI modelling were published by authors from the uK’s Agri-Food and Biosciences Institute and the university of missouri – work commissioned by the Welsh Government and the other devolved regions to look at impacts of three Brexit scenarios on agricultural prices and production.

the three scenarios looked at can be described as ‘soft’ – with tariff and quota arrangements between the uK, eu and rest of the world remaining similar to current arrangements; ‘hard’ – with the uK failing to achieve a trade agreement with the eu and defaulting to Wto tariffs and quotas for all trade; and ‘radical’ – with zero tariffs applied on imports to the uK, but standard tariffs and quotas applied to our exports to the eu and elsewhere.

the impacts for different agricultural sectors can be described using the same adjectives: ‘soft’, ‘hard’, ‘radical’, and the predicted trends in prices and production are just as the FuW and others have predicted. But the quantified predictions bring other adjectives to mind: ‘positive’, ‘disastrous’…‘cataclysmic’…

the predicted trends follow a general pattern: the impacts of a ‘soft’ Brexit are modest for all commodities, while the more a sector relies on exports, the greater the adverse impact of ‘harder’ Brexit scenarios, with the converse being true for sectors producing commodities of which we are net importers. And, of course, the ‘radical’ policy has a detrimental impact for all sectors, as cheap imports from all over the world swamp our markets.

For Wales, the figures make particularly stark reading; the estimated impact of a ‘hard’ Brexit on the sheep sector, in which around 80 per cent of Welsh farmers are involved, is a 30 per cent fall in prices and a 20 per cent fall in Welsh production, highlighting our reliance on lamb exports in particular, while the need to make up the current trade deficit in beef and dairy produce leads to 17 per cent and 30 per cent increases in beef and dairy prices respectively, and a consequential 14 per cent increase in Welsh cattle numbers. And there are even positive impacts for the Welsh pig sector, leading to a 20 per cent increase in Welsh pig numbers – although it has to be pointed out that Welsh pig numbers are extremely low.

Inevitably, there are no such mixed blessings in the results for the ‘radical’ liberalised imports policy, with falls in sheep, beef, dairy and pork prices of 29 per cent, 45 per cent, 10 per cent and 12 per cent respectively, leading to consequential falls in production across the board – including acute collapses of 60 per cent and 18 per cent in Welsh beef cattle and sheep numbers.

As the FAprI report points out, the final outcome of Brexit is likely to be somewhere between the three scenarios looked at, with or without some kind of transition period, meaning that for the first time Welsh and uK policy makers have figures which help quantify the challenges and opportunities different sectors might expect under any final scenario.

As acknowledged by First minister Carwyn Jones, the consequences of a bad outcome for Wales would be severe; while there are some 56,000 working full and part time in farming, farms are just a link – albeit a crucial one – in a complex supply chain, involving upstream businesses such as vets, feed merchants, mechanics and contractors, as well as downstream businesses such as hauliers, markets and food businesses. And, of course, agriculture also plays a key role in so many other areas, not least maintaining the landscapes and habitats so cherished by visitors,

and preserving the Welsh language, particularly in areas where less than half the population now use the language, but the proportion in

the farming community remains close to 100 per cent.

With so much at stake, but no knowledge of which of the three FAprI scenarios the final Brexit deal will most resemble, it is impossible to make detailed plans for the future – and herein lies an added danger: Despite the unknown, there is no end of those individuals and bodies who have fallen over themselves to put forward radical, sometimes quite detailed, post-Brexit alternatives to the Common Agricultural policy and its accompanying legislative framework

these visions generally focus on narrow objectives which reflect the key aims of the body making the proposals, while also appealing to most policy makers’ deep dislike of farm support, and are often drawn up with little or no regard for inconvenient truths, such as the need to trade competitively and in accordance with World trade organisation rules.

But above all else, not one proposal made to date has been drawn up with any certainty as to what trade deals (if any) will be in place post Brexit, or the estimated quantitative impact of different Brexit outcomes on each of our major sectors – how could they have been, given those estimates have only just been published?

In other words, the documents are better thought of as lobbying instruments which put forward untested, possibly brilliant, but possibly disastrous, proposals; useful food for thought, but dangerous if they gain purchase and are taken at face value without proper investigation.

So what precedent do we have for such a situation? the obvious answer is ‘none’, but the closest parallel is the Welsh Government’s work with stakeholders in preparation for the introduction of a new CAp in 2015.

That work, which took place during many years leading up to 2015, involved detailed mathematical modelling to examine the impacts on tens of thousands of businesses of scores of thousands of different options, with the key agreed aim of finding policies which minimised disruption and losses for businesses and regions of Wales.

By contrast, modelling post Brexit scenarios is far more complex, with many more possible options and unknown factors – yet greater than ever is the need to thoroughly investigate options, not least to ensure superficially attractive, well-meaning proposals are not, in fact, leaps of faith which will plunge entire communities and sectors into

an economic and social abyss. And if a government wants to pursue a policy which leads to such outcomes, then so be it, but it should at least do so knowingly.

then there is the question of how much flexibility the Welsh Government should have to take such steps; current policies implemented by the Welsh Government have to fit within the CAp regulations agreed by the 28 member States, which are aimed at allowing some flexibility when it comes to rural policies, but also minimising unfair competition within the Common market between, say, a sheep producer in France and one in

Wales. Given that the only

guaranteed common market uK farmers will share access to post-Brexit is the one here in the uK, few disagree that a similar framework needs to be

in place to ensure the approaches in, say, Scotland and Wales, do not differ to the extent that they give massive advantages to certain sectors in one or other country.

Some in Westminster take the view that such a uK policy framework should be decided upon by the uK Government, and the uK Government alone, thereby undermining devolution, while some in the devolved administrations see Brexit as an opportunity to increase the already liberal flexibility devolved to Wales and Scotland under the current CAp rules – equating to an increase in devolved powers which would also risk differences in agricultural policies which were grossly unfair to some producers. And one need not look far to see the risks – for example, the Scottish administration is a great fan of subsidised production for important and vulnerable sectors, but in england and Wales such subsidies are deeply frowned upon, and came to an end in 2004.

Such issues and power struggles are in turn intertwined with and overshadowed by the fact that rural spending through the CAp currently sits outside the Barnett Formula, and that the Barnettisation of such funding would slash Wales’ budget by hundreds of millions per annum.

With so many layers of issues which need resolving internally, negotiations and wranglings between Westminster and the devolved administrations in many ways mirror those between the uK Government and the eu, while also sharing the same impossibly short timetable.

And herein lies both the greatest challenge but also the potential solution: the seventeen months or so we have until Brexit is a fraction of what is truly needed to undertake internal and external negotiations over trade, devolution, finances and common frameworks; the drafting and scrutiny of legislative changes; and the modelling of impacts of different policies and scenarios.

the obvious solution, and one argued for by the FuW since June 24 2016, is to agree a sensible and safe Brexit timetable which allows sufficient time to reach rational agreements that work for Wales, the

uK and the eu, and to properly examine and model the possible consequences of policy proposals – many of which may turn out to be drafted by those rushing in where angels fear to tread.

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