UK: House of Lords Presents “Enormous” Challenges in Brexit Report
03 May 2017 --- A House of Lords report into Brexit strips down the mix of opportunities and challenges facing the UK’s agricultural and food sectors which is says, are getting mixed messages from the government – and one of the most striking aspects of the report is the fact that up to 97% of food and drink exports from Britain could be at risk.
The much anticipated House of Lords report has today (May 3) been published and lays bare the UK’s current huge over reliance on local EU markets, or at least the Single Market.
However, once the UK leaves the EU, Theresa May has already signalled that it will also leave the Single Market, which means a whole myriad of new trade deals need to be negotiated – and it’s the detailed terms of these deals which are causing so much speculation and concern.
The worry is that negotiations between the UK government and the EU are strained and failing to reach a robust exit deal that goes in the favor of British industries, will hit multiple sectors extremely hard.
Industries could be looking at a future filled with complicated processes, high tariffs, and border controls. Meanwhile, the British government claims to be investigating a whole host of new opportunities in other international export markets, but there is such a lack of clarity on so many issues, speculation continuously mounts as to what Brexit will actually mean for those in the UK agri-food sectors and exporters currently over reliant on exporting within the European Union.
Today’s Lords report on the implications of Brexit details this high dependency and includes comments and evidence given by a range of industry professionals.
On average around 80% of Britain’s agricultural exports go to the EU, while according to evidence given by the Food and Drinks Federation to the Lords report, “the overwhelming majority of trade (over 70 per cent of exports and vital imports) is with EU member states—and 94% of imports and 97% of exports are with countries with which the EU has negotiated an FTA”.
How could it impact ingredients and the Irish border?
The broader issue of supply chains present a unique challenge on the island of Ireland, according to the report.
Noel Lavery, Permanent Secretary of the Department of Agriculture, Environment and Rural Affairs (DAERA) in Northern Ireland, tells the Lords: “The level of North/South integration in production/processing chains is considerable. Many agri-food businesses are structured and operate on a cross-border basis. This made them especially vulnerable to the imposition of customs controls and tariffs.”
Ian Wright, Director General of the FDF, gave an illustration: “If you take one example—a bottle of Baileys Irish Cream—one in five cows in Ireland produces the milk and, if you are a Northern Irish cow, your milk crosses the border five times before it goes into the bottle. The idea that that would be subject to tariffs hither and yon is really very scary.”
Speaking to FoodIngredientsFirst recently, the Kerry Group’s new Taste and Nutrition Division President and CEO of Europe, Malcolm Sheil, explained how the company has already done much work planning for Brexit.
“When it comes to Brexit, we obviously have quite a large footprint in the UK. We have a global supply chain as well and are very used to sourcing different raw materials from around the world,” Sheil says. “We have done a huge amount of scenario work on our customers’ current business and how to help them through this period of uncertainty and post-Brexit. We are confident that we are very well positioned to be able to maneuver as required, depending on what the outcome of Brexit is. That is both for supplying back into the UK and for manufacturing in the UK and exporting back into mainland Europe,” he adds.
Similar concerns surround other raw ingredients like flour and how Brexit will impact on the bakery sector.
The National Association of British and Irish Flour Millers (Nabim) has raised similar concerns for the cereal industry, highlighting the “significant volumes” of trade with the EU: “This trade (whether imports or exports) would not be maintained if tariffs were imposed. Therefore the health of the cereals sector on both sides of the channel depends on the retention of tariff free trade between the UK and the EU 27 once we leave the Union.”
The dairy industry also has major concerns over the increase in costs concerning imports into the UK, as does the UK meat industry.
The British Meat Processors Association (BMPA) cautioned that beef exports would also be at a disadvantage: “In most cases, [the EU] tariff equates to an addition of 50 per cent or more to the value of imports, which seriously impacts on the ability of imported beef to compete with EU meat.” As for pigs: “The high level of tariffs effectively means that most non-EU pork is uncompetitive on the EU market.””
The Common Agricultural Policy (CAP) is the agricultural policy of the European Union which was introduced in 1962 and has undergone several changes since then to reduce the cost (from 71% of the EU budget in 1984 to 39% in 2013) and to also consider rural development in its aims.
According to the report, CAP has played a fundamental role in regulating and supporting UK agriculture since the UK joined the then European Economic Community and has helped in facilitating free trade in agrifood products within the EU Single Market.
Many UK farmers rely on CAP funding to sustain their businesses, while wider rural communities also benefit from agri-environment schemes, rural investment and the sustained agricultural production in often remote areas.
However, CAP has come in for a lot of criticism over the years, often focused on how bureaucratic it is. On top of that, some in the agricultural industry believe CAP financial support has been misdirected and ineffective, therefore Brexit presents a real opportunity for the UK to review and adopt a policy for food and farming which regulates and supports the agricultural sector effectively, and which is tailored to the UK’s unique farming landscape, says the report.
Talking specifically about the trade of agri-food products, the report says that once the EU framework has been scrapped and Britain is outside the EU, the UK must develop its own external tariffs. It is entirely possible the UK will be subject to higher external tariffs, “to the detriment of UK farmers and food manufacturers—unless a preferential trade agreement is agreed.”
“The UK may also face non-tariff barriers when exporting agriculture and food products to the EU, resulting in delays at ports and additional administrative costs. Both tariff and non-tariff barriers could disrupt integrated supply chains between the UK and the EU, and pose a particular challenge for the agri-food sector in Northern Ireland,” it adds.
“As it negotiates new trading relations with the EU and the wider world the Government will need to balance complex interests. It will need to secure a fair deal for farmers and maintain high standards for agricultural products in the UK, including farm animal welfare, while delivering affordable food to consumers and complying with WTO rules.”
The report says the Government is currently giving “mixed messages” to the agricultural sector.
“Its vision for the UK as a leading free-trade nation with low tariff barriers to the outside world does not sit easily with its declared commitment to high quality and welfare standards in the UK farming sector. Combining and delivering these two objectives will be a considerable challenge,” it adds.
“Agricultural policy therefore cannot be seen in isolation from trade. The terms of future free trade agreements will affect or limit domestic policies on regulation, funding and farming standards, while those policies may in turn determine which countries UK products can be sold to.”
UK-EU trade will be subject to customs checks and controls to ascertain that products are of a satisfactory standard once the UK withdraws from the customs union.
The report cites one example, given to the committee by Professor Alan Swinbank, to illustrate the potential challenges ahead in terms of border and customer checks.
“One thinks of the port of Dover trying to cope with products coming in and coming out. If we have to start checking microbiological contamination of chicken carcasses coming from the Netherlands, for example, those tests can take several days and the product wastes in that period.”
Equally, the Agricultural and Horticultural Development Board (ADHB) has also raised concerns over the possible delays and ports and other entry points for perishable goods like fresh fruit and vegetables as well as meat.
The UK agri-food sector accounted for 7.2% of the national Gross Value Added (GVA) in 2014, or £108 billion (US$139 billion) in total, within which agriculture accounted for £9.9 billion (US$12.7 billion). In 2014 the agricultural workforce consisted of 429,000 people, and the utilized agricultural area (UAA) amounted to 71% of land in the UK. The food manufacturing industry is also an inherent part of the UK agri-food sector, accounting for £26.9 billion (US$34.7 billion) of GVA in 2014 and employed 381,000 people.
By Gaynor Selby
