Brexit - agricultural sectors: analysis of impacts

This research assesses the impacts of different potential outcomes beyond the end of the EU transition period on key Scottish agricultural sectors. The work combines trade-model and farm-level analysis supplemented by industry interviews and desk-based research.

4. Output and Trade Overview

This Chapter provides an overview of agricultural output for the UK and Scotland as well as UK agri-food trade with EU and non-EU countries and estimates of exports from Scottish agriculture. This information is used to illustrate the importance of trade at both a general (UK-EU) level but also the importance of exports and imports to production and consumption across the UK as well as in Scotland specifically. These insights form a prelude to assessing the impact of Brexit under each scenario for the selected agricultural sectors (Chapters 5 to 8). Additional information is contained in Annex III.

4.1 Scottish and UK Agricultural Output

Table 4‑1 summarises Scottish and UK agricultural output in both value (£m) and volume (Kt) terms. Estimates of Scotland's share of UK output are also provided. The value of output of the commodities under examination in this study is valued at just under £2.1 billion per annum. This represents 81% of the total value of output (excluding subsidies) for Scottish agriculture. In comparison with the UK generally, Scotland's share of the value of output for selected categories stands at just over 14%.

Scotland is an important contributor to UK agricultural output in monetary terms and its contribution is even more pronounced in beef (~20% share), sheep (~17%), potatoes (~30%) and fruit (~17%). For beef, Scotland's has a higher monetary share of UK output (nearly 20%) vis-à-vis its share of UK tonnage (just over 18%). This illustrates that Scotch beef attracts a premium as do Scottish strawberries.

For cereals, which in Table 4‑1 only includes wheat, barley and oats, Scotland has a consistent (12.5%) share of UK output in both value and volume terms. However, it has a much larger share of the UK barley crop (>25% share of both value and volume). In tonnage terms, Table 4‑1 also shows that more than a third of the UK spring barley crop is produced in Scotland, whilst Scotland's share of UK winter barley production is estimated at just over 11%.

Malting barley is also highly important in Scotland. It is difficult to get an exact estimate of how much Scottish malting barley is produced because one of the leading maltsters in the UK is based in Berwick just over the border in England. It procures malting barley from both Scottish and English growers. That said, based on SRUC estimates[18] from 2017 and the primary research, approximately 90% of the malting barley used by Scottish whisky distillers is grown in Scotland. The Scotch whisky sector has achieved significant growth recently. Based on industry expert opinions obtained during this study, Scotland produces about 900Kt of malting barley annually. This implies that malting barley accounts for nearly half of overall Scottish barley production (1,826Kt).

The value of Scottish wheat is slightly lower than the UK generally. This is partly due to a higher proportion of feed wheat in Scottish wheat production (circa 49%)[19], whereas across the UK feed wheat accounts for about 45% of homegrown production[20]. Transport costs are also likely to have an influence.

There are several sectors where the value of Scottish output is lower in proportional terms than its corresponding share of tonnages. This includes sheepmeat and liquid milk, sectors where a significant proportion of Scottish output is processed in England. This creates difficulties in determining the precise proportion of Scottish grown/reared produce that ends up being exported to the EU as section 4.3 elaborates on.

The Scottish seed potatoes' sector merits comment as it accounts for 78% of UK production in value terms. Much of this production is sold across the British and Irish Isles whilst exports, particularly to non-EU markets, are also significant. This includes markets such as the Canary Islands, which although a Spanish territory, require separate phytosanitary certification as the regulatory regime is different to that of the EU. Other key markets include the likes of Egypt and Morocco.

Finally, for cauliflower and broccoli, there is limited data available in terms of output. At a UK level, Defra provides monetary estimates of output for each crop and based on primary research input obtained during this study, Scottish output for cauliflower is estimated at £6 million (12.2% of UK) and £10 million for broccoli (16.3% of UK). Due to lack of data, a combined volume estimate of 193Kt has been provided for UK cauliflower and broccoli output with Scottish production having an estimated 14.5% share.

Table 4‑1: Overview of Scottish and UK Agricultural Output – Selected Categories – 2017-19
Sector / Commodity Scottish Output (£m) UK Output (£m) % UK Scottish Production (Kt) UK Production (Kt) % UK
Cereals 415 3,331 12.5% 2,873 23,048 12.5%
Wheat 121 2,207 5.5% 856 14,872 5.8%
Barley 269 999 26.9% 1,826 7,242 25.2%
Spring Barley (tonnage only) 1,483 4,202 35.3%
Winter Barley (tonnage only) 343 3,040 11.3%
Beef 575 2,899 19.8% 167 907 18.4%
Sheepmeat 213 1,240 17.2% 61 308 19.7%
Liquid Milk 384 4,424 8.7% 1,328 14,933 8.9%
Horticultural crops (incl. Potatoes) 512 3,008 17.0% 1,610 8,761 18.4%
Potatoes 225 762 29.6% 1,152 5,510 20.9%
Seed 76 97 78.1% 284 366 77.6%
Human consumption 146 650 22.4% 807 3,643 22.2%
Vegetables 148 762 19.4% 413 2,530 16.3%
Cauliflower 6 49 12.2% 13 193 14.5%
Calabrese (broccoli) 10 61 16.3% 15
Fruit 139 806 17.2% 45 721 6.2%
Strawberries 95 357 26.6% 30 137 22.3%
Overall Total 2,098 14,903 14.1%  

Sources: Scottish Government, Defra and Andersons

Cereals includes wheat, barley and oats only. Volume of liquid milk production provided in million litres' terms. Estimate based on farmgate prices. Refers to fresh only.

4.2 UK-EU Trade Flows

Most of the data on trade with the EU are provided at a UK level and as the economic modelling is undertaken on a UK-EU basis, it is useful to examine trade flows on this basis as well. To conduct this analysis, two main sources are used – Defra's Agriculture in the UK publication[21] (see below) and HMRC data (see Annex III).

Table 4‑2 gives a breakdown of UK output and trade (volume-based), primarily using Defra data with some additional estimates provided by Andersons based on an analysis of HMRC data and primary research input for cauliflower and broccoli.

Trade with the EU dominates across most categories. Over 92% of wheat exports are to the EU and over two-thirds of wheat imported into the UK come from the EU. Over 90% of barley exports are also to the EU27 and whilst imports of barley (94Kt) are relatively small, almost all comes from the EU27.

The UK's also imports over 94% of beef from the EU, chiefly Ireland, which accounts for around two-thirds of beef imports into Britain generally. Although beef exports to the EU are around two-and-a-half times smaller than the corresponding exports, they still account for over 86% of total exports and often fetch very high prices.

The reliance on export markets for sheepmeat is even more pronounced with near 95% of total exports going to the EU, particularly France. During 2017 to 2019, this equates to over 31% of sheepmeat production and reveals the sector's potential exposure in a No Deal Brexit scenario.

UK milk output is estimated at just under 15 billion litres per year. About 6% of this (974 million litres) is exported and the vast majority of this relates to milk produced in NI which is shipped to the Republic of Ireland for further processing. Some imports also occur and given the bulky and perishable nature of liquid milk, virtually all of this is trade with the EU as shown in Table 4‑3 and Table 4‑4.

For potatoes, as the Defra data does not segment imports and exports by type of potato (seed, maincrop, processed etc.), although it does give net trade estimates, the breakdown between EU and non-EU trade is provided for potatoes as a whole. Based on an average of the past three years, Defra data suggest that a net volume of nearly 100Kt of seed potatoes are exported annually. For early/maincrop potatoes approximately 11Kt are net exports, however, nearly 1.9Mt of potatoes for processing are imported on a net basis over the 2017-19 period.

Finally, in relation to cauliflower and broccoli, industry input during the primary research suggests that an estimated 80Kt of frozen product (50:50 split) was imported from the EU into the UK in recent years. Much of this from Spain and Poland where production costs are lower. UK production of frozen cauliflower and broccoli is small (circa 12-13Kt) and this is chiefly a function of higher production costs.

Based on subtracting exports from UK production and adding on imports into the UK, estimates of the availability of each product for UK consumption is also provided on the right hand side. This can be taken as a proxy for the UK consumption with the caveat that some of these volumes will also be used as stocks which may be consumed several months into the future.

Table 4‑2: Overview of UK Agricultural Production, Trade and Usage (2017-19)
Sector Value (£m) UK Production (Kt) Imports – EU (Kt) Imports – Non-EU (Kt) Exports – EU (Kt) Exports – Non-EU (Kt) Available for UK to Consume (Kt)
Cereals 3,331 23,048 1,388 611 1,816 170 23,062
Of which:
Wheat 2,207 14,872 1,258 610 650 55 16,035
Barley 999 7,242 93 1 1,116 114 6,107
Other (Oats) 125 934 37 0 50 1 920
Beef 2,899 907 324 19 127 19 1,103
Sheepmeat 1,240 308 21 72 97 5 299
Liquid Milk 4,424 14,933 144 974 14,103
Potatoes 762 5,510 1776 624 485 153 7,271
Cauliflower/ Broccoli 110 193 116 6 7 0.2 225
Strawberries 357 137 64 12 4 0.1 208

Sources: Defra (2020), HMRC and Andersons

Cereals includes wheat, barley and oats only. Volume of liquid milk production at farm-gate provided in million litres' terms. Denotes "Total New Supply" in Defra's Agriculture in the UK report, includes both domestic usage and stocks. Refers to fresh cauliflower and broccoli only, frozen excluded. Estimates derived from HMRC data and primary research input.

Table 4‑3 and Table 4‑4 provide estimated breakdowns of UK production by geographic market and UK consumption by geographic source respectively. It shows that for the products under examination in this study, the majority of UK production is consumed domestically and whilst exports account for a relatively small proportion of sales, they are still significant, especially for sheepmeat but also for barley and beef. Unsurprisingly, exports to the EU dwarf non-EU exports.

Table 4‑3: Estimated Breakdown of UK Production by Geographic Market
Sector UK Production (Kt) % Consumed in the UK % Exported to EU % Exported to Non-EU
Cereals 23,048 91.4% 7.9% 0.7%
Of which:
Wheat 14,872 95.3% 4.4% 0.4%
Barley 7,242 83.0% 15.4% 1.6%
Other 934 94.5% 5.3% 0.1%
Beef 907 83.8% 14.0% 2.1%
Sheepmeat 308 66.8% 31.4% 1.7%
Liquid Milk 14,933 93.5% 6.5% 0.0%
Potatoes 5,510 88.4% 8.8% 2.8%
Cauliflower / Broccoli 193 93.7% 6.1% 0.2%
Strawberries 137 97.2% 2.8% 0.0%

Sources: Defra (2020) and Andersons

Cereals includes wheat, barley and oats only. Volume of liquid milk production is in million litres' terms. Refers to fresh cauliflower and broccoli only, frozen excluded. Estimates derived from primary research input.

Table 4‑4: Estimated Breakdown of UK Consumption by Geographic Source
Sector Estimated UK Consumption (Kt) % Produced Domestically % Imported from EU % Imported from Non-EU
Cereals 23,062 91.3% 6.0% 2.7%
Wheat 16,035 88.4% 7.8% 3.8%
Barley 6,107 98.4% 1.5% 0.0%
Other 920 96.0% 4.0% 0.0%
Beef 1,103 69.0% 29.3% 1.7%
Sheepmeat 299 69.0% 6.9% 24.0%
Liquid Milk 14,242 99.0% 1.0% 0.0%
Potatoes 7,271 67.0% 24.4% 8.6%
Cauliflower / Broccoli 225 45.9% 51.5% 2.6%
Strawberries 208 63.8% 30.7% 5.5%

Sources: Defra (2020) and Andersons

Based on the "Available for UK to Consume (Kt)" data from Table 4‑2. Cereals includes wheat, barley and oats only. Volume of liquid milk production provided in million litres' terms. Refers to fresh cauliflower and broccoli only, frozen excluded. Estimates derived from primary research input.

Table 4‑4 also shows that domestically produced sources account for the majority of consumption in most cases, with the exception being cauliflower and broccoli where imports from the EU, particularly Spain, Benelux and Poland, are most prominent. This reflects the UK growing season and the all-year-round nature of demand in the British market. Again, the EU tends to be the main source of imports, especially for beef where Ireland plays a major role. For sheepmeat, the majority of imports emanate from New Zealand and Australia and reflects the seasonal nature of UK lamb production.

4.3 Scottish Agri-Food Trade Flows

Drawing upon primary and desk-based research insights, this section provides estimates of Scottish output by geographic market. At the outset, it is important to highlight that there is relatively little Scotland-specific data on sales of agri-food produce by geographic market. This is because most data are aggregated at the UK level. Furthermore, whilst agri-food companies are able to provide insights on their own businesses, at a sectoral level, particularly barley, dairying and sheep, a significant proportion of Scottish produce is processed in England and there is limited visibility of where that product ends up.

With these caveats in mind, the indicative estimates presented in Table 4‑5 should be treated with caution. That said, it helps to inform what the key markets are for Scottish produce and gives a helpful indication of the potential exposure to Brexit within each sector.

It is apparent that for most sectors, the internal UK market is by far the most important. Whilst the data presented below focus on direct sales only, England & Wales account for the majority of sales across meat and horticulture. Indirectly, England & Wales is also the main market for processed dairy produce. Furthermore, a substantial proportion of the feed grains used by Scottish farmers is used to produce meat destined for south of the border. The only exception is malting barley where most Scottish produce is used to make whisky which is sold worldwide. Non-EU markets (incl. Canary Islands) account for nearly 30% of seed potatoes' output. Egypt is also another major market.

Table 4‑5: Estimated Breakdown of Scottish Agricultural Sales by Geographic Market (2017-19)
Sector Scottish Production (Kt) % Sold in Scotland % to England & Wales % to NI % to EU27 % to Non-EU
Wheat 856 ~95% <5% <1% Neg. Neg.
Malting barley 932 ~90% <10% Neg. Neg. Neg.
Other Barley 895 ~90% <5% 3% 3% Neg.
Beef 167 27% ~64% ≤1% 8% Neg.
Sheepmeat 61 17.5% 53% Neg. 29.5% Neg.
Liquid Milk 1,328 ~83% ~17% Neg. Neg. Neg.
Seed Potatoes 284 ~12% ~48% ~2% 5% 29%
Other Potatoes 807 10-11% 86-88% ~1% 1-2% Neg.
Cauliflower / Broccoli 28-30 15-20% 77-83% <1% 1-2% Neg.
Strawberries 30 33% 66% <1% Neg. Neg.

Sources: Scottish Government, Defra and Andersons

Assumes that the Scottish barley used to produce malt in Berwick is mostly sold back to Scotland Breakdown based on value for 2019 only. Excludes fifth quarter. Some product will be sold to companies situated in England/Wales, further processed, and sold back as finished goods to Scotland. Volume of liquid milk production is in million litres' terms. Estimated breakdowns based on 2019/20 AHDB[22] data which only focus on where the liquid milk is processed. They do not consider where processed dairy products (e.g. cheese) are sold to. Here, it is only possible to get reliable data at a UK level. Refers to fresh cauliflower and broccoli only, frozen excluded. Estimates derived from primary research input. "Neg" denotes negligible volumes.

4.4 Key Observations

Although the data might suggest that Scotland is relatively less exposed to the EU versus the UK as a whole, it is not possible to deduce what proportion of Scottish sales to England and Wales are destined for the EU market. This is particularly relevant for sheep meat, beef and dairy products. The Scottish agri-food sector is, therefore, quite reliant on processing facilities south of the border. This issue is particularly relevant for sheep and dairy. For the latter, it is noteworthy that whilst normally processing would take place just over the border in Northern England, this region is also producing a milk surplus, meaning that Scottish milk has to be transported further for processing which adds to cost.

That said, research findings still suggest that the UK internal market is by far the most important for Scottish produce, a point emphasised numerous times in the primary research. At the same time, Brexit is still set to exert a major influence on the Scottish agri-food industry's long-term competitiveness. The specific impacts of Brexit on each agricultural sector are examined in Chapters 5 – 8.



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