While the wrangling between the EU and UK on the Northern Ireland Protocol dominated last weekend’s G7 summit in Cornwall, it is the announcement this week of a UK-Australia trade deal that makes the most ominous reading for Irish farmers.
This is because the deal gives unlimited access for Australian beef and sheep meat to Ireland’s largest export market, while the UK retains full access to Ireland’s second most important export market, the EU. It is less of an issue for dairy and tillage as Australia isn’t as big an exporter in those areas.
Access and quotas
This is a particularly liberal approach by the UK in granting access. In the EU-Japan trade deal, access for EU agri produce was granted over a prolonged period as the UK and Australia will do, but on a reduced tariff (9%) basis as opposed to zero tariff as is the case with Australia and the UK.
Furthermore, the EU has a 7.5% tariff and a 99,000t quota on product entering the EU from the Mercosur bloc if a trade deal between the two entities is ratified. The UK on the other hand has included no restrictions on Australian exports, leaving the door open for whatever quantities of Australian produce the market decides.
This size of the market will depend on what is happening in wider global markets, where Australia along with New Zealand accounts for 70% of all sheep meat traded, divided equally between them.
On beef, Australia, along with Brazil and the US, is one of only three countries that exports over 1m tonnes of annually. Therefore, despite the distance from the UK, Australia has the potential to be major suppliers of both beef and sheep meat.
What Irish farmers should note that it isn’t British beef or sheep meat that they expect to displace in the UK market – the Australians see themselves as competing directly with other exporters. With Ireland supplying 80% of UK beef imports at present that puts Irish farmers directly in the firing line.
Cattle prices and trade
Australian beef prices are at an exceptional high at present due to herd rebuilding over the past year following drought. This means that the amount of beef exported has declined, standing at 931,090t in the year to the end of May 2021. However, as herd rebuilding progresses, supply and exports will increase in the coming years.
It is convenient that supply is restricted at present given the political tension with China which has led to a dramatic fall in trade. Australian exports to China for the year ending May 2021 are down a massive 51% to 152,864t. This hasn’t had a negative effect on prices but further disruption has the potential to cause Australia to look beyond China to the UK, especially with the favourable trade deal.
The exposure of Irish, EU and indeed British farmers to Australian trade is best reflected at present in the comparison with sheep meat prices. Bord Bia’s most recent price reported for Australia is €4.80/kg – some €2.56/kg below the €7.36/kg that was paid in Ireland in the first week of June.
Unlike New Zealand, which already receives a favourable 228,000t tariff-free quota from the EU and UK combined, Australia has just a 19,186t sheep meat quota for UK and EU exports.
The knock on effect of this access is likely to be an increase in UK exports of sheep meat to EU markets. This is because the UK is already the third largest exporter of sheep meat in the world after Australia and New Zealand, sending almost 80,000t in 2020 to EU countries, according to the Agriculture and Horticulture Development Board (AHDB). With unlimited access to EU markets provided for in the EU/UK trade agreement, this is likely to increase if British farmers face increased competition from Australian imports.
This trade deal is effectively the point of no return for the UK and the EU trade hub. When the UK joined the then EEC in 1973, they brought with them a huge 228,000t sheep meat access quota for New Zealand. The UK will now be locked into unlimited access for Australia meaning that it is impossible for a future UK government to unwind this and re-impose restrictions if a future UK government wanted to re-join the EU.
Additionally this is the level of access that will be the starting point for all the other major exporters negotiating with the UK, including New Zealand with whom a deal is likely to follow quickly. It will be the same with the US and Mercosur countries in time too.
For Irish farmers that means export prices will progressively become more and more dictated by global prices, as not only to the UK but the EU as well, given the unlimited access UK exports have to the EU.