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The EU-UK Trade and Cooperation Agreement (TCA) avoided the cliff-edge of a no-deal Brexit, but it has reimposed friction on trade between the UK and the EU, as well as between Britain and the island of Ireland. This has major implications for both the UK and Irish agri-food sectors.
This article examines some of the key challenges which have arisen from a British agri-food perspective and explores ways in which these issues could be addressed to achieve a “steadier state” in the long-term EU-UK relationship.
Table 1 gives an overview of the UK’s production and exports for a selection of agricultural commodities.
Exports to Ireland have been split from exports to other EU member states. Non-EU exports are also shown, as are overall UK self-sufficiency estimates.
Unsurprisingly, exports to the EU are dominant across all commodities. They are most prevalent in sheepmeat, where just over one-third of UK output is exported; 95% of which is to the EU.
Exports to the EU are also important in other commodities, particularly for pork and poultry where carcase balancing plays a key role.
The UK produces a significant surplus of barley and 88% of exports are to the EU. Wheat exports are down on historic levels (normally two million tonnes per annum) and the EU is again the dominant destination.
Trade and Cooperation Agreement (TCA) Implications
The announcement of the TCA came as a relief to most British farmers as it meant that tariff-free and quota-free trade could continue for eligible products.
The notable exception is seed potatoes; particularly important in Scotland, due to the EU’s ban on imports from third countries (including Britain).
This highlights that tariff-free trade is not barrier-free trade and the TCA brings a whole plethora of regulatory hurdles that must be overcome.
Within the EU, Britain could trade with other member states with minimal difficulty.
Although the TCA does not impose tariffs and quotas for products eligible for free-trade, non-tariff measures (NTM) – barriers, particularly customs, sanitary and phytosanitary (SPS) regulations and rules of origin requirements, are now significant.
The ending of free movement will also influence UK farming’s competitiveness, particularly as the new Seasonal Agricultural Workers’ Scheme (SAWS) only offers 30,000 places but the seasonal labour requirement for UK agriculture is estimated at 80,000.
Dispute settlement may also pose problems given the nature of the level playing field rules, as an undercutting of environmental standards, for example, could bring about retaliatory tariffs in agricultural trade.
Non-tariff measures (NTM) costs are the most problematic.
In previous studies, Andersons has identified 25 to 30 additional categories of NTM costs which are now applicable on UK exports to the EU. These NTM cost estimates are summarised below, both on a probabilistic basis (average over 100 loads) and on a checked-load basis, the so-called “unlucky load” that is subject to the full range of regulatory checks and delays.
For unlucky loads, NTM costs can surpass 25% for red meat and dairy. They can be as high as 50% for poultry meat and up to 100% for composite meats and highly perishable fruit and vegetable products.
Here, value deterioration brought about by delays due to physical checks and sampling account for the majority of costs.
On a probabilistic basis, although costs decline substantially, given the thin profit margins in many agri-food categories, their effect is still highly influential and will create pressure on prices at both the farm and consumer levels.
Arguably, the impact on SMEs is even more pronounced as they ship fewer loads and will have less scope to absorb the prohibitive costs of an unlucky load.
British exporters only had one week (over Christmas) to prepare for the TCA’s introduction as border controls became effective across the EU from 1 January.
Many were simply unprepared for the barrage of red-tape which has ensued.
Some exporters have reported delays of a day or more and while this is settling down to a degree, several agri-food traders have experienced NTM costs more akin to unlucky loads than the anticipated average.
Unsurprisingly, this has had an impact on trade as illustrated by the latest UK’s Office for National Statistics (ONS) data, released on 12 March.
Customs declarations are now a fact of life for UK-EU trade, as are rules of origin
It shows that exports of food and live animals to the EU are down by nearly 64% in January vis-à-vis December 2020. However, these statistics need to be treated as the sharp recovery in February suggests.
A significant amount of stockpiling took place in December as traders prepared for the ending of the transition period.
Many British traders deliberately chose not to send shipments to the EU in early 2020 as they waited to see how the Border Control systems would cope.
Furthermore, seasonal trade in agri-food tends to dip during January to March. Therefore, it is likely to be April before a definitive answer emerges as to how much UK agri-food exports to the EU have changed as a result of the TCA.
Despite claims that the challenges experienced since January are mainly due to “teething problems”, it is clear that many of the new regulatory requirements are permanent fixtures.
Customs declarations are now a fact of life for UK-EU trade, as are rules of origin.
Although improvements can be made in these areas, their benefits will be marginal.
The area with greatest potential to alleviate friction on UK-EU (and Britain to NI) trade is SPS regulation.
Notwithstanding any new veterinary agreement, agri-food supply-chains will still need to adjust to the changed trading relationship.
Mixed-product and groupage loads will become less common. Instead, export shipments of single product loads (eg boneless beef) will be dispatched to a single EU destination, where any additional processing that is required will then be undertaken.
Traders will need to carry increased contingency stocks to negate the effect of regulatory checks and ensure that all products shipped meet key rules of origin requirements (eg =85% of shipments by weight qualify for preferential trade with the EU).
Therefore, it is likely that agri-food trade between the UK and the EU will decrease somewhat.
Given the geographic proximities involved, trade volumes at a commodity level (eg carcase beef, lamb) will still be significant and close to historic levels.
However, there may be less scope for value adding, with more processing being undertaken at the destination.
Undoubtedly, a UK-EU veterinary agreement running alongside the TCA would significantly reduce border friction both on UK-EU trade and Britain-NI trade. But it will not remove friction completely. To allay the issues which have emerged in Northern Ireland, a further de-dramatisation of border controls will be required.
One way of approaching this is for products where Britain continues to align with the EU on standards and where shipments are undertaken by “authorised” (trusted) traders, deemed to present a minimal risk to the Single Market, undertaking regulatory checks away from the Border Control Posts (BCPs) could be considered.
Addressing NI Protocol issues requires flexibility, integrity and maturity on all sides.
Recently, these qualities have been in short-supply. Both sides must do better.
History has taught us that it is futile to continually re-run old feuds. A re-setting of the UK-EU relationship, akin to the New Decade, New Approach Deal to restore the Northern Irish Executive, is badly needed.
There are three potential veterinary agreement templates that the EU and the UK could follow:
1. Swiss-style: this is based on a Common Veterinary Area between Switzerland and the EU. Effectively, Switzerland follows the EU’s regulatory controls for trade in animals and animal products and Swiss legislation needs to move in lockstep with EU regulations. In return, eligible produce can move freely between Switzerland and the EU. Implementation is managed by a joint veterinary committee. While Switzerland can engage with the EU when legislation is being drafted, it does not have any voting rights on its adoption. Several UK farming bodies have expressed their preference for a Swiss-style agreement.
2. NZ-style: this agreement recognises NZ and EU standards as being equivalent but does not require further alignment. NZ meat products entering into the EU are only subject to 1% physical checks and not the default of 15% or 30%.
3. Canada-style: under CETA, equivalence was granted to Canada when exporting animal products such as beef and poultry meat into the EU, but subject to physical check rates of 10% . While better than the default levels of checks, a Canada-style deal would only have a limited impact on border friction.
Given the UK government’s stance, it will not countenance a Swiss-style agreement as it would breach its “sovereignty” red-line. The UK is rumoured to be pursuing an NZ-style veterinary agreement. However, the EU has concerns, given Britain’s proximity to, and volume of trade with, Europe and its openness to regulatory divergence.
Given the UK government’s stance, it will not countenance a Swiss-style agreement as it would breach its “sovereignty” red-line
Accordingly, a UK-specific type of veterinary agreement is likely to emerge.
This could start off with default physical check rates akin to, but not quite as favourable as, New Zealand’s, with scope to revert back to default check levels, if the UK diverges in key areas (eg accepts hormone-treated beef) – effectively an extension of the level playing field concept in the UK-EU TCA.
Michael Haverty, partner at The Andersons Centre.
Michael Haverty is a partner at UK agricultural and farm business consultancy The Andersons Centre www.theandersonscentre.co.uk.