Will Britain revert to a cheap food policy?
Former IFA economist Con Lucey has delivered a stark analysis of the impact a no-deal Brexit will have on farmers north and south of the Border, reports Margaret Donnelly
The UK may revert to its former cheap food policy in a no-deal Brexit situation, with Northern Irish agriculture the big loser, according to economist Con Lucey.
In a paper for the Institute of International and European Affairs, the former IFA chief economist says food security is not a great priority for the UK and food prices in the UK will be lower and more volatile.
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However, he said there is "an extremely vulnerable future facing farming and the food industry in Northern Ireland".
"Farmers in the land-based sectors - beef, dairy, lamb and cereals - are virtually totally dependent on the current levels of direct payments. In addition to the future loss in direct payments, Northern Irish farmers face lower product prices if the UK implements its proposed tariff regime."
A no-deal Brexit "will also pose major problems for the current highly integrated agri-food sector on the island of Ireland," says Mr Lucey.
The UK's Department of Environment Food and Rural Affairs (DEFRA) has said under its agriculture bill, it will spend public money on: enriching wildlife habitats, preventing flooding, improving the quality of air, soil and peat, and planting trees, which according to Mr Lucey shows its policy is an environmental bill, rather than a farming or food bill.
The beef trade is made up of fresh, frozen and boneless, but treated as a single product, the UK imports 380,000t annually. Of this, 340,000t comes tariff-free from other EU countries. 30,000t of the remaining 40,000t of imports comes from non-EU countries under EU preferential import regimes (TRQs).
Ireland supplies about 70pc of UK beef imports, amounting to about 270,000t which equates to about 50pc of our total beef export value.
In a no-deal situation, the UK would introduce a tariff on beef imports, from both the EU and non-EU countries, set at 57pc of the EU beef tariff. In addition, the UK would offer a tariff rate quota (TRQ) for 230,000t of imports at zero tariff. The TRQ would be open to EU and non-EU suppliers on a first come, first served basis, and would be administered quarterly and by category of product.
It can be expected that non-EU countries would be more competitive in supplying the TRQ quantity, due to lower costs and prices.
Clearly the standards and regulations to be applied by the UK in the future will be a factor. (The major net exporting countries for beef are Brazil, Australia, New Zealand and Uruguay).
It is expected that 30,000t imported by Northern Ireland from Ireland would be at zero tariff. An estimated 75,000t- 95,000t would be imported under the new UK import tariffs (57pc of EU tariff), most likely from non-EU countries, due to lower prices.
A switch in UK exports of about 80,000t from the EU to its home market would be anticipated, as the EU tariff would rule out such exports in the future.
The combination of the changes outlined here would be likely to result in a major reduction in Ireland's future role in the UK beef market; prices would be too low and too volatile.
Currently, the EU provides for imports of up to 285,000t of lamb annually under TRQs at zero tariff. The major suppliers are New Zealand (228,000t of TRQ); Argentina (22,000t); and Australia (19,000t). The UK is the single largest destination for these imports. The UK is also a significant lamb producer and exports about 80,000t annually to the rest of the EU.
The UK market accounts for about 23pc of Ireland's lamb exports, while over 70pc goes to the rest of the EU.
A no-deal tariff proposal is that future UK lamb tariffs would be set at the current EU tariff rates, i.e. no change.
The EU and the UK have agreed that, post Brexit, the UK share of the New Zealand TRQ will be 50pc and of the Australia TRQ will be 80pc. (However, New Zealand and Australia have not agreed to this so far). Thus the UK market would continue to be largely supplied by zero tariff imports from the southern hemisphere.
Exports from the EU (including Ireland) to the UK, currently tariff-free, would be subject to the UK tariff rate (same as EU tariff), and would not take place. Exports from the UK to the EU would be subject to the same tariff rate, and would be unlikely to take place.
Exports of live lambs from NI to Ireland would be subject to the EU tariff of €80.50/100kg, which for a 42kg lamb is a tariff of €33.80. (These exports would be likely to switch to mainland UK).
From the UK producers' perspective, the future price situation in the UK market seems vulnerable, as the current safety net of exports to the EU would be lost. Future UK market stability will be very dependent on the management of the TRQs.
Currently, imports from the rest of the EU account for about 60pc of pigmeat consumption in the UK. The EU tariff prevents imports from non-EU countries.
Under the UK "no deal" tariff proposals, the UK would introduce an import tariff equivalent to only 13pc of the current EU tariff. There would be no TRQs introduced. Preliminary analysis by the AHDB suggest that imports from the US and Canada would be competitive in the UK market in the new situation.
Imports to the UK from the EU would face the new, although relatively low tariff.
Prices in the UK pigmeat market are likely to be lower, and more volatile, in a no-deal situation, as the market will be much more reliant on global supplies.
Currently, almost all dairy product imports into the UK are from other EU countries, including Ireland, and are thus tariff-free. The EU tariffs on the main dairy products are relatively high and thus prevent imports from non-EU countries.
Ireland supplies about 60pc of UK butter imports (41,000t), about 82pc of Cheddar cheese imports (78,000t), about 45,000t of other cheese, and about 26,000t of milk powder. The UK is our only significant export market for Cheddar cheese. Ireland provides a market for about 800 million litres of milk annually from Northern Ireland.
The UK proposals include maintaining import tariffs, but at much reduced rates, for butter and some cheese including Cheddar-type cheese.
The proposed UK tariff on butter would be at 32pc of the EU rate, and for Cheddar would be at 13pc of the EU rate, and would apply to imports from both the EU and non-EU countries. The UK would not introduce TRQs for these products. Imports of all other dairy products into the UK from the EU and non-EU, including liquid milk, milk powder, and other cheeses including mozzarella, would be tariff-free.
UK exports to the EU would be subject to the current EU tariffs. For example, exports of butter and Cheddar would be subject to the EU tariff of €1,896/t and €1,671/t respectively.
The elimination of the safety valve of exports from the UK to the EU would be likely to result in more price instability in the UK market.
Exports of liquid milk from Northern Ireland to Ireland for processing would incur a tariff of €21.8/100kg (22c/L approximately), which would add 68pc to the cost of the milk (AHDB) and make this trade uneconomic.
The impact of these changes on the UK market is difficult to assess. Future operation of tariff-free access to the UK market for many dairy products, and much lower tariffs on butter and Cheddar cheese, are likely to result in a switch in suppliers from EU to non-EU sources.
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