Alan Matthews: The Brexit timebomb is ticking for farmers

Most attention has been focused on the Northern Ireland backstop, but the provisions of the current Withdrawal Agreement between the UK and EU are equally important

Sheep on the streets: A flock of sheep are herded past government buildings in Whitehall, London during a Farmers for a People's Vote protest last month. Photo: Yui Mok/PA Wire
Sheep on the streets: A flock of sheep are herded past government buildings in Whitehall, London during a Farmers for a People's Vote protest last month. Photo: Yui Mok/PA Wire

Alan Matthews

Brexit politics are still in turmoil, but assuming that the referendum outcome is not reversed, there are only two options to consider for businesses in the agri-food sector. Either the UK leaves the EU with a deal in an orderly Brexit, or it crashes out without a deal in a disorderly Brexit.

The current deadline for this binary choice is October 31. While this date may change depending on UK political developments, this will not alter the potential outcomes. From an Irish perspective, the UK leaving with a deal is a vastly preferable alternative.

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Although it has been voted down in the House of Commons on three occasions under the former premiership of Theresa May, the Withdrawal Agreement negotiated with the UK in November 2018 remains at the time of writing the only way forward to an orderly Brexit for the UK.

While most political attention has focused on the Ireland/Northern Ireland Protocol to this Agreement (the 'backstop') intended to avoid the reintroduction of a hard border between Northern Ireland and the Republic, the transition provisions in the Agreement are at least of equal importance to the Irish agri-food sector.

The transition provisions ensure that the UK would continue to operate de facto as an EU member state between the date of its withdrawal and the end of 2020 (this latter date can be extended by one or two years by mutual agreement).

The UK would continue in a customs union with the EU, applying the EU tariffs on imports from third countries. It would also continue to apply the full EU acquis of law and regulation.

One exception is that the UK would no longer be required to apply the support mechanisms of the Common Agricultural Policy from the start of the claim year 2020. But its hands would be tied if it wanted to introduce more trade-distorting support measures than the decoupled direct payments under the CAP.

During this transition period, there would be no change in the trading conditions for the Irish agri-food sector on the UK market compared to today.

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The alternative scenario is that the UK leaves the EU without a deal either on October 31 or a couple of months later following a general election in which Boris Johnson returns with a stable majority. This would result in a severe negative shock for the Irish agri-food sector in the medium term which would be exacerbated by the difficulties due to short-term disruption.

A no-deal Brexit would mean the immediate imposition of UK tariffs on imports of agri-food products and other goods from the EU including Ireland.

Back in March the UK government announced the tariffs it would apply for a temporary period of up to 12 months in the event of a no-deal Brexit.

The schedule represents a considerable liberalisation of UK tariff policy including for agri-food products, and a loss of tariff preferences for EU products in the UK market.

Tariff schedule

This tariff schedule has not yet been approved by the House of Commons and could still be altered prior to Brexit taking place.

The UK government has indicated that for a temporary period it does not plan to apply these tariffs or seek customs declarations for goods exported directly from Ireland into Northern Ireland.

Examples of proposed tariffs for selected Irish food exports that would apply in the case of a no-deal Brexit are shown in the accompanying table.

The UK intends to greatly reduce its tariffs on dairy products such as yogurts and cheeses including cheddar.

However, these new tariffs would also apply to Irish dairy exports, especially butter and cheddar cheese. While these lower tariffs would also apply to Ireland's EU competitors, they will lead to increased competition from non-EU exporters on the UK market.

For pig meat, poultry meat and beef, the UK proposes to reduce tariffs from the very high levels imposed by the EU but still to maintain significant protection. Looking at fresh or chilled beef boneless cuts, which is by far the largest single tariff line export, the UK proposes to reduce its current tariff from the equivalent of 41pc to 35pc.

Imposing this new tariff on Irish exports would impact greatly on the beef price that would be reflected back to producers.

In addition, applying the lower tariff to non-EU exporters would increase competition on the UK market and lower market prices even before the tariff was applied.

The UK has announced it will introduce Tariff Rate Quotas (TRQs) which will admit imports at a zero rate of duty up to a specified quantity for, inter alia, beef and poultry.

The beef quotas are established at close to the volumes currently imported from the EU. They will be managed quarterly and administered on a first come, first served basis. Importers can claim the relief on the duty until the point where the quarterly limit is reached.

Access to the beef TRQs will be open to all global exporters but Ireland's geographic proximity and current market share will give it some advantages against lower-cost suppliers. If Irish processors in the UK import Irish beef at the zero duty rate, the saving could be passed back to beef producers in Ireland in the form of higher prices or it may be used to boost the profits of the importer in the UK.

The UK proposes to maintain its tariff on lamb at the EU level equivalent to a 60pc tariff which would also be levied on Irish exporters. The impact on producer prices will depend on the success of processors in switching supplies to continental Europe instead, given that UK exports would be largely excluded due to the prohibitive tariff in the event of no deal.

For processed food exports, zero tariffs will apply but these will also apply to third country competitors so increased competition on the UK market from non-EU countries should be expected.

Trade costs

Tariffs are not the only additional trade costs that would face exporters to the UK.

Importers of Irish produce in the UK will need to complete customs formalities, comply with certification assuring health status and there will be physical checks on a sample of consignments where there are none today. The UK has indicated it may not insist on new requirements for transport operators and health checks for imports from the EU at least for a period due to lack of administrative capacity.

The costs of exporting to the rest of the EU using the UK 'land bridge' will also increase. Goods will be transported through the UK under a transit procedure which limits the flexibility of hauliers and will require additional administration by exporters and importers.

These medium-term costs of a no-deal Brexit will be greatly exacerbated by the expected short-term disruption clearly described in the UK government's Yellowhammer planning.

For Irish exporters, this may lead to additional delays at UK ports. There would also be a strong likelihood of a further sharp fall in the value of sterling.

It is extraordinary that the Irish agri-food sector could be facing costs of this magnitude within the next six weeks and yet there is still uncertainty whether this no-deal scenario will happen or not.

Alan Matthews is Professor Emeritus of European Agricultural Policy at Trinity College Dublin

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