A research report prepared for the Livestock and Meat Commission (LMC) by farm business consultancy The Andersons Centre with support from Oxford Economics, has highlighted the costly, and potentially devastating effect of “no deal” post-Brexit on the NI beef and sheep sector.
The 123-page report looks in-depth at what might happen if the EU and UK fail to agree a trade deal, with the UK reverting to trading under World Trade Organisation (WTO) rules. Two scenarios are explored:
WTO equivalence, where the UK and EU impose reciprocal tariffs on each other’s imports based on current arrangements.A unilateral “open-door” trade policy, where the UK reduces its tariffs on imports but without any reciprocal agreements in place.The analysis, and outcomes produced, are broadly similar to that published in August 2017 by economists at AFBI, who also highlighted the damage done to a number of sectors if the UK allows in cheap food imports, tariff-free, post-Brexit. The LMC analysis builds on that work, but specifically looks at the beef and sheep sector in NI, with baseline data gathered from local beef and lamb processors.
It shows that beef cuts account for 86% of total NI sales, with lamb cuts and carcases making up only 6% of sales. That reflects the fact that nearly half of lambs in NI go to the Republic of Ireland for processing.
Also, the figures include a substantial trade in carcase beef from the Republic of Ireland for further processing in NI. A number of secondary processors in NI rely almost exclusively on sourcing carcase beef from the south, with imports estimated at 49,000t per annum. These secondary processors are badly exposed if WTO tariffs are applied to these imports post-Brexit.
Possible tariffs
The extent of possible tariffs is also detailed in the report, and again highlights the high WTO tariff wall applied by the EU. Based on 2016 prices, tariffs on fresh lamb cuts are 49%, on fresh boneless beef 86%, and on beef carcases, they work out at 96%. Only on the likes of beef offal are tariff rates set at zero.
As an example, NI rump steaks valued at £7/kg would have a tariff applied of 12.8% + €303.4 /100kg, which is a tariff of around £3.60/kg, leaving these rump steaks priced at £10.60/kg to an EU importer. Current EU tariffs render the majority of NI beef and lamb exports uncompetitive. Under both trade scenarios, NI exports outside of the UK collapse.
On top of the WTO tariffs are non-tariff barriers such as customs checks and additional official controls, which could add up to £10m per year in costs for NI beef and sheep processors looking to do business outside of the UK post-Brexit.
The other main issue of concern for processors around Brexit is access to labour, with around 65% of the workforce in beef and lamb processing EU nationals, with the remainder from Britain or Ireland, and only 0.1% from non-EU countries. The report notes that significant restrictions on EU labour post-Brexit could add 10% to recruitment costs, result in higher staff turnover, and possibly also lead to wage inflation. Some processors could even consider moving operations outside of NI.
In the study, a model was used to assess the effect of WTO trading under the two scenarios – WTO equivalence and WTO liberal trade.
The findings under the WTO equivalence scenario, where both the UK and EU fall back to WTO tariffs to trade post-Brexit, are similar to those highlighted by AFBI economists last month.
Both UK imports and exports of beef and lamb would collapse. As the UK is only 75% self-sufficient in beef, there is an opportunity for NI to displace imports in the British market.
Beef prices would rise, although farmers could face higher input costs, and would still be heavily dependent on farm support payments to maintain profitability.
Higher prices
The report authors also note that as a result of Brexit, “serious questions remain as to whether UK consumers and taxpayers would be willing to tolerate higher food prices”.
In terms of NI beef processing, the effect of moving to WTO trading is potentially more damaging.
Total output might be up in the short-term (due to higher prices in the British market), but longer-term output would decline as processors would not have access to live imports or carcase beef from the Republic of Ireland to supplement their operations.
Sheep
In sheep production, the picture painted is more pessimistic than beef, as it is a sector heavily dependent on exports to drive prices.
While WTO tariffs effectively stop UK lamb exports, it is assumed that New Zealand lamb imports will continue free of tariff (currently 228,254t per year to the EU) after Brexit.
Key to that assumption is understanding the history of New Zealand tariff-free imports into the EU, which were negotiated by the UK on joining the EEC in 1973.
The report authors predict that farmers, particularly in the lowland, could switch from lamb to beef under this scenario.
Liberal trade
Under the liberal trade scenario, where the UK abolishes tariffs on all imports (a cheap food policy), but must pay WTO tariffs on exports (including to the EU), the inevitable consequence is a big reduction in NI beef and sheep exports (down 79%).
Imports from the EU into the UK also take a hit, and are replaced by low-cost, non-EU countries. Overall, it has a devastating effect on NI beef and sheep producers, and would lead to major restructuring at farm level.
In light of the concerns highlighted by industry, the report authors recommend that the UK should remain in the EU single market and customs union for at least five years post-Brexit.
That would provide certainty for business, including around access to labour, and give more time for a long-term arrangement with the EU to be worked out. During this interim period, the authors suggest a mid-way review, to examine progress in implementing arrangements.
Other recommendations include various Government departments, including Defra and international trade, working together to develop a long-term strategy for food and farming. Also, both departments should be doing more, at present, to open up new markets for NI (and UK) beef and lamb.
After Brexit, assuming that NI is outside the EU single market and customs union, the report authors float the idea that inspections of goods either coming from, or exported to the Republic of Ireland be conducted at meat plants or collection centres (for live cattle), rather than a border post.
Solution
However, if there is no trade agreement, and the UK and the EU must trade under WTO rules, one possible solution put forward is that the UK and EU agree specific tariff rate quotas. These would effectively cover historic trade between the Republic of Ireland and the UK.
“This would help to safeguard existing cross-border trade between NI and the Irish Republic as well as NI-EU trade as tariffs would be reduced dramatically, potentially to zero,” states the report.
Finally, as a last resort, the example of Cyprus is used. The island is in the EU, but only the southern part is recognised as being in the single market, with the northern part (Turkish Republic) operating as a separate state. Goods produced in the northern state can move south and vice versa, but imports into Cyprus cannot be traded across the internal border.
Under such a model, NI or UK beef and sheep meat could only be sold into the Republic of Ireland and not the remainder of the EU. A reciprocal arrangement could work in the opposite direction. The report describes the arrangement as “functional, but clearly not ideal”.
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A research report prepared for the Livestock and Meat Commission (LMC) by farm business consultancy The Andersons Centre with support from Oxford Economics, has highlighted the costly, and potentially devastating effect of “no deal” post-Brexit on the NI beef and sheep sector.
The 123-page report looks in-depth at what might happen if the EU and UK fail to agree a trade deal, with the UK reverting to trading under World Trade Organisation (WTO) rules. Two scenarios are explored:
WTO equivalence, where the UK and EU impose reciprocal tariffs on each other’s imports based on current arrangements.A unilateral “open-door” trade policy, where the UK reduces its tariffs on imports but without any reciprocal agreements in place.The analysis, and outcomes produced, are broadly similar to that published in August 2017 by economists at AFBI, who also highlighted the damage done to a number of sectors if the UK allows in cheap food imports, tariff-free, post-Brexit. The LMC analysis builds on that work, but specifically looks at the beef and sheep sector in NI, with baseline data gathered from local beef and lamb processors.
It shows that beef cuts account for 86% of total NI sales, with lamb cuts and carcases making up only 6% of sales. That reflects the fact that nearly half of lambs in NI go to the Republic of Ireland for processing.
Also, the figures include a substantial trade in carcase beef from the Republic of Ireland for further processing in NI. A number of secondary processors in NI rely almost exclusively on sourcing carcase beef from the south, with imports estimated at 49,000t per annum. These secondary processors are badly exposed if WTO tariffs are applied to these imports post-Brexit.
Possible tariffs
The extent of possible tariffs is also detailed in the report, and again highlights the high WTO tariff wall applied by the EU. Based on 2016 prices, tariffs on fresh lamb cuts are 49%, on fresh boneless beef 86%, and on beef carcases, they work out at 96%. Only on the likes of beef offal are tariff rates set at zero.
As an example, NI rump steaks valued at £7/kg would have a tariff applied of 12.8% + €303.4 /100kg, which is a tariff of around £3.60/kg, leaving these rump steaks priced at £10.60/kg to an EU importer. Current EU tariffs render the majority of NI beef and lamb exports uncompetitive. Under both trade scenarios, NI exports outside of the UK collapse.
On top of the WTO tariffs are non-tariff barriers such as customs checks and additional official controls, which could add up to £10m per year in costs for NI beef and sheep processors looking to do business outside of the UK post-Brexit.
The other main issue of concern for processors around Brexit is access to labour, with around 65% of the workforce in beef and lamb processing EU nationals, with the remainder from Britain or Ireland, and only 0.1% from non-EU countries. The report notes that significant restrictions on EU labour post-Brexit could add 10% to recruitment costs, result in higher staff turnover, and possibly also lead to wage inflation. Some processors could even consider moving operations outside of NI.
In the study, a model was used to assess the effect of WTO trading under the two scenarios – WTO equivalence and WTO liberal trade.
The findings under the WTO equivalence scenario, where both the UK and EU fall back to WTO tariffs to trade post-Brexit, are similar to those highlighted by AFBI economists last month.
Both UK imports and exports of beef and lamb would collapse. As the UK is only 75% self-sufficient in beef, there is an opportunity for NI to displace imports in the British market.
Beef prices would rise, although farmers could face higher input costs, and would still be heavily dependent on farm support payments to maintain profitability.
Higher prices
The report authors also note that as a result of Brexit, “serious questions remain as to whether UK consumers and taxpayers would be willing to tolerate higher food prices”.
In terms of NI beef processing, the effect of moving to WTO trading is potentially more damaging.
Total output might be up in the short-term (due to higher prices in the British market), but longer-term output would decline as processors would not have access to live imports or carcase beef from the Republic of Ireland to supplement their operations.
Sheep
In sheep production, the picture painted is more pessimistic than beef, as it is a sector heavily dependent on exports to drive prices.
While WTO tariffs effectively stop UK lamb exports, it is assumed that New Zealand lamb imports will continue free of tariff (currently 228,254t per year to the EU) after Brexit.
Key to that assumption is understanding the history of New Zealand tariff-free imports into the EU, which were negotiated by the UK on joining the EEC in 1973.
The report authors predict that farmers, particularly in the lowland, could switch from lamb to beef under this scenario.
Liberal trade
Under the liberal trade scenario, where the UK abolishes tariffs on all imports (a cheap food policy), but must pay WTO tariffs on exports (including to the EU), the inevitable consequence is a big reduction in NI beef and sheep exports (down 79%).
Imports from the EU into the UK also take a hit, and are replaced by low-cost, non-EU countries. Overall, it has a devastating effect on NI beef and sheep producers, and would lead to major restructuring at farm level.
In light of the concerns highlighted by industry, the report authors recommend that the UK should remain in the EU single market and customs union for at least five years post-Brexit.
That would provide certainty for business, including around access to labour, and give more time for a long-term arrangement with the EU to be worked out. During this interim period, the authors suggest a mid-way review, to examine progress in implementing arrangements.
Other recommendations include various Government departments, including Defra and international trade, working together to develop a long-term strategy for food and farming. Also, both departments should be doing more, at present, to open up new markets for NI (and UK) beef and lamb.
After Brexit, assuming that NI is outside the EU single market and customs union, the report authors float the idea that inspections of goods either coming from, or exported to the Republic of Ireland be conducted at meat plants or collection centres (for live cattle), rather than a border post.
Solution
However, if there is no trade agreement, and the UK and the EU must trade under WTO rules, one possible solution put forward is that the UK and EU agree specific tariff rate quotas. These would effectively cover historic trade between the Republic of Ireland and the UK.
“This would help to safeguard existing cross-border trade between NI and the Irish Republic as well as NI-EU trade as tariffs would be reduced dramatically, potentially to zero,” states the report.
Finally, as a last resort, the example of Cyprus is used. The island is in the EU, but only the southern part is recognised as being in the single market, with the northern part (Turkish Republic) operating as a separate state. Goods produced in the northern state can move south and vice versa, but imports into Cyprus cannot be traded across the internal border.
Under such a model, NI or UK beef and sheep meat could only be sold into the Republic of Ireland and not the remainder of the EU. A reciprocal arrangement could work in the opposite direction. The report describes the arrangement as “functional, but clearly not ideal”.
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