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Modelling the impact of a UK-New Zealand trade deal - Overview
Thursday, 11 August 2022
In collaboration with Harper Adams University, AHDB have undertaken a quantitative impact assessment of how a trade deal between the UK and New Zealand could impact different agricultural sectors.
We have used a trade network model instead of more commonly used general equilibrium or partial equilibrium models as it allows indirect impacts of other trading partners within a trade network to be taken into account. Countries within the trade network are referred to as ‘nodes’. For our analysis of the impact of the UK-Australia trade deal, it was only possible to have four nodes in the trade network, which meant that the USA and China had to be grouped together.
Since then, the trade model has been upgraded so it can accommodate five nodes, which means that the USA and China can be looked at separately. Subsequently, it has been possible to model alternative ‘what if’ scenarios for the first time. For a detailed description of the approach taken, please see the technical report which will be available soon in the UK-New Zealand Free Trade Agreement Hub.
A key point to consider when interpreting the modelling results is that they are not a prediction of how things will change. Rather, they show the effect of a new trade agreement with New Zealand, with all other factors remaining the same. This means that the modelling results do not build in assumptions around factors which may change in the future.
For example, commodity market prices used in the model were based on a 2018–20 three-year average and are assumed to remain at this level rather than crash or boom. Factors such as labour costs and availability have been topical in recent months. This situation could impact on UK competitiveness in the global economy, but again, the model assumes that the environment of recent years will not worsen or improve.
A summary of the headline results per sector is provided below:
| Sector | New Zealand exports to UK, 2018-20 average (Tonnes) | Change in New Zealand exports to UK (Tonnes) | Percentage change in New Zealand exports to UK |
|---|---|---|---|
|
42,700 |
5,800 |
14% |
|
|
800 |
6,300 |
740% |
|
|
Dairy (cheese) |
100 |
260 |
194% |
|
Dairy (butter) |
800 |
1,700 |
209% |
|
0 |
0 |
0% |
As mentioned above, we have been able to model alternative scenarios for the first time using the trade network model to answer questions such as:
- What would happen if relations between New Zealand and China deteriorated after the UK – New Zealand FTA comes into force?
- How would this impact New Zealand beef and lamb exports to the UK?
Further details for the modelling results shown for each sector:
