Tag: Trade

Chief Brexit Negotiator Resigns

On 18th December, Lord Frost, the UK Government’s Chief Brexit Negotiator, and co-architect of both the Trade and Cooperation Agreement (TCA) with the EU and the Northern Ireland (NI) Protocol, resigned with immediate effect.  In his resignation letter, he cited issues with the Government’s direction of travel on Covid policy and higher taxation as key reasons for his departure. However, many suspect that frustrations with how negotiations with the EU are progressing on the NI Protocol were also influential.  In recent weeks, some progress had been reported on medicines and the UK’s stance on the European Court of Justice had softened but negotiations will continue into 2022 with agri-food, particularly Sanitary and Phytosanitary (SPS) regulation continuing to be a key stumbling block.

Whilst some see Lord Frost’s resignation as a blow to the Prime Minister, others believe that the possibility of a deal on the NI Protocol in early 2022 has increased.  Particularly with the Foreign Secretary, Liz Truss, now taking on the responsibility of overseeing negotiations with the EU.  Ms Truss is popular with Conservative party grassroots and is viewed as more of a pragmatist than Lord Frost.  Her experience as Defra Secretary (2014-2016) and International Trade Secretary (2019-2021) should also be helpful in addressing remaining SPS and customs issues.  She will be deputised by Chris Heaton-Harris MP who has become Minister of State for Europe who will support the Foreign Secretary on EU Exit and NI Protocol issues.

UK:Australia Trade Agreement Signed

The UK-Australia Free Trade Agreement (FTA) was signed virtually on 17th December.  It is the first FTA that the UK has negotiated from scratch since its departure from the EU.  It means that all chapters of the agreement have now been agreed by both parties following the agreement-in-principle in June (click here for previous article).  From an agri-food standpoint, much of what was agreed in principle is now contained within the detailed agreement and will now be laid before Parliament for scrutiny.

The key points relating to agri-food are;

  • Tariffs:
    • UK Imports: there will be an immediate elimination of 99% of tariffs on goods imported from Australia to the UK upon entry into force (potentially sometime in 2022).  Pork, poultry and eggs are not included so the UK Global Tariff will continue to apply. However, restrictions will remain for other sensitive agricultural products as specified below.
    • UK Exports: almost all tariffs on UK goods will be eliminated upon entry into force. Tariffs on whisky, confectionary and biscuits will be phased out over 5 years. 
  • Tariff Rate Quotas (TRQs): the duty-free TRQs remain largely the same as previously outlined in the agreement-in-principle. These are summarised in the Table below.

  • More detail has been provided on what is included within each TRQ:
    • Beef (TRQ 1): the products (commodity codes) which are applicable include fresh/chilled beef (0201); frozen beef (0202); and a range of other chilled and frozen beef offal, preserved beef, beef-based meat mixtures and selected blood preparations.
    • Sheep meat (TRQ 2): products applicable include chilled lamb carcases/half-carcases (020410); chilled sheep carcases (020421); other sheep meat cuts with bone-in or boneless (020422; 020423); frozen sheep meat; edible flours/meals of sheep meat offal; and blood preparations.
    • Milk, Cream, Yoghurt and Whey (TRQ 3): applicable products are milk/cream whether concentrated or unconcentrated (0401; 0402); buttermilk and yoghurt (0403); and whey (0404 (excluding 0404.10.48)).
    • Butter (TRQ 4): all products under the 0405 HS code.
    • Cheese and Curd (TRQ 5): all products under the 0406 HS code.
    • Wheat (TRQ 6): this 80Kt TRQ applies to all types of common wheat but excludes seed (HS code 1001.99).  Wheat seed will have its £79 per tonne duty removed in 4 equal instalments and after Year 4, the duty will be removed. 
    • Barley (TRQ 7): this 7Kt TRQ applies to malting and other (feed) barley (HS code 1003.90), but excludes seed. Barley seed will also have its £77 per tonne duty removed in 4 equal instalment and will be duty free after Year 4.
    • Long-grained Rice (TRQ 8): a 1Kt TRQ applying to selected commodity codes.
    • Broken Rice (TRQ 9): an 11.5Kt TRQ applying to broken rice of all varieties (HS code 1006.40).
    • Sugar (TRQ 10): the TRQ is 80Kt (Year 1) rising to 220Kt (Year 8). It includes cane sugar, white sugar and other sugar (HS codes 1701.13; 1701.14; 1701.91; 1701.99). Beet sugar (1701.12) is excluded.
  • Sanitary and Phytosanitary (SPS) Measures: both parties emphasise their commitments to a science and risk-based approach to implementing SPS measures.  However, there is no mention of any changes to import standards.  Such changes, if they were to be introduced, would be set-out separately in future either by the UK or Australian Governments.  Therefore, this area will need to continue to be monitored closely. 
  • Rules of Origin: there is some more flexibility for UK exporters in terms of percentage of processed food ingredients that must be of UK origin, with a greater focus on the production process as opposed to the list of ingredients. This means that biscuits made from imported flour will qualify for tariff-free access to Australia under the FTA. It is also notable that whiskey from the Republic of Ireland used as inputs into Northern Irish whiskey will qualify for preferential access to the Australian market.  Effectively, NI whiskey will enjoy the same tariffs as Scotch whisky. 

Overall, the UK-Australia FTA is significant as it is the first trade agreement negotiated independently by the UK in nearly 50 years.  The UK farming sector, particularly grazing livestock and sugar beet will be more exposed to competitive pressure from Australian imports in the long-term.  However, it is worth emphasising that Australia is currently heavily focused on the Asia-Pacific region and that having generous quota access with eventual full liberalisation does not necessarily mean that Australian imports will reach these levels.  That said, from an Australian perspective, the UK market is an important diversification opportunity, particularly given its recent tensions with China. 

From a UK farming standpoint, the Australian FTA of course sets an important precedent, that other deals are likely to follow.  We’ve already seen this with the NZ agreement-in-principle.  The UK has also relented on its efforts to base beef and sheepmeat import TRQs on carcase weight equivalent.  The HS codes included show that the TRQs will be based on product-specific weight.  This is unsurprising as both Australia and NZ have been digging their heels in on this.  They also have leverage with the UK in terms of its application to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).

The deal will now go before both the UK and Australian Houses of Parliament for further scrutiny and ratification.  Once domestic ratification has been completed, both parties will notify each other.  The agreement could enter into force as soon as 30 days after both parties have completed ratification.  Some anticipate that entry into force could occur as soon as the middle of 2022, others think the process might take longer.  More detail is available via: https://www.gov.uk/government/collections/uk-australia-free-trade-agreement

Australia and NZ Trade Agreements

Trade deals with Australia and New Zealand (NZ) have been announced with much fanfare over recent months.  However, progress has stalled in converting these agreements-in-principle into legal texts.  The target that this would be concluded by the end of the year now looks unlikely.

It is claimed that this is chiefly due to the UK rowing-back on the market access offered on beef and lamb so that the annual tariff-free quotas are based on carcase weight equivalent and not product weight (i.e. products shipped such as boneless beef or legs of lamb).  A carcase weight equivalent basis would essentially mean that there would be less scope for Antipodean suppliers to export high-value beef and lamb cuts to the UK market and capture the shares of British producers.

Whilst the proposed EU-Mercosur trade agreement (which is being stalled by EU Member States) provided tariff-free quotas based on carcase weight equivalents, such arrangements are the exception in international Free-Trade Agreements (FTAs).  As the UK has formally applied to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which Australia and NZ are members of, both countries are threatening to stall the UK’s application if their tariff-free market access for beef and lamb are calculated on this basis.

It remains to be seen how the impasse will be resolved, but one suspects that given the UK Government’s eagerness to join the CPTPP, it will concede on offering both countries access based on product weight.  This would mean some increased competition for UK producers and exporters from the EU but, as previous articles have noted, both Australia and NZ are heavily focused on the Asia-Pacific markets presently, thus limiting their capability to supply the UK market as well.

UK / New Zealand Trade Deal

The UK and New Zealand have announced an agreement in principle on a Free Trade Deal (FTA).  The deal, announced on the 20th October, is similar in nature to the UK-Australia trade deal announced back in June.  Like the Australian FTA, the UK-NZ FTA agreement-in-principle is subject to further negotiations on the legal text.  Whilst there is an eventual aspiration to fully liberalise agri-food trade, there are adjustment periods for several agri-food products which the UK deems to be sensitive.  These include;

  • Beef: access would be limited by tariff rate quota (TRQ) in the first 10 years. This would commence with access to a duty-free transitional quota of 12,000 tonnes in year 1, rising in equal instalments to 38,820 tonnes in year 10.  Any beef imports above the annual TRQ allowance would be subject to the UK Global Tariff (UKGT).  In the subsequent 5 years (year 11-15 after entry into force) a product-specific safeguard will be applied on any beef imports exceeding a further volume threshold rising in equal instalments to 60,000 tonnes.  All tariffs would be eliminated from year 16 onwards. 
  • Lamb: access would operate in a similar manner to beef although tariff-free TRQ access would be managed in a series of step-changes as opposed to annual incremental increases.  In years 1-5, an additional 35,000 tonnes per year could be imported tariff-free.  This, of course, is in addition to the 114,000 tonnes of the WTO TRQ that New Zealand has historically had available.  During years 5-15, the tariff-free access will increase to 50,000 tonnes per annum followed by unlimited access in year 16.  Importantly, trade via the FTA TRQ can only commence once utilisation of the WTO TRQ has reached 90%.  Any imports exceeding the FTA TRQ will be subject to the UKGT tariff rate. 
  • Dairy: similar structures will also operate for dairy products with unlimited access being phased in over 5 years.
    • Butter: initial duty-free TRQ of 7,000 tonnes rising to 15,000 tonnes in year 5.
    • Cheese: there will be an initial duty-free TRQ of 24,000 tonnes in year 1, increasing incrementally to 48,000 tonnes in year 5.
  • Fresh Apples: given the seasonal nature of production in both countries, tariffs on imports into the UK from 1st January to 31st July would be eliminated as soon as the deal comes into force.  Imports during August to December will be liberalised over 3 years.  During this time, there will be a tariff-free TRQ of 20,000 tonnes per year.  All fresh apple imports from NZ would then be tariff-free and quota-free from year 4 onwards. 

Elsewhere, the deal is ambitious with respect to trade facilitation and the minimising of customs procedures in particular.  There are ambitions to promote e-certification where possible.  Whilst Rules of Origin (RoO) for agri-food remain quite standard (i.e. a threshold of 15% of products traded can be non-originating from the country of origin (i.e. UK or NZ) in order to gain tariff-free access, the RoO for automotive vehicles (25% originating materials as opposed to the standard 55% threshold) will become much more liberalised.  This is seen as a big gain for the UK, given the extent of its integration with EU supply-chains.  The agreement also seeks to reduce barriers in the Sanitary and Phytosanitary (SPS) area.  Both countries are to recognise equivalence where both countries have similar standards. 

Overall, it is evident that the market access offered to NZ suppliers is significant and that agri-food has been used by UK negotiators as a means to open up access in other areas (e.g. automotive and services).  It can also be seen that the Australian FTA announced has become an important precedent for future trade deals.  Taking both the NZ and Australian trade deals together, significant competitive pressure will be exerted on domestic British producers and traditional suppliers from the EU, particularly Ireland.  Looking at beef for example, in year 1 both countries could theoretically export 47,000 tonnes of beef to the UK, rising to 148,820 tonnes in year 10.  By year 15, their tariff-free access will have reached 230,000 tonnes, significantly surpassing recent year’s imports from Ireland into GB (just over 200,0000 tonnes).

That said, it must be acknowledged that both Australia and NZ are heavily focused on the Asia-Pacific market in recent years and imports of NZ lamb have been nowhere near their TRQ allowances of late.  Things could of course change in the future, particularly given the geopolitical tensions between Australia and China.  The UK will be seen by Antipodean suppliers as a high value and dependable market.  British agriculture needs to prepare for this increased competitive pressure which is likely to become more pronounced as future trade deals (e.g. an updated FTA with Canada) are agreed.  More information on the UK-NZ FTA is available via: https://www.gov.uk/government/publications/uk-new-zealand-free-trade-agreement-negotiations-agreement-in-principle/uk-new-zealand-fta-negotiations-agreement-in-principle

New Trade and Agriculture Commission

On 21st October, the Government announced a new Trade and Agriculture Commission (TAC) as part of its response to the previous TAC’s report recommendations in March (click here for summary). It will be chaired by Lorand Bartels, an International Law Professor. The other members of the new TAC are;

  • Robert Anderson
  • Gracia Marin Duran
  • Catherine McBride
  • Jim Moseley
  • Cedric Porter
  • Meurig Raymond
  • Kate Rowell
  • Shanker Singham
  • Sir Lockwood Smith
  • Andrew Swift
  • Nick Von Westenholz

Three of the members (Shanker Singham, Sir Lockwood Smith and Nick Von Westenholz) sat on the previous TAC.  The new TAC’s role will be to inform Parliament about the implications of each Free Trade Agreement (FTA) on UK laws (i.e. environmental protection, animal welfare and food standards) and for the wider agri-food industry.  It will also provide input into a Government report to be provided to Parliament ahead of the ratification of each trade deal.

In addition to the new Commission, the Government also announced a new cohort of international ‘agri-food attachés’ who will work around the world to promote UK food and drink export opportunities and provide market intelligence and technical expertise.  It also announced that there will be a new Food and Drink Export Council to work in collaboration with industry and the devolved governments to promote exports from all parts of the UK.

The Government claims in its response that it reconfirms the maintenance of the UK’s high standards as a red line in all trade negotiations, particularly in terms of environmental protection, animal welfare and food standards.  Any deal we sign with other countries will include protections for the agriculture industry, and we have a range of tools to defend British farming against any unfair trading practices.

Whilst the Government might claim that the new TAC is strengthened, it took several months for its response to the first TAC’s report to be published.  In the meantime, two free trade agreements-in-principle have been reached with Australia and New Zealand.  This has raised questions about how much influence the new TAC will have in practice.  In any case, the true litmus test will be the extent to which the UK Government and Parliament takes on board the new TAC’s recommendations when ratifying FTAs with other countries.  Many in the industry are skeptical on this.  Further information on the Government’s response to the previous Trade and Agriculture Commission’s report is accessible via;

https://www.gov.uk/government/publications/government-response-to-the-final-trade-and-agriculture-commission-report/government-response-to-the-final-trade-and-agriculture-commission-report

NI Protocol Proposals

Proposals to simplify the operation of the Northern Ireland Protocol would see checks on consumer goods arriving from Great Britain drop by an estimated 80% as well as a greater role for NI institutions in the operation of the Protocol.

The plans come from the European Commission and aim to address the difficulties that Northern Ireland has been experiencing as a result of the NI Protocol.  This is the arrangement put in place via the UK-EU Withdrawal Agreement to avert a hard border on the island of Ireland.  However, by keeping NI in the Single Market for goods it meant the introduction of customs and regulatory checks on products entering NI from GB.  This has angered Unionists who see a threat to the integrity of the UK and has also caused practical problems in the supply of goods – especially foodstuffs.

The Commission has published four ‘non-papers’ suggesting further flexibilities on key areas, as outlined below. These proposals are applicable to GB-NI trade only and don’t affect the significant trade friction on GB-EU trade. For agri-food, the proposals on SPS are the most important.

  • Food, Animal and Plant Health (Sanitary and Phytosanitary (SPS) regulations): proposes the following;
    1. ‘Simplified access’ (simplified certification and reduction of physical checks) for GB-NI movements of a significant range of retail goods (destined solely for sale to end consumers in NI retail shops).
      • Simplified certification: means that if a truck load of agri-food goods destined for an NI retail distribution centre contained 100 products subject to SPS regulations (but are not prohibited/restricted), just one simplified official certificate would be required stating that the goods meet EU standards, as opposed to the default of 100 health certificates. 
      • Reduced checks: documentary checks would remain compulsory and would be carried out remotely (electronically).  Identity and physical checks would need to be performed at Border Control Posts but could be reduced substantially with a focus on risk-based management principles.  The Commission claims that regulatory checks could reduce by approximately 80% although it is unclear how such an estimate was reached. 
      • Exemptions for ‘identity products’: such as Cumberland sausages and other chilled meats brought in from GB for final consumption in NI, provided such products remain aligned with the EU’s standards.
    2. Conditions for simplified access include;
      • Labelling: products packed for consumers need to be labelled accordingly and should be only permitted for sale in the UK.
      • Goods sold to other operators (e.g. farmers or food processors) would be excluded from these arrangements.
      • Origin: simplified access would only be applicable to goods originating in the UK as defined by the UK-EU Trade and Cooperation Agreement (TCA).
      • Monitoring: these facilitations would only be available to “authorised traders” and the EU would need to have access to NI databases for verification purposes and to monitor trade flows.
    3. Safeguards include a review clause as well as the following mechanisms;
      • Compliance verification mechanism: via audits and on-site inspections of traders by the EU Commission and Union representatives in NI.
      • Unilateral measures by the EU: to suspend or revoke facilitations in the case of the UK failing to react to or to remedy an identified problem.
      • Rapid reaction mechanism: to identified problems in relation to individual products or traders.
  • Customs: the EU proposals are aimed at dramatically reducing customs formalities and costs for goods deemed “not at risk of being subsequently moved into the (European) Union”.  These are essentially goods for final consumption in Northern Ireland, effectively creating an “express lane” upon arrival in NI for such goods.  Whilst further detail will be required on how these reduced formalities would operate in practice, the EU is again seeking access to ‘real-time’ data to ensure that the Single Market is protected. 
  • Medicines: focuses on ensuring undisrupted medical supplies from GB to NI for the benefit of patients in NI.  Whilst of limited relevance to agriculture, the EU is ready to continue discussions with the UK to help to ensure continuity of veterinary medicines supply to in Northern Ireland. 
  • Engagement with NI Stakeholders: sets out proposals for how NI stakeholders, including business groups and Assembly members, can play a more active role in how the Protocol is implemented to ensure greater transparency.  This would be done via the Joint Committee and Specialised Committee overseeing the Protocol’s implementation (e.g. on SPS rules) as well as via the EU-UK Parliamentary Partnership Assembly.  

Taken together, the Commission believes that these proposals represent a different model for implementing the NI Protocol, facilitating the highest degree of frictionless trade between Great Britain and Northern Ireland, whilst continuing to protect the Single Market.   The proposals do not propose any amendments to the role of the European Court of Justice (ECJ) which the EU sees as fundamental to the functioning of the Single Market and Northern Ireland’s unique position.  The UK Government is likely to take issue with this, as it sees the ECJ’s continued involvement in UK matters as a ‘red-line’.  However, one does have to question how important the ECJ’s role is in practical terms for most businesses and consumers?  In any case, there might be scope for an arrangement similar to the EU-Switzerland relationship where the ECJ has a more ‘arms length’ oversight of Swiss law. 

The EU Commission’s proposals represent a significant shift in position and whilst more detail is needed on the specifics, they provide a firm basis for substantive negotiations to address the key Protocol difficulties.  Attention now shifts towards how the UK Government will respond.  Initial indications are positive.  Further turbulence is expected in the coming weeks as both sides negotiate.  If implemented with careful consideration of both communities, the Protocol has the potential to offer Northern Ireland ‘the best of both worlds’ in terms of being an integral part of the UK and enjoying frictionless access to the EU Single Market for goods.  It could, therefore, be a major driver of economic growth across NI and within the agri-food sector in particular. 

Further detail on the EU Commission’s proposals is accessible via; https://ec.europa.eu/info/strategy/relations-non-eu-countries/relations-united-kingdom/eu-uk-withdrawal-agreement/protocol-ireland-and-northern-ireland_en#october-2021-package

UK Border Operating Model: Delayed Again

The UK Government has, once again, delayed the implementation of border controls on agri-food imports from the EU.  The postponement is blamed on the combined effects of the Covid-19 pandemic and food supply-chain issues, but it is equally a result of the Hard Brexit the Government negotiated.  This move was becoming increasingly inevitable in recent weeks as it is clear that the infrastructure required to deliver effective border controls for imports from the EU was not ready and businesses were becoming increasingly concerned about the lack of preparation time.  The key aspects of the revised timetable are;

  • Pre-notification of Sanitary and Phytosanitary (SPS) goods: requirements which were due to be introduced on 1st October 2021, will now be introduced on 1st January 2022.
  • Export Health Certificates: these requirements, which were due to be introduced on 1st October 2021, will now be introduced on 1st July 2022.
  • Phytosanitary Certificates and physical checks on SPS goods at Border Control Posts: were due to be introduced on 1st January 2022, but will now be introduced on 1st July 2022.
  • Safety and Security declarations on imports: will now be required as of 1st July 2022 as opposed to 1st January 2022.
  • Full customs declarations and controls: will be introduced on 1st January 2022 as previously announced.

Remember that this only applies to imports from the EU – exports from the UK to Europe have been subject to the full range of EU checks since the start of this year.  More checks and bureaucracy on imports would raise costs and could reduce the competitiveness of EU goods on our market.  For this reason the delays outlined above might not be welcomed by the farming sector.  Particularly as the rules are currently ‘lopsided’ with imports exempt from many checks, but our exports being fully subject to EU rules.    

The delay will be seen as a welcome move by most businesses in the wider food chain.  But the UK Border Operating Model has already been delayed before and there is still a lot of work to be done before the revised timetable can be achieved.  Of course, a comprehensive veterinary agreement with the EU would help greatly on multiple levels.  For example, it would reduce the requirements for physical checks quite considerably (for instance, the New Zealand veterinary agreement with the EU reduces physical checks for red meat from the default of 15% down to 1%).

A veterinary agreement would also help to make the implementation of the NI Protocol more sustainable, as it is the levels of regulatory checks at NI ports which are seen by some communities as being the most invasive.  Reducing these towards the levels currently in place for live animals (which were subject to physical checks even before Brexit) would help the implementation of the Protocol.  Coincidentally, the delays to the UK Border Operating Model will also mean delays to the announcement of rules covering NI-GB ‘qualifying goods’ (i.e. NI-produced goods which would qualify for unfettered access to the GB market). 

Thirdly, it would also help UK-GB exports to the EU.  In addition to the revenue lost on trade with the EU, this has also had a significant indirect impact on the food supply-chain shortages that the UK is currently witnessing.  Previously, haulage companies carrying imports into the UK would use ‘backloads’ of goods being exported from the UK to the EU to contribute to the overall cost of travelling to and from the UK.  With such shipments being significantly reduced, in addition to the pandemic impacts which have made drivers more reluctant to travel to the UK, the HGV driver shortage has been exacerbated. 

There were calls for a 2-3 year ‘Implementation Period’ after the UK formally left the EU; the latest delays to the UK Government’s Border Operating Model are creating this by default.  Whilst the latest move from the UK Government will help somewhat to address the current supply-chain situation, this additional time needs to be used wisely.  In its press release announcing the new timetable (see link below), the Government calls its approach ‘pragmatic’.  If it seeks to be truly pragmatic then implementing a veterinary agreement with the EU combined with addressing the agri-food industry’s labour issues would go some way to addressing the problems generated by Brexit.   

Further information on the UK Government announcement is accessible via: https://www.gov.uk/government/news/government-sets-out-pragmatic-new-timetable-for-introducing-border-controls

UK – Australia Trade Deal

The UK and Australia have agreed the outline terms of an historic free-trade agreement – the first all-new deal signed by the UK since it left the EU.  As such, it is seen by many as an important precedent for future trade deals, particularly concerning agriculture.  Whilst the deal has been announced, it is an agreement in principle and subject to further negotiations on the legal text. There is an eventual aspiration to fully liberalise Australian goods entering the UK market.  However, there are lengthy adjustment periods for several agricultural products in an attempt to take account of UK sensitivities.  These include;

  • Beef: access would be limited by tariff rate quota (TRQ) in the first 10 years.  This would commence with access to a duty-free transitional quota of 35,000 tonnes in year 1, rising in equal instalments to 110,000 tonnes in year 10.  Any beef imports above the annual TRQ allowance would be subject to the UK Global Tariff (UKGT).  In the subsequent 5 years (year 11-15 after entry into force) a product-specific safeguard will be applied on any beef imports exceeding a further volume threshold rising in equal instalments to 170,000 tonnes, levying a safeguard duty of 20% for the rest of the calendar year, thus replacing the UKGT rate which will be eliminated after year 10.  All tariffs would be eliminated from year 16 onwards.
  • Lamb: access would operate in a similar manner to beef with an initial duty-free TRQ allowance of 25,000 tonnes in year 1, rising in equal increments to 75,000 tonnes in year 10, with imports above this volume being subject to the UKGT.  Again, a safeguard mechanism will apply from years 11 to 15, permitting up to 125,000 tonnes to lamb to access the UK market duty-free with a 20% tariff applying thereafter for the remainder of the calendar year.  Again, all tariffs would be removed from year 16.
  • Sugar: is set to have a shorter transitional period with duty-free access in year 1 of 80,000 tonnes rising in increments to 220,000 tonnes by the end of year 8.  Again, unlimited duty-free access is planned from year 9.
  • Dairy: similar structures will also operate for dairy products with unlimited access being phased in over 5 years.
    • Cheese: there will be an initial duty-free TRQ of 24,000 tonnes in year 1, increasing incrementally to 48,000 tonnes in year 5.
    • Butter: initial duty-free TRQ of 5,500 tonnes rising to 11,500 tonnes in year 5.
    • Other dairy: a duty-free transitional TRQ of 20,000 tonnes will apply.
  • Rice: interestingly, there will be a permanent TRQ of 1,000 tonnes for long-grained milled rice. How the rice sector has managed to achieve this whilst other food sectors have failed is a bit of a mystery!

Based on the above summary, it would appear that the UK grazing livestock and sugar sectors in particular will be exposed to increased competition from Australia in the long-term and additional competitive pressure is likely to emerge when the likes of New Zealand others strike trade deals with the UK.  Of course, having generous quota access with eventual full liberalisation does not necessarily mean that Australian imports will reach these levels, particularly as there is plenty of demand in Asia-Pacific.  That said, beef imports from the Republic of Ireland are in the region of 200,000 tonnes per annum.  Viewed in that context, the access offered to Australia is sizeable and of concern to British farming, particularly as it is the first of several trade deals.

For more detail visit: https://www.gov.uk/government/publications/uk-australia-free-trade-agreement-negotiations-agreement-in-principle/uk-australia-fta-negotiations-agreement-in-principle

AHDB Report on Future US Trade Deal

The latest AHDB Horizon report, published on 18th March, examines the potential impact of a trade deal with the US.  It acknowledges that, being an agricultural powerhouse, any enhanced access for US suppliers into the UK would pose competitive pressures for UK farming.  However, it suggests that fears of a glut of cheap food, produced to lower standards flooding the UK market might be misplaced.

The report highlights the adaptability of US supply-chains to meet varying standards, if there are sufficient margins.   Furthermore, a market of 330 million affluent consumers will also present opportunities for high-quality UK exports. Indeed, exports of British products such as regional cheeses and whisky have risen significantly in the past decade and in the past year, the US market for beef exports has reopened.

Whilst a US trade deal would have a significant impact on UK farming, it is unlikely that an agreement will be concluded any time soon as the Biden administration has more pressing priorities.  In the more immediate future, trade deals with Australia and New Zealand are much more likely to be finalised.  These too will have a significant impact on UK farming and the industry needs to prepare for these as a priority.

The AHDB Horizon report can be accessed via: https://ahdb.org.uk/uk-us-free-trade-agreement-impact-on-uk-agriculture

Trade Update

The Office for National Statistics (ONS) recently published UK trade data for January 2021.  Unsurprisingly this has revealed significant drops in food and live animals trade with the EU.  Whilst the 64% drop in exports to the EU captures the headlines, imports from the EU have also dropped by 24%.  However, there are multiple factors at play and it is still too early to tell with accuracy how much trade with the EU will change as a result of Brexit. 

As the chart below also reveals, there was a significant increase in trade with the EU from September 2020 as businesses stockpiled in advance of potentially significant border friction arising from a No Deal Brexit or a bare-bones trade deal.   As it happened, the Trade and Cooperation Agreement (TCA) was comprehensive in the sense that there were no tariffs or quotas on agri-food trade; however, it did not include a veterinary agreement and left exporters to the EU with just one week to prepare for border controls.  With the UK phasing-in controls on imports from the EU as a result of its Border Operating Model, the implementation of which has now been delayed until the year-end / early 2022, it was evident that UK exports to the EU would suffer more in percentage terms than imports.  The January data has borne this out. 

UK Food and Live Animals Trade with EU and Non-EU Countries – January 2010 to January 2021 (£ Million)

Source: ONS

Looking at the HMRC trade data (the source of the ONS figures) in further detail shows that exports of chilled beef to the EU have declined by 59% in January 2021 versus January 2020.  Sheep and goat meat exports to the EU are down by 29%, pig meat exports to the EU are 78% lower, whilst butter and cheese exports are down by 67% and 61% respectively versus a year earlier.

Whilst the data are of concern, more time is needed before definitive conclusions can be drawn.  Although there is still significant friction on trade and many of the TCA’s so-called ‘teething problems’ are in fact permanent fixtures, the situation has improved since January and traders who are well-organised are getting through the EU border controls. That said, given the complexity of UK-EU supply-chains, high value food products with multiple ingredients are experiencing significant issues, many UK traders are now looking at setting up distribution hubs and some processing facilities in the EU.  This will permit them to send loads to a single destination, thus cutting down the paperwork significantly.  From there, if further processing is needed, it will take place in the EU before moving to its end destination. 

It will be mid-year before a definitive picture will emerge as agri-food trade is often lower during January to March.  Trade should recover somewhat but probably not to the same levels as before.  The significant decline in EU imports also presents opportunities for domestic suppliers to capture a greater proportion of the UK market, particularly in perishable agri-food products.  This will mean that there will be winners as well as losers as a result of the TCA.  That being said, supply-chains need time to adapt and such opportunities cannot be realised overnight.