In her speech last Friday, UK Prime Minister Theresa May indicated for the first time that Brexit wouldn’t be plain sailing and correctly identified the big issues. She also indicated a number of areas where the UK would align with the EU and went on to explain how she wanted an associate-type membership of major institutions around aviation and medicines. On the issue of customs, she is open to a partnership and mutual cooperation, but emphasised that she will not be part of a customs union.

WTO terms

It is this latter point that is crucial for Scottish beef and sheep farmers. We have frequently analysed how a default to WTO trading terms would impact Scotland, but at least it would create a short-term opportunity for Scottish producers to sell in an undersupplied market, though this would present a problem for sheep meat exports.

However, it is likely that the UK has no ambition to drive food prices up to levels comparable with Switzerland and Norway, two wealthy countries that consume more agri food products than they produce – they protect their internal production with generous subsidy and very high tariff walls. As access to cheaper food is one of the ambitions and campaign lines of those in the UK advocating leaving the EU, it appears that the UK is determined to open its market to free trade with more than its previous EU colleagues.

Target countries for trade deals

In a previous high-profile speech over a year ago, the Theresa May ticked off a series of countries she had in mind for trade deals once outside the EU. These included the USA, India, Brazil, Australia and New Zealand – all of which are among the top exporting agri food countries in the world. If the UK will leave any customs arrangement that doesn’t allow it do its own thing in trade discussions, then farmers will be exposed to competition from these countries.

Offensive and defensive interests

The ongoing negotiations between the EU and Mercosur, as well as last year’s EU Japan deal, are good examples of the likely outworking of a future UK trade negotiation. In all trade negotiations there are what are described as offensive and defensive interests. Offensive interests are the products a country or region wants to sell to whoever is the on the other side of the negotiation, whereas defensive interests are products that they will have to accept in return – these will impact on their own production.

Difference in UK and EU interests

Using beef as an example, in discussions between the EU and Japan it was an offensive interest for the EU because the EU is an exporter, while Japan isn’t self-sufficient in beef, though it is protective of its farmers and therefore it was a defensive interest for it.

The opposite is the case with the Mercosur negotiation. In this case, beef is a defensive interest for the EU, but a huge offensive interest for Mercosur. EU beef producers are horrified at the thought of conceding access for 100,000t of beef, while that amount is just half of what Mercosur want. Returning to the UK in a post-Brexit scenario with it outside the EU customs umbrella, its target countries for a trade deal all have offensive interests when it comes to agricultural products, particularly beef and sheep, while the UK has no real defensive interest as it is a net importer.

It is very logical that the UK would quickly trade access for agri products in return for its offensive interests in manufacturing and financial services.

Standards

One area that remains somewhat grey is the stated commitment by the UK to retain or enhance EU standards for production, welfare and the environment. In theory, if it insisted on these basically no country in the world would qualify to supply as the EU is the global benchmark in each of these categories. However, in practice the EU has accepted imports from around the world so it is foreseeable that the UK would do the same.

Attraction of UK market

The UK is an extremely lucrative beef market that annually imports over 350,000 tonnes. With prices under the equivalent of £1.90/kg in South America and around the equivalent of £2.70/kg in Australia, tariff-free access to the UK would make it an exceptionally attractive market for these countries. In the process, Irish beef would immediately come under pressure as the preferred imported product, with these alternative suppliers setting a base price. Scotch PGI has traditionally commanded a premium over Irish, and indeed wider UK red tractor branded beef, but if there was widespread access for South American and Australian, any premium would be on top of a lower base.

The UK making trade deals outside of the EU confines risks causing real damage to agriculture, particularly beef and sheep, as identified in the recent SRUC report. The UK, particularly Scotland and Wales, is a huge exporter of sheep meat to the EU, particularly France and Belgium. If this is blocked by a WTO tariff then there is potential for a perfect storm, with access granted to a saturated UK market for the likes of Australia and New Zealand in a trade deal with the UK.

The Brexit debate has long since ceased being about economics and is now very much political between the EU process and principle, meeting the UK’s wish for autonomy and independence. A free trade agreement can be concluded, which will suit many industries in the UK but not farmers, particularly those in beef and sheep. Farmers will be hoping that we haven’t heard the last word on a customs union membership just yet.