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The last few months have been among the most momentous in decades for the UK agri-food sector. Firstly, Britain’s exit from the EU in January signifies a major shift not just politically but also in terms of how it will trade with the rest of the world. The onset of the COVID-19 crisis is also having a major impact, particularly in terms of livestock and dairying.
Unsurprisingly, both of these developments will have serious implications for Irish farming in the months and years ahead.
Having worked in both the UK and Irish agri-food sectors at various points over the past 20 years, I share my reflections on the future direction of the UK agri-food industry and what it means for Ireland.
UK is a large economy
In a global farming context, Table 1 shows that the UK is a relatively wealthy and densely-populated nation that trades freely, but also emits relatively high greenhouse gasses (GHG).
That said, its economic importance (3.3% of world GDP) is small in comparison with the EU-27 (21.8%). This will be important when striking free-trade agreements post-Brexit, as bargaining power is linked with economic size.
In agricultural terms, the UK is fairly insignificant globally apart from in a few niche segments (eg lamb production). Although the UK will be keen to do trade deals, farming is unlikely to be prioritised.
Climate change is an issue that has shot up the political agenda in the last year. As a wealthy country that is a relatively high emitter, the UK (and its farming sector) will be expected to show leadership in reducing GHG emissions, especially as the next UN global climate summit is in Glasgow next year.
UK agriculture bigger than Irish
From an Irish perspective, with a population less than one-tenth of that of the UK, its economy and contribution to global agricultural trade is much smaller, despite agriculture accounting for a larger proportion of Ireland’s economy.
While milk and beef production are key agricultural sectors, output is still lower than the UK. However, agricultural exports are much more important to Ireland.
Figure 1 shows that the UK accounts for a substantial proportion of these exports in 2019, particularly beef, valued at just over €1bn (43% of total).
This is down on previous years when sales to the UK were valued in excess of €1.1bn and accounted for approximately half of Ireland’s beef exports.
Dairy sales to the UK are also crucial in monetary terms and are again valued at €1bn, but account for a smaller proportion of overall dairy exports.
Of course, the UK’s future trading relationship with not just the EU, but with other parts of the world will have major implications, not just for Ireland, but also for UK farming
The data reveal Ireland’s dependence on sales to the UK for agri-food as it accounts for 38% of total agricultural exports. Of course, the UK’s future trading relationship with not just the EU, but with other parts of the world will have major implications, not just for Ireland, but also for UK farming. Ireland’s prices (currently excluding tariffs) are slightly below those of the UK for most of this period. Throughout this timeframe, Brazilian prices (excluding tariffs) were more than £1 per kg lower than the UK.
UK tariffs
The recent announcement of the UK’s new global tariff (GT) regime, kept tariffs for beef more or less the same as the EU Common External Tariff (CET), except the duty rates have been converted into sterling and rounded downwards slightly.
This implies that from January 2021 onwards, when these tariffs would become applicable, Brazilian beef products could potentially enter the UK at similar prices to domestic produce.
These standards are, for now, the same as the EU’s, but could also change in the future
Of course, it would still have to meet the standards applicable to the UK, and face additional non-tariff barrier costs.
These standards are, for now, the same as the EU’s, but could also change in the future.
That said, the UK Government has yet to announce its tariff rate quota (TRQ) arrangements, which are expected to be published later in the year. TRQs allow specified volumes of agricultural commodities to be imported either tariff-free or at much lower tariff levels.
Any new TRQs that the UK introduces on an MFN basis will have the potential to cause significant competitive pressures. For example, if the UK Government decides to introduce new TRQs for beef similar to the 230,000t proposed in March 2019, substantial volumes of Brazilian would enter into the UK tariff-free.
This would severely undermine the competitiveness of British produce and Irish exports, even if there is an EU-UK trade deal.
It is also worth noting that during the 2010 to 2019 period, US prices (excluding tariffs) were generally cheaper than the UK
The situation worsens considerably for Ireland under a no-trade deal Brexit as the application of the UK GT on beef from the Republic of Ireland would render it uncompetitive in the British market. It is also worth noting that during the 2010 to 2019 period, US prices (excluding tariffs) were generally cheaper than the UK. This would be another source of competition to Ireland if there were to be a US-UK trade deal.
In addition to the UK’s trading relationship with the EU changing significantly, its agricultural policy is also set to change substantially.
While this will be phased in over a seven-year period (2021 to 2028), it is likely to mean major changes to how British farmers (particularly in England) will be supported with more of a focus on public money for public goods.
The recent onset of the COVID-19 crisis has revealed the exposure that UK agri-food supply chains have to panic-buying by consumers. This may lead to food security being placed somewhat higher up the agenda by Defra in future. That said, the UK’s instinctive tendency is very much towards global free trade.
Despite the food supply issues of the past (eg during World War II) and the higher importance placed on food security after the war, there have always been influential voices in Britain calling for more liberal trade.
The Irish agri-food sector needs to prepare for a tougher competitive environment in the UK in future
In such circumstances, agriculture gets sacrificed to open up markets elsewhere (eg the automotive sector). Despite the Covid-19 crisis, this tendency will not go away.
The Irish agri-food sector needs to prepare for a tougher competitive environment in the UK in future. Even if there is a free-trade agreement with the EU, close attention should be paid on the UK’s tariffs with the rest of the world, as it is those which will determine the competitiveness of Irish produce.
Having said that, geographic proximity means that Ireland will remain a key trading partner with the UK for agri-food.
It is now crucial that Ireland’s agri-food plc reviews and enhances its value proposition to the UK market, particularly in terms of quality and environmental impact as these factors will play a major role in its future competitiveness.
Michael Haverty is a partner at UK agricultural and farm business consultancy The Andersons Centre.
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