Project Fear has now worked its way around to frightening farmers about the possible consequences of Brexit. The chief weapon in their arsenal is the idea that the EU, or at least the French, will be nasty to us if we leave and will use the excuse to levy tariffs upon food produced in the UK. Once again, they are relying upon the idea of risk – the “leap in the dark” – to frighten farmers into voting to Remain.
There are two possible downsides of Brexit, where farmers are concerned:
- Potential reduction or loss of Common Agricultural Policy Single Farm Payments. These are often a large percentage of a farm’s income and, as things stand at the moment, most farms in the UK would collapse without them.
- Adverse disruption of prices in the market-place. UK farms all operate on very narrow margins and very high capital costs which are all factored in over very long investment periods. Most farmers think in decades or even generations when investing. Disruption in any part of the food supply chain means that farmers usually suffer downstream consequences in the form of lower prices.
This post deals with the market for livestock products – i.e. meat – and its international trade. An understanding of this trade gives the means for an assessment of the risk of retaliatory action against UK farm produce by EU Member States, either in concert or unilaterally. The legality of such retaliation will be dealt with in a later post.
Most food produced by UK farms is consumed within the UK. The UK is a net importer of approximately 40 – 50% of its food. Despite this net inward demand, there is a thriving international trade in both directions for many products. Much of this trade is conducted between the UK and the rest of the EU. However, even small disturbances in this trade will affect prices paid at the livestock markets, and hence affect farm incomes.
All figures are taken from the ADHB website, and in this post are expressed in Tonnes.
Beef The overall import/export trade looks like this; where our imports are 270% greater than our exports:
However, UK beef is exported and imported to and from both EU and Non-EU countries. Our imports from the EU look like this:
And our imports from Non-EU countries looks like this:
Just from these two pie charts, it can be seen that our imports from the EU are roughly ten times those from Non-EU countries. Although British farmers are often vocal about beef being imported from Brazil and other South American countries where the costs of production are very low, these small compared with our EU imports. In particular, Ireland is the main exporter to the UK, far exceeding any other country inside or outside the EU.
Although Ireland is an exporter to the UK, there is a good deal of cross-border trade in both directions as shown by this:
At first sight, this two-way market seems rather odd, but can be explained by the differences in processing capabilities in each country and sometimes exchange rates dictating who is able to serve which customer best. The major supermarket chains have good deal of impact upon this activity. However the result is usually a lower cost to the consumer as each country specialises and achieves economies of scale.
The overall balance of trade in beef is as follows:
From this, it can be seen that the balance of trade is heavily in favour of the EU as an overall exporter to the UK, where EU exports to the UK are 2.5 times greater than UK exports to the EU.
Lamb and Mutton The export/import situation with lamb is a little more evenly balanced:
Once again, this is split into imports and exports from and to EU countries:
And also from and to Non-EU countries:
As would be expected, our imports of lamb are dominated by New Zealand, with Australia at 17%. Imports from Uruguay and Argentina are negligible. Our exports of lamb to Hong Kong are in their infancy, but acceptance here would give access to the mainland Chinese market. The Australians and New Zealanders have seen this market emerging a long time ago and are well established there.
The overall trade balance is as follows:
This reverses the situation for beef, where there the trade to and from the EU is reversed, with the UK in a trading surplus with the EU. France is the principal customer for British lamb. New Zealand lamb is imported to the UK because the UK is one of the largest markets for lamb; and NZ lamb is produced at competitive prices.
Pig Meat Here the proportions of import and export look similar to that for beef:
However, note that the actual quantities are much bigger. Our trade in pig meat with the EU is as follows:
Here, imports are dominated, as we would expect, by Denmark and the Netherlands. Exports markets are to Germany and Ireland. Once again, the packaging and processing capabilities in Ireland explain a lot of the two-way traffic between the UK and the Republic.
Imports of pig meat from Non-EU countries are only 1% of the total Non-EU trade, however, exports look like this:
From this it can be seen that the rapidly emerging markets of the Far East are being developed by UK pig producers and are gaining acceptance. But this market has clearly got a long way to go in terms of development.
So, the overall balance of trade for pig meat looks like this:
Once again, the EU provides much of the imported pig meat, in all of its varied forms, for the UK market.
The Combined Picture Putting together all sources of meat import and export for the UK market looks like this:
Despite the export of considerable numbers of lambs to France, it can be seen that the livestock picture for the UK is very much as a consumer of EU produce. Except for pork and bacon, there are big producers in Non-EU countries who will fill the need of the UK market if trading between the UK and EU was disrupted by the aggressive use of tariffs against the UK. A tariff war would be very unlikely to be won by any EU country, even if unilaterally (and illegally) conducted against the UK. If the two-way traffic between Ireland and the UK was disrupted, the Irish would be the first to complain very loudly against their EU partners.
UK farmers are concerned about the possible influx of cheap beef from Brazil which although cheap, has considerable environmental, welfare and disease problems attached to it. However, these problems can be overcome by suitably sensitive tariff arrangement which an independent UK would be in the position of being able to negotiate.
Lamb from New Zealand has a reputation for consistency for the British consumer, and so does not suffer the same image difficulties as South American beef. Unhindered access to the UK market would therefore be a big problem for British sheep farmers to compete, because our costs are higher than in NZ.
The Brexit fears of British farmers amount to a two-pronged nightmare. On the one hand is the fear of a potential tariff war. On the other is the fear of unbridled access to UK markets by cheap foreign produce that has not been subjected to anything like the welfare and environmental standards to which UK farmers have to comply. These two combined risks are uppermost in British farmers’ minds when thinking about exit from the difficult, but comforting mistress of EU regulation and protection.
This post has considered solely the risk of a tariff war solely in terms of import and export volumes. Common sense, when looking at the balance of trade alone, suggests that a tariff war is very unlikely. An independent UK would have the freedom and flexibility to adjust and negotiate as appropriate, whilst keeping UK food security in mind.