From the Institute of Fiscal Studies.....it sort of says that we were all correct,the ultimate effect on food prices is actually dependant upon political decisions.
How food prices will change following the UK’s actual departure from the EU remains highly uncertain. Currently, the UK benefits from tariff-free trade within the EU, and the UK and other EU members levy common tariffs on products imported into the EU from other countries. As is generally the case across the world, these tariffs are, on average, higher on agricultural products than on non-agricultural products and there is a lot of variation in tariffs both across and within broad food groups.
If the UK leaves the EU customs union, it would be free to adjust the tariffs it charges on agricultural goods. Under World Trade Organisation (WTO) rules, the UK would not be able to set tariffs that discriminate between trading partners, except as part of a free trade agreement or to give developing countries special access to its market. If the UK and the post-Brexit EU fail to strike a free trade deal, it is likely tariffs would be imposed on EU imports into the UK, as the UK would be unable to impose zero tariffs on imports from the EU without also extending tariff-free access to all other WTO members. This would raise the price of food imported from the EU, which is the major source of food imports into the UK, accounting for 70% of gross food imports. Therefore if the UK did not strike a free trade deal with the EU, food prices would be likely to rise significantly. This could potentially be ameliorated if the UK reduced tariffs across the board by a substantial margin and/or decided to accept cheaper food imports that do not meet current EU regulatory standards. There would also be costs associated with non-tariff barriers, such as customs checks.
The UK could reduce tariffs from their current level, and may choose to do so, especially for imports of foods that are not domestically produced – for example, oranges and olives. It would also be free to strike free trade deals with other countries. In addition, if the UK ceased to be a full member of the EU single market, it would be able to apply different regulatory standards to food imports, leading to the possibility of importing hitherto banned produce (such as chlorinated chicken). Such changes would serve to lower the price of foods imported from non-EU countries. That said, most advanced countries seek to protect their domestic farmers through a combination of price supports, subsidies and trade barriers. The extent to which the UK would choose to act differently in this regard is not clear at this stage.
Tariff changes and movements in the exchange rate directly affect the cost of getting imported food products onto supermarket shelves. This will naturally feed into the prices faced by consumers for imported goods. The extent to which tariff changes and exchange rate movements feed through to prices is uncertain and may vary across goods. The prices of domestically produced products are also likely to change, for two reasons. First, many domestically produced products use imported inputs, and changes to firms’ costs will tend to feed through to the prices they charge for their final products. Second, changes in the price of imported goods are likely to lead to changes in the price of similar domestically produced goods because of competitive effects: for example, if the prices of imported goods rise, then domestic producers who compete in the same markets might take advantage of the opportunity to increase their prices too.
How might these changes affect different households? The first thing to consider is that lower-income households allocate a higher proportion of their spending to food than higher-income households (23% of spending for the lowest-income tenth of households versus 10% for the highest-income tenth). Poor households are therefore more exposed to rises in the general level of food prices.
