Brexit looks just as bad from the other side

Minette Batters at the National Farmers Union (NFU) took machinery, produce, farmers and staff to Westminster to encourage Members of Parliament to back British farming, post Brexit on 14th September 2016 in London, United Kingdom. (Mike Kemp/In Pictures via Getty Images)

The EU is the biggest trading partner for UK agriculture. Nearly two thirds of UK agricultural exports are to the EU, with 70% of agricultural imports from the EU, writes Stephen Cadogan

The UK leaving the EU presents the most serious threat to Irish farming and our agri-food sector in the history of the State, according to the Irish Farmers Association.

With 40% of our food exports destined for the UK, our farming has a much higher dependence on the UK than any other Irish sector.

Commenting on the Brexit threat, Taoiseach Leo Varadkar said last week, “In ten or 12 weeks, we could find ourselves needing to find a lot of money to save people’s jobs, because there are people working in the food industry, agriculture, small and medium enterprises, SMEs, and small exporters whose jobs may be under threat in a few weeks.”

Ironically, the UK’s agriculture is also very exposed to Brexit. Their National Farmers Union says a no-deal scenario would be “catastrophic”. Analysis by the UK’s Agriculture and Horticulture Development Board shows there is just as much at stake for British farmers as for Irish farmers.

Why is agriculture particularly at risk from a no-deal Brexit?

The EU is the biggest trading partner for UK agriculture. Nearly two-thirds of UK agricultural exports are to the EU, with 70% of agricultural imports from the EU.

A no-deal Brexit has the potential to cause major disruption at ports, as new checks and processes are introduced. This is made worse by the nature of agricultural goods, with many products being highly perishable. The UK’s just-in-time supply chain, developed over many years, is likely to face major challenges in the event of a no-deal.

Globally, tariffs on agriculture are significantly higher than in most other sectors. UK farmers will face high tariffs exporting to the EU, making UK products less competitive on EU markets and, in many sectors, in particular sheep, significantly reducing domestic prices.

The UK agricultural supply chain uses EU labour. Under a no-deal Brexit, free movement of labour with the EU would end. While existing EU workers could register for settled status, businesses are likely to find it harder to source permanent and seasonal labour from abroad. With UK employment at an all-time high, finding workers to fill the gaps will be challenging.

What are the short-term and potential long-term implications for UK farming?

Some short-term implications will have a knock-on effect on farmers. For example, a farmer not employing any EU labour may think this will not affect them. However, their supply chains may rely on EU workers, such as in food processing, which will have an indirect impact.

In the short to medium term, prices could change. The magnitude and direction of price changes will vary by sector and by the trade policy the UK pursues.

Longer-term effects are far-reaching. The UK will leave the CAP and therefore will have more control over its domestic agricultural policy. In England, direct payments to farmers will be phased out over seven years, with a new domestic agricultural policy based on environmental principles as well as rewarding farmers for public good.

The extent to which this new policy will compensate for the loss of direct payments is yet to be seen.

Many no-deal effects will depend on UK trade agreements. Trade agreements are, by their nature, extremely complex and usually involve years of negotiations. The

extent to which this process can be fast tracked, and the ability of new free trade agreements to compensate for lost EU markets, is unknown.

Gaining access to new agricultural markets is unlikely to be the top priority for the UK Government. Countries that have flagged a keen interest in agreeing trade deals with the UK include the US, New Zealand and Australia, all of which are major agricultural exporters.

What UK agriculture sectors are more likely to be affected by a no-deal Brexit?

Sheep, beef, pigs and horticulture are, potentially, the most likely to be impacted in the short term.

On the livestock side, high tariffs, carcase balance, and trade will be the main issues. Certain meat cuts not eaten in large quantities by UK consumers, such as pork shoulder and belly, are currently

exported to the EU. Reduced access to the EU market will mean these cuts may become over-supplied in the UK.

The risk of losing preferential EU markets short-term could have a significant impact. Sheep would be the worst hit in a no-deal scenario, because about 30% of UK production is sent to EU markets. The potential tariffs on sheep meat would make UK product uncompetitive on EU markets.

Horticulture and arable sectors will also be affected. There is high dependence on EU migrant workers in horticulture.

What will happen to UK food prices after a no-deal Brexit?

The UK Government will want to keep food prices as low as possible. It has the option under World Trade Organisation rules to unilaterally reduce tariffs, in a bid to limit domestic food price inflation.

A weakening of sterling would make imported foodstuffs more expensive. If the UK applied tariffs at the same level as the current EU common external tariff, imported food prices would rise.

Some UK producers may be in a position to expand production and displace some imported produce. Even if this is not possible, in the UK’s aggressively competitive retail environment, the extent to which price rises are passed on to the consumer is likely to be below the level of any tariff.

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