While a no-deal Brexit has serious consequences for the Irish economy, agriculture would be particularly badly hit with a 350kg beef carcase being liable for a €780 tariff under World Trade Organisation (WTO) rules.

Calculation

This is calculated using a formula that is based on the carcase weight and value. WTO tariffs on carcase beef are calculated at a rate of €1.768/kg plus 12.8% of value.

Therefore based on average carcase weights for 2018, an R3 Irish steer would carry a tariff of €618.80 at the rate of€1.768/kg plus another €165.76 based on the R3 steer value of €3.70/kg (excl VAT). This brings the total tariff applicable for a 350kg R3 steer exported to the UK in a no-deal Brexit to €780.

Cheddar from Ireland to Britain would attract a tariff of €1,671/t on a product currently worth €3,000/t increasing its cost to €4,671/t with full WTO tariff applied

Based on the average price for a 350kg R3 steer for week ending 8 January the carcase would be worth €1,295 on the market but after a no-deal Brexit with WTO tariffs applied the cost of this carcase would increase from €1,295 to €2,079. Given that the UK imports around a quarter of its beef requirement, this would drive serious food inflation and it is likely that the UK would take steps to mitigate this.

Live hoggets coming to southern factories from the north would attract a tariff of 80.5c/kg liveweight, adding an extra cost of €38.64 (£34.23) to a typical 48kg liveweight hogget. Cheddar from Ireland to Britain would attract a tariff of €1,671/t on a product currently worth €3,000/t increasing its cost to €4,671/t with full WTO tariff applied. Pigs going north for processing would attract a tariff of 41.2c/kg on their liveweight.

Tariff rate flexibility

One option for countries trading under most favoured nation status with other countries is that they can set tariffs at whatever level they choose. The catch in this is that they cannot be selective in applying this tariff to chosen countries, it must be applicable to all comers.

If they were to take the extreme measure of reducing tariffs on UK beef imports to zero it would bring the major South American exporters into the picture and decimate the value of the British market for Irish exporters and indeed domestic UK production as well.

Even though it would continue to command a premium, the base would be much lower than it is at present with Irish beef being the preferred import of UK customers.

South American supply

In 2018, Brazil, Argentina and Uruguay supplied three quarters of all beef imported into the EU.

It is reasonable to assume that they would be the leading countries in targeting the UK post-Brexit, especially if the UK decided to eliminate tariffs to give consumers a cheap food dividend as suggested by many campaigners for Brexit in the UK.

The current value of an equivalent carcase to an R3 steer in Brazil is €2.16/kg (Bord Bia), €2.62/kg in Uruguay (Bord Bia) and €2.11/kg in Argentina (World Beef Report). At these prices, the UK market would be dramatically devalued to Irish beef exports and domestic UK production.

Price impact

If there was strong demand from the UK for South American imports, it would no doubt lift that market to some extent but unlikely to be anywhere near current Irish prices.

If this product was competing head to head for the 298,000t of Irish beef that was exported to Britain in 2018, it is easy to visualise a hit on present Irish prices of anywhere between 50c/kg and €1/kg or a hit of between €175 and €350 per head based on a 350kg carcase.

It would be a full-blown crisis for the Irish beef sector, particularly as current price levels are far from adequate for farmers.

UK thinking

Both these examples refer to the use of WTO tariffs at either extreme.

While the political situation in the UK is extremely fluid at present, the National Farmers Union have been lobbying hard against fully opening the UK to global supplies.

The government has to strike a balance between protecting consumers from food price inflation, and farmers and the industry from market collapse. Additionally, the UK has ambitions to negotiate trade deals post-Brexit and Mercosur is a likely target.

The bottom line is that trading under WTO terms has the potential to price Irish beef out of the British market or devalue that market to the point that it isn’t viable to supply it

In order to have something to negotiate with, the UK may choose to create a limited tariff free quota and perhaps a reduced tariff for non-quota product.

The EU for example accepts South American product under the Hilton Quota which carries a 21.5% tariff.

Standards

A further issue is what position on standards does the UK adopt post-Brexit. Certainly, the minister with responsibility for agriculture Michael Gove has emphasised no reduction in standards of imports so this may mean that there would be an approval process. Similarly, there is the issue of how supermarket and burger chain customers would react having focused exclusively on British and Irish supplies to date. It is likely that the wider food service sector would be receptive to South American supplies if they are available at an attractive price.

The bottom line is that trading under WTO terms has the potential to price Irish beef out of the British market or devalue that market to the point that it isn’t viable to supply it.

It has similar consequences for pigs going north for processing or sheep and milk coming south.

There is no such thing as a good Brexit for farmers in Ireland or the UK, unless there is alignment with customs and single market rules.