Of all of the UK’s agriculture sectors, it is the sheep sector which is holding the biggest breath when it comes to what might happen in 2019.
After a tough 2018 which saw lamb numbers drop by 600,000 thanks to the severe weather at lambing, and then higher finishing costs thanks to the summer’s drought, many will be wondering if things could really get any tougher.
The answer, it unfortunately seems, is yes – at least if a Brexit deal can’t be reached.
“The sheep industry has repeatedly warned how catastrophic the results would be: Over 30% of the UK’s sheep production is exported, with more than 90% of that figure heading to Europe.”
A soft Brexit would have allowed relatively frictionless access to EU markets to continue, giving producers some stability – at least until farm support systems change. But a no-deal Brexit would result in the UK defaulting to WTO trading conditions, which would see significant tariffs attached to UK exports to the EU and other nations. The sheep industry has repeatedly warned how catastrophic the results would be: Over 30% of the UK’s sheep production is exported, with more than 90% of that figure heading to Europe.
Analysis of potential post-Brexit impacts by FABRI-UK model suggests prices would drop 30% if the EU and the UK do not have a formal trade agreement. This price drop would lead to production in the UK falling by 11% and a contraction of the industry. EU tariffs differ by price and product spec, but generally hover around 40%. In order for the UK to get access to the EU market this tariff may have to be paid by producers, suggesting an even larger price drop potential.
Lamb prices increased in 2016 as sterling devalued following the referendum and they increased again in 2018 on lower supply. However the UK values have lagged values in Oceania, and UK monthly spot values are now just off the 2017 lows.
If values do fall things would be particularly tough for producers in Wales, where subsidy-reliant farmers produce over 65,000 tonnes of sheep annually. NFU Cymru has said a no deal Brexit would put producers in Wales in a perilous position and have devastating consequences for producers and the country as a whole.
In its 2019 outlook report, consultant Andersons says labour and concentrate use are responsible for the biggest variations between farmers who generate positive margins and those who don’t. With the most competitive businesses being ones that make best use of forage, the farms that will thrive will be the ones which find ways to optimise productivity from a low-cost base. Achieving that will require producers to look hard at their operations and adapt them where necessary: Breeding for stock which have higher levels of performance and are easier to manage will be one factor. Outside of the farm’s day-to-day activities, tools such as insurance could also help farmers protect themselves from any drastic falls in market price which could occur post-Brexit.
Stable is the volatility insurance platform designed and built by farmers. We help farming and food businesses of every size and sector manage the risk of volatile prices so they can invest in their future with confidence. Stable’s index-insurance platform enables farmers and food businesses to insure themselves from a wide range of commodity prices and input costs. To read about examples of how Stable’s volatility insurance could help your farming and food business manage risk, read these case studies.
To find out more about Stable or to book a demo, please visit our website or call us on +44 (0) 203 8599390 or email email@example.com and we can show you how farmers are using Stable to protect their balance sheets.