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Independent.ie

Thursday 27 April 2017

Analysis: A British 'cheap food' policy could prove very costly for Irish beef producers

Weanling Bull Sales in Elphin. Keeping an eye on things at the mart. Photo Brian Farrell
Weanling Bull Sales in Elphin. Keeping an eye on things at the mart. Photo Brian Farrell

Thia Hennessy

Almost half of the food that is consumed in Britain is imported from abroad.

The sharp fall in the value of sterling since the Brexit referendum last June, down 18pc relative to the dollar, has made imported products to the UK, including food, more expensive.

Recent data from Kantar show that grocery inflation jumped to a three-year high of 1.4pc in the 12 weeks to the end of February. Some food products were particularly adversely affected such as butter with a 15pc price increase and fish up 8pc.

Is food price inflation really a worry for a developed nation like Britain you may ask? The answer is yes.

Professor Thia Hennessy of Chair of Agri-Food Economics at Cork University Business School and Head of the Department of Food Business and Development UCC. Pic Michael Mac Sweeney/Provision
Professor Thia Hennessy of Chair of Agri-Food Economics at Cork University Business School and Head of the Department of Food Business and Development UCC. Pic Michael Mac Sweeney/Provision

Nearly one-third of the British population, or 19 million people, are living below the nationally-recognised minimum income standard, according to research by Loughborough University. Furthermore, British charity, the Joseph Rowntree Foundation, claim that the price of a minimum "basket of goods" has risen by almost 30pc since 2008, while wages have risen by less than half that amount, pushing an additional four million people below the income benchmark.

Food poverty is not a concept we would normally associate with a developed Western European country like Britain, yet data from the UN suggested that one in 10 adults in Britain suffered moderate levels of food insecurity in 2014, placing Britain in the bottom half of European countries.

So is food price inflation, food poverty and insecurity in Britain something that should worry us in Ireland? The answer is yes.

Food poverty is likely to be a growing issue of concern for the British government and may shape post-Brexit policy.

Prime Minister Theresa May, in her Tory leadership speech last year, referred to JAM - Just About Managing - families. She said that making the lives of those families that are struggling to make ends meet easier was her "top priority".

One would presume that when Article 50 is triggered and Prime Minister May embarks on post-Brexit policy design, that tackling food price inflation will be high on her agenda in making life easier for JAM families.

The greater the emphasis on food poverty in the UK, the greater the concern that Britain may pursue a so-called "cheap food" policy post Brexit or revert to the "cheap food" policy it operated before joining the EEC in 1973.

Tariffs

Up to now as a member of the EU and the customs union, the UK was bound by a common external tariff, meaning that goods imported from outside of the EU were subject to a tariff or trade tax.

Tariffs that are applied to goods entering the EU make them relatively less competitive and, other things being equal, keeps the European price of that good high.

While there are still many uncertainties about the future of Britain's trade policy, in her Brexit speech last January, May confirmed that she did not want Britain to be bound by the common external tariff.

In other words, she wants Britain to be free to independently negotiate trade deals with non-EU countries. So what shape might those trade deals take?

With increasing concerns about food price inflation and food poverty, the British government may well decide to apply much lower tariffs on food imports than it currently does as an EU member.

This would allow food to enter the British market at a lower tariff and thus reduce food prices, good news for the British consumer, not such good news for the Irish producer trying to compete on that market.

Taking beef as an example, about one-third of the beef that is consumed in Britain is imported. The dominant supplier is Ireland, currently supplying almost 70pc of imported beef.

Under current trade arrangements beef imports entering the EU and Britain (from non-EU countries) are subject to a tariff at a rate of almost 50pc of the value of the product, while beef can flow from Ireland to Britain tariff-free.

This seriously hampers the ability of non-EU countries to compete on the European beef market. Large beef exporting countries like Australia, the US and Brazil are low-cost producers of beef, which would mean their beef would be competitive on the UK market, even after shipping costs are taken into account, if the tariff was reduced or removed.

This may result in a reduction in the demand for the relatively more expensive Irish beef product, even under a continued free-trade agreement between Ireland and Britain, and, other things being equal, an overall reduction in beef prices for British consumers.

There are still many unknowns about future British trade policy. While a "cheap food" policy may be populist by reducing the price of burgers and steaks for the consumer, such a policy may be as damaging to the British farming sector as to the Irish beef exporter. Farmers in Britain are already faced with the uncertainty of the future of farm support. There is still no clarity on whether the British government will continue to support farm incomes to the same extent as the Common Agricultural Policy has done.

Prime Minster May will have two years from the date Article 50 is triggered to negotiate exit from the European Union. Balancing the needs of the 'Just About Managing' families and farm families may be her greatest challenge.

Thia Hennessy is Professor and Head of Food Business and Development at University College Cork


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