Brexit and U.S. Agricultural Trade

What Is "Brexit" and what could it mean for U.S. agricultural trade with the U.K.?

The United Kingdom (U.K.) decided by referendum in 2016 to leave the European Union (EU), a process popularly known as "Brexit." The U.K.’s economy is very integrated with that of the EU, particularly in agriculture, and disentangling the U.K. economy may lead to significant changes in legal regimes and trade patterns. The U.K. left the EU in 2020, which led to changes in the U.K.’s agricultural production and trade policy. These changes to domestic and trade policy may affect all of the U.K.'s trade relationships, including commerce with the United States, an important U.K. trading partner. Mutual trade in agriculture is a small share of the total, although trade in some agricultural product categories is growing.

The U.K.'s decision to leave the EU changes a long-standing relationship

The U.K. had been a member of the EU, a now-27-nation single market for trade and commercial services, since the 1970s, so this marked a profound change in its economy. When the U.K. Government formally notified the EU Government of its decision to leave on March 29, 2017, a 2-year separation process began, according to Article 50 of the Treaty of Lisbon, one of the governing documents of the EU (EU Parliament, 2016). The U.K. formally seceded from the EU in 2020—the first and only country to do so, having successfully negotiated an EU-U.K. trade and cooperation agreement (TCA) ratified on December 24, 2020.

The U.K. played an important role in the EU economy. The country accounted for 15 percent of the EU’s population and 17.6 percent of its gross domestic product (GDP) in 2019. Together, Germany, the U.K., France, Italy, and Spain represented 72.5 percent of the EU population and 81.6 percent of its GDP (USDA, Economic Research Service [ERS] calculations from World Bank data). Actions in these countries are therefore relatively important to the EU as a market. Additionally, the U.K. was one of several countries that was a significant net contributor to the EU budget (European Commission, 2020).

The U.K. is also an important participant in world trade, and its trade is heavily tied to the EU

The U.K. is the world’s 12th largest exporter and 5th largest importer as measured in total trade in all sectors in 2020, including trade with other EU countries (World Bank, 2020). Despite its importance to world markets, U.K. trade is very integrated with the EU. In 2019, 43 percent of the U.K.’s overall exports went to the EU (the year prior to Brexit). Import data for the U.K. may also reflect goods that will eventually go to other EU countries (USDA, ERS calculations from Trade Data Monitor data).

The U.K. agricultural sector is small relative to the U.K. economy as a whole, and the U.K. is a net agricultural importer

The value of U.K. farm output in 2020 was $34.2 billion (£26.7 billion)[1] (U.K. Department of Environment, Food, and Rural Affairs [DEFRA], 2021a). Of this total, $11.6 billion (£9 billion) was attributed to crops, with wheat, barley, vegetables, and horticultural products accounting for close to half of the total. Livestock products were valued at $19.3 billion (£15.1 billion) (U.K. Defra, 2021a). While over 70 percent of U.K. land is used for agriculture, the U.K.’s large population compared with the amount of arable land makes it a net agricultural importer. The U.K. imported $75.5 billion in agricultural and related goods in 2020 and exported $30.5 billion (USDA, ERS calculations from Trade Data Monitor data, 2021).

The U.K.'s importance in individual sectors is also pronounced. For example, among the world’s major importing countries, the U.K. is the third largest importer of beverages and the fourth largest importer of meats (Trade Data Monitor, 2021).

The U.K. farm sector is highly integrated with the EU

The U.K. agriculture sector received $46.5 billion (€37.8 billion)[2] from the EU's Common Agricultural Policy (CAP) between 2010 and 2019. This includes direct payments to farmers, market price support, and investment in rural development projects (U.K. Defra, 2021b). In 2020, direct payments were $3.6 billion (£2.8 billion) (U.K. Defra, 2021b). Additionally, in agriculture, the close EU trading relationship is even more pronounced, with EU members accounting for more than two-thirds of the U.K.’s agricultural trade with the world.

U.K. agricultural exports to non-EU countries are growing faster than those to EU countries, but U.K. imports do not exhibit the same pattern (see chart below)

The U.K. is an important trading partner of the United States, with a rank as an importer of overall U.S. exports similar to that of South Korea or Japan, and a rank as an importer of U.S. goods just below that of South Korea

Agricultural products account for only a small share of total U.K. trade with the United States

U.S. agricultural exports to the U.K. in 2020 were valued at $2.7 billion, about 1.8 percent of the U.S. agricultural total of $167 billion (USDA, ERS calculations from Trade Data Monitor data). The largest category of U.S. agricultural exports to the U.K. in 2020 was forest products, followed by beverages, mostly wine (USDA, ERS calculations from Trade Data Monitor data). U.S. agricultural imports from the U.K. were smaller, about $1.1 billion, with distilled spirits the largest category, primarily whiskey and gin (USDA, ERS calculations from U.S. Department of Commerce, Bureau of the Census data).

U.S. agricultural exports to the UK grew in a number of major categories
Description	Annual Growth in U.S. exports to UK, 2010–2020 (nominal, percent)	Export values in 2020
Forest products	17.74	$925 million
Alcoholic beverages*	0.92	$328 million
Tree nuts	10.84	$197 million
Food preparations	18.64	$155 million
Essential oils	1.14	$89 million
Fresh vegetables	11.33	$84 million
Source: USDA, Economic Research Service calculations from Trade Data Monitor data. Categories include only those goods included in the USDA definition of agriculture.

The fastest growing categories are forest products, fresh vegetables, tree nuts, and food preparation items, respectively. Over the last decade, the U.K. emerged as a significant importer of U.S. forest products, becoming the third largest market for forest commodities. Imports rose by 336 percent over the decade from 2010 to 2020. The rise in U.S. exports of forest products largely consists of wood pellets, assembled barrel casks, and various hardwood lumbers (U.S. Census Bureau, 2021). The growth in fresh vegetable exports is due largely to exports of dried sweet potatoes and vegetables such as asparagus and onions (U.S. Census Bureau, 2021). The rise in exports in tree nuts are primarily attributable to increased consumption of almonds, walnuts, pistachios, and pecans. U.S. tree nut exports to the U.K. increased by nearly three times. Fresh vegetables also showed remarkable growth over the last decade, rising by 159 percent since 2010 (U.S. Census Bureau, 2021). Exports of miscellaneous food preparations to the U.K. nearly doubled over the last 10 years (U.S. Census Bureau, 2021).

The EU is an important trading partner for the United States

The United States exported about $12 billion in agricultural and related products to the EU (minus the U.K.) in 2020, with tree nuts and soybeans as some of the primary products (USDA, ERS calculations from U.S. Census Bureau). In addition, the United States imported $30.6 billion in agricultural and related products from the EU (minus the U.K.) in 2020, rising by more than $13 billion since 2010, nearly a 6-percent annual increase over the decade (USDA, ERS calculations from Trade Data Monitor data). As the EU represents 27 countries, and the U.K. represents only 15 percent of the EU population, U.S.-EU trade is much larger than U.S.-U.K. trade in agriculture.

Post-Brexit studies have begun to disentangle trends driven by the U.K. exit from the EU and possibilities for the U.K.'s future relationship under the Trade and Cooperation Agreement

The earliest post-Brexit studies appeared around mid-2021. Brexit also coincided with two major global events that have disrupted agricultural trade worldwide—the Coronavirus (COVID-19) pandemic that began in 2020 and the war in the Ukraine that started in 2022 (Jelliffe et al., 2023). Consequently, the impacts of Brexit itself are difficult to isolate, though it can be done in some cases. Evidence from these early analyses indicate economic losses to the U.K. economy across various sectors.

One study looked at differences between the U.K. and other Group of Seven (G7) countries—as well as non-G7 advanced economies—with respect to the rate of recovery following the first wave of the COVID-19 pandemic; the authors found that U.K.’s economic recovery (i.e., GDP and labor supply rebound) has been slower compared with peer nations (Her Majesty’s Government [HMG], 2022; Springford, 2022). Analysts also found that post-Brexit global investment in the U.K. was reduced, as evidenced by data on foreign direct investment (Posen, 2022). In the case of agri-food, one early study shows a 1.5-percent annual increase in the cost of food associated with Brexit over the 2-year period of 2020–21 (Bakker et al., 2022). This was compounded by rising inflation during the economic recovery from the COVID-19 pandemic, where the U.K. experienced some of the highest rates of inflation among the G7 and non-G7 advanced economies. Researchers also examined the effects of post-Brexit red tape and found it reduced the number of small- to medium-sized U.K. firms that export to the EU as well as U.K. exports to the smaller EU economies, while trade with non-EU partners increased at a rate greater than the decline in trade with the EU (Freeman et al., 2022). Another report on post-Brexit trade found that Northern Ireland benefited from integration with both the U.K. and EU under the Northern Ireland Protocol (NIP), outperforming the U.K.’s average economic recovery with better trade and investment conditions (MacQueen et al., 2022). Study findings also indicated certain exports from the U.K. to the EU declined since Brexit, notably dairy products (Polet, 2021). Researchers also found expanded agricultural trade (e.g., farm inputs, vegetables, roots and tubers) between the U.K. and non-EU partners following the enactment of the EU-U.K. TCA (Bakker et al., 2022).

The Brexit vote led to uncertainty about the future of economic growth and stability in the U.K. and the EU

The terms of the settlement with the EU under the TCA, as well as multiple trade agreements between the U.K. and its other trading partners as rolled-over EU terms or newly negotiated agreements (e.g., Australia and New Zealand) have come into effect. These new agreements change tariffs, regulations, labor supply, and demand, and thus affect the willingness of firms to locate in the U.K. calling into question the future of the U.K.’s large financial services sector, exchange risk, credit markets, and ultimately, U.K. GDP. In addition, regions of the U.K., such as Scotland, may experience these changes differently. This uncertainty also led to a sharp devaluation of the pound and a modest devaluation of the euro following the 2016 referendum. The pound has not recovered from its downturn. The euro initially recovered, but has since fallen as other fundamentals changed.

In the period leading up to Brexit, U.K. total exports rose slightly from $466.3 billion in 2015 to 468.3 billion in 2019, recovering from a lull in recent years that saw the country’s total trade value reach a 5-year low in 2016. Imports rose by nearly 10 percent from $630.3 billion to $692.5 billion over the same period. In contrast, U.K. agricultural and related products exports fell by 2.8 percent between 2015 and 2020 (from $20.4 billion to $19.8 billion), but imports rose by 2.4 percent (from $73.7 billion to $75.5 billion) over the same period. In contrast to overall trade, the initial pattern in agricultural trade is the pattern that would be predicted if the decline in the pound were one of the root causes of the decline in trade. The decline in U.K. agricultural exports was largely due to a decline in exports to the EU. Of the U.K.’s primary agricultural and related products, exports of alcoholic beverages (distilled spirits, wine products, and beer) saw the largest declines, while some sectors, like dairy, experienced an increase in export values. In contrast, increases in U.K. agricultural imports were mostly in fresh fruit, processed vegetables, and bakery products, while U.K. imports of wine and poultry products fell by 12.7 and 22.4 percent, respectively—two primary commodity groups imported from the EU (Trade Data Monitor, 2021). U.K. agricultural imports from the United States fell by 7.9 percent between 2015 and 2020, while U.K. agricultural exports to the United States fell by 13.4 percent over the same period. If the pound’s depreciation were driving the trade flows, the lower prices of British exports for other countries should have led to an increase in exports, while the increasing prices of foreign goods for British consumers should have led to lower import flows. Overall, U.K. trade is not following this pattern, possibly because overall trade flows are often determined by flows of capital in and out of a country. Agricultural trade, however, is more closely following the pattern suggested by exchange rate movements, although evidence on whether the exchange rate changes are the root cause of these small trade alterations is not definitive.

The potential for policy change is particularly acute in the agricultural sector

The EU has an extensive farm policy and farm subsidy scheme (see: Common Agricultural Policy), and the U.K. government decided that post-Brexit policy will be set by each of the devolved administrations of England, Northern Ireland, Scotland, and Wales. All four of the U.K.’s constituent nations have provided at least some detail about their post-Brexit agricultural frameworks, though specific policy measures are still in various stages of development and implementation across the U.K. Each nation established a transition period with some form of EU-style support payments remaining in place in the short term. Agricultural economists from U.K. agricultural ministries suggest that many farm businesses will be under financial pressure, particularly in the grazing livestock and cereal sectors, and a significant decrease in support payments could challenge the viability of many producers (Patton et al., 2020; Ojo et al., 2021). With more than 100 percent of net farm income coming from support payments, in some cases, ending these payments outright would create a significant impact on U.K. agriculture, the rural economy, environment, and upstream and downstream industries. Thus, effectiveness of alternative payments programs is at the forefront of national agricultural policy discourse. Notwithstanding, pre-Brexit national trends under the EU—along with details from the respective devolved administrations pre- and post-Brexit—support internally divergent agricultural policies in the U.K. Though a common thread between the national plans is the attention to the relationship between the agri-food sector and the environment.

The U.K. is also very dependent on food imports, with 45 percent of the country’s food supply imported in 2019, and 26 percent imported from the EU, so trade policy decisions may have widespread effects (U.K. Defra, 2021a). Further developments in U.K. policy may have implications for U.S. agricultural trade. In particular, depreciation of the pound and the euro may make EU and U.K. exports less expensive, and make U.S. exports more expensive, which, in turn, will lower U.S. exports and raise U.S. imports from these countries. Nevertheless, the U.K. seeks to benefit from trade negotiations through diversified import supply and greater export demand for their high-value processed goods. In other words, the post-Brexit U.K. could effectively shift their agri-food trade toward realization of areas of global comparative advantage and consumer demand for high-value specialty products. Broadly speaking, engagement with the U.K. over the coming years presents new opportunities for partnerships and expansion of trade flows into the island nation. In the case of the United States, strong trends in wood products, as well as a shared language, perceived affordability, quality, familiarity, and established import-export capacity, presents an optimistic outlook from across the pond. However, uncertainty about the U.K. economy, current EU—U.S. negotiations, and the future trading relationship between the United States and the U.K. may continue for some time.

References

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Freeman, R., Manova, K., Prayer, T., & Sampson, T. (2022). Unravelling deep integration: UK trade in the wake of Brexit (Discussion Paper No. 1847). Center for Economic Performance, London School of Economics, London, U.K.

HMG (Her Majesty’s Government). (2022). Office for Budget Responsibility: Economic and fiscal outlook (CP 648), March 2022.International Monetary Fund. (2020). Representative exchange rates for selected currencies.

Jelliffe, J., Gerval, A., Husby, M., Jarrell, P., & Williams, B. (2023). United Kingdom agricultural production and trade policy post-Brexit (Report No. EIB-250). U.S. Department of Agriculture, Economic Research Service.

MacQueen, R., Millard, S., Patel, U., Whyte, K., Chadha, J.S., Mortimer-Lee, P., Mao, X., Pabst, A., Mosley, M., Bhattacharjee, A., Dixon, P., & T. Szendrei. (2022). National Institute UK economic outlook: Sailing in treacherous seas. National Institute of Economic and Social Research, National Institute UK Economic Outlook, Series A. No. 6, Spring.

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Patton, M., Feng, S., Davis, J., Caskie, P., Sherry, E., & Binfield, J. (2020). Impact on UK agriculture of changes to direct payments following Brexit. Agri-Food and Biosciences Institute, Belfast, Northern Ireland.

Polet, Y. (2021). Dairy and products annual, U.S. Department of Agriculture, Foreign Agricultural Service, GAIN Report, November 8, 2021.

Posen, A. (2022). “The UK and the global economy after Brexit,” [Conference presentation], The economics of Brexit: What have we learned? London, April 27.

Springford, J. (2022). What can we know About the Cost of Brexit so Far?” Center for European Reform, June 2022.

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[1] Converted from Great Britain Pound, using average 2020 daily exchange rate (USDA, ERS calculations from International Monetary Fund data).

[2] Converted from euros, using average daily exchange rate for 2020 (USDA, ERS calculations from IMF data).