Summary
For South Africa both challenges and opportunities arise in the citrus sector as a result of the Brexit process. The first challenge, in common with other ACP citrus exporters, is to retain existing preferential access to the UK market. South Africa could also benefit from the dismantling of strict CBS controls on exports to the UK. Unlike other ACP citrus exporters, South Africa could also gain some marginal benefits from the immediate removal of current seasonal tariffs on its citrus exports. However, securing these benefits will be dependent on the UK pursuing a ‘hard Brexit, which may now be less likely following the UK June 2017 election result. In addition, if no new trade arrangement is set in place between the UK and EU27 from 30th March 2019 and MFN duties are imposed on mutual trade, South Africa could see new market opportunities emerge in the citrus sector in trade with the UK, given Spain’s current role as the dominant supplier to the UK. These opportunities however will exist only on the fringes of the existing season.
- The Significance of Citrus in South Africa’s Trade
In 2016 sixteen ACP countries had some level of citrus exports to the EU, with this trade being dominated by South Africa. South Africa is the third largest citrus exporter in the world. According to the EU, in 2016 40% of South Africa’s citrus exports went to the EU (1), with South Africa providing the EU with 29.5% of its total extra-EU citrus import requirements. South African citrus exports to the EU earned in excess of €600 million in 2016, accounting for fully 2.6% of total South African export earning on trade with the EU28 (1).
- Recent Trends in South Africa Citrus Trade with the EU
However in recent years South Africa exports of citrus fruit to the EU have faced stricter SPS controls nominally linked to European producer fears over the transmission of the fungal infection citrus black spot, through trade in citrus fruit. While not hazardous to health this plant disease reduces the commercial value of infected citrus fruit.
While the international consensus of scientific opinion is trade in citrus fruit does not constitute a vector for disease transmission (2), Spanish citrus producers have called for zero tolerance of further trade with countries from which infected consignments have been detected (3, 4). Against this background in In October 2012 the European Commission informed the South African citrus industry that import controls could be introduced on imports from South Africa if more than 5 consignments were detected with a CBS infection in any one season (5). The notification of this new ‘5-strike’ rule, caused concern in South Africa, since there had never been a year when less than 12 interceptions of CBS infected consignments had occurred (6).
While the South Africa citrus industry continued to question the scientific validity of the assertion that trade in citrus fruit acts as a route for disease transmission, it responded with a comprehensive spraying programme and increased SPS inspections in the orchards, pack houses and immediately prior to export. It was estimated these additional disease control measures cost some €66 million in 2015 on a trade valued at just under €550 million (9).
In the face of concerns that, under pressures from Spanish citrus producers, the EU market could be subject to sudden closure, South African citrus exporters began to more actively explore alternative markets (7). However the success of disease control measures in reducing the number of consignments exported to the EU with CBS infected fruit (down from 35 in 2013, to 28 in2014 and 15 in 2015) (8), alongside the decision to halt citrus exports to Spain in the face of far stricter CBS inspection procedures (with citrus being exported to the UK or via Holland to mainland EU27 markets) (9), saw increased volumes of South Africa citrus exports to the EU in 2015 and 2016, after a 10.3% decline in 2014 (1).
Nevertheless the campaign to restrict South African access to the EU market on SPS grounds continues (see companion article, ‘Ongoing debate on citrus SPS controls highlights need for science based dialogues’, 16 March 2017). This remains an issue overhanging South African citrus exports to the EU market.
- Residual Restrictions on South African Citrus under the EPA
Beyond the citrus black spot issue South Africa is in a unique position amongst ACP countries, for under the SADC-EU EPA it does not enjoy duty free-quota free access for citrus exports, but faces seasonal duties and minimum import price requirements. However as a result of the provisions of the recently concluded EU-SADC EPA seasonal import duties will be phased out in the coming nine years (10).
The continued application of CAP related seasonal import tariffs over this nine year period (though be it at progressively reduced rates) and the cost increasing effects of what are seen as needlessly strict SPS controls provides the context for a consideration of the impact of Brexit in the citrus sector an important context
- The Importance of the UK Market to South African citrus exports
While in 2016 South Africa accounted for 29.5% of the volume of extra-EU citrus import, it accounted for 36.5% of UK citrus imports by volume. This saw some 21.6% of South African citrus exports to the EU going to the UK market, with this accounting for 24.3% of the value of total South African citrus exports to the EU. In 2015 South Africa accounted for 1 in 5 oranges consumed in the UK.
The UK’s share of the total volume of South Africa exports of various citrus products to the EU28 market has varied, but with the UK’s share of all categories of citrus exports being lower in 2016 than in 2008. This reflects the gradual enlargement of the EU; with 10 new countries join the EU in 2004, followed by Bulgaria and Romania in 2007 and Croatia in 2013. This has seen the range of EU countries served by South African citrus exports increase, reducing the percentage share of the UK in total citrus exports to the EU.
While the volume of exports to the UK was down some 12% compared to peak volumes attained in 2008, the recorded Euro value of exports to the UK in 2016 was 46% higher than in 2008 (the value of exports to the EU27 in contrast rose only 39%). Between 2008 and 2016 the unit value of South African citrus exports to the UK denominate in € increased 65.4% compared to only a 36.4% increase in the € denominated value of exports to the EU27 (between 2008 and 2016 the £ devalued against the € by only 3%).
This is attributable to the higher percentage share of higher value mandarins and lemons in South Africa’s total citrus exports to the UK compared to the composition of its exports to EU27 markets. For example mandarins accounted for 43% of South African citrus exports to the UK in 2016, compared to a mere 10% of total citrus exports to EU27 markets, while lemons accounted for 12% of South African citrus exports to the UK in 2016 compared to 9% of total exports to EU27 markets. Both of these products have a higher unit prices than oranges, which accounted for fully 66% of total EU27 citrus imports from South Africa, but only 38% of total UK citrus imports from South Africa (see table below).
2016 Composition South African citrus exports to EU and UK market by products tonnage and unit value
| Tonnage % total citrus exports by product and market | Unit value (€/tonne) by product and market | ||||||
| EU28 | EU27 | UK | UK % share EU | EU28 | EU27 | UK | |
| Citrus (0805 | 671,657 | 526,626 | 145,031 | 22% | €894.72 | €863.67 | €1,013.38 |
| Oranges (080510 | 60% | 66% | 38% | 14% | € 699.05 | € 699.92 | € 693.57 |
| Mandarins (080520) | 17% | 10% | 43% | 54% | €1,203.63 | €1,204.55 | € 1,202.84 |
| Grapefruit (080540) | 13% | 15% | 6% | 10% | € 920.36 | € 937.75 | € 761.67 |
| Lemons (080550) | 9% | 9% | 12% | 30% | €1,533.85 | €1,552.74 | € 1,485.59 |
Source: EC, Market Access Data Base
In 2016 South Africa thus has a far higher dependency on the UK market for higher value citrus exports such as mandarins (080520 – with a 54% dependency) and lemons (080550 – with a 30% dependency) than for overall citrus exports to the EU (22%).
Against this background the issues facing South Africa in the citrus sector arising from Brexit are slightly different to those facing smaller ACP exporters, with these primarily relating to:
- retaining existing preferential access to the UK market from the date of the UK’s departure from the EU;
- extending existing preferential access to the UK market by securing the immediate removal of residual seasonal tariffs on imports of citrus from South Africa;
- securing the removal of CBS controls on trade with the UK, given the absence of citrus production in the EU and hence the complete absence of any threat of disease transmission to the territory of the UK.
| Comment and Analysis In common with other ACP citrus exporter, in the first instance South Africa needs to retain current preferential access to the UK market from the date of the UK’s departure from the EU, still currently scheduled for 30 March 2019.However unlike other ACP citrus exporters, South Africa does not enjoy full duty free quota free access to the EU market and still faces some seasonal tariffs linked to domestic citrus production in certain EU27 member states. If the UK pursues a ‘hard Brexit’, involving departure from both the EU customs union and single market, the UK will no longer need to maintain EU agreed tariffs on citrus imports, since the UK had no domestic production of citrus fruit and hence has no domestic production interests to protect.Under a ‘hard Brexit’ scenario South Africa is therefore likely to be looking for the early removal of these residual seasonal tariffs on citrus imports, as part of any process of re-fitting the existing South Africa- EU FTA into a bilateral agreement with the UK. However it is unclear whether this would bring substantial additional benefits, given the current surge of exports to the EU which takes place prior the imposition of seasonal duties. Abolishing seasonal duties on trade with the EU may simply lead to a smoother flow of exports during the period affected.South Africa could however gain real benefits from the abolition of strict EU SPS controls for citrus black spot infections on future trade with the UK. This would effectively open up markets to exporters who are now excluded from the EU market as a result of strict SPS controls. For example, South African organic citrus producers took the decision in early 2016 to halt exports to the EU, in the face of the incidence of CBS interceptions being experienced in the organic trade. This was seen as endangering the wider trade, given the possibility of early closure of the EU market if CBS interceptions once again began to increase (8).The South African government is therefore likely to be looking for an early removal of strict CBS controls on trade with the UK as part of any ‘refitting’ of the existing EPA into a bilateral agreement with the UK, since CBS infections pose no threat to any agricultural production in the UK. However, for both of these developments to take place the UK will need to have left both the customs union and the single market. If the UK were to pursue a ‘soft Brexit’, involving continued UK membership of the single market and the customs union then it will not be possible to pursue an independent citrus trade policy, with different duties and SPS controls measures to that of the EU as a whole. Given the volume of South African citrus exports to the EU/UK the issue of the unit cost of SPS inspections following on from the UK governments’ decision to move over to full cost recovery for SPS import inspections, is less important than for smaller scale ACP citrus exporters. However, South Africa could be affected if the UK moved away from a common standard of risk assessment shared with EU27 countries. This could well occur if the UK decided to apply different inspection requirements to that of EU27 members acting together within a common single market. Being the major source of citrus imports into the UK, and a highly competitive supplier, South Africa has less to fear from processes of preference erosion in the citrus sector which may be set in train following a ‘hard Brexit’. In the past nine years South Africa has proved highly successful in maintaining its share of UK extra-EU citrus imports. This being said it could still see some erosion of South Africa’s margins of tariff preference, if the UK went for multilateral tariff liberalization in the citrus sector. This could then reduce profitability of South African citrus exports to the UK and even lead to some weakening of South Africa’s share of extra-EU citrus imports. However, given that in 2015 Spain supplied 45% of the UK’s citrus demand (11) the future of South Africa’s citrus exports to the UK will be strongly influenced by the future trade relationship established between the UK and the EU27. This will not only affect trade with Spain but also the transit trade via the Netherlands, which in 2015 accounted for 3.7 % of UK citrus imports and Germany which accounted for 4.5% of UK citrus imports, despite neither of these countries having any domestic citrus production (11). Any failure to conclude a new trade agreement between the UK and the EU27 could open up new opportunities for South African citrus exports to the UK at the beginning and end of the season, if the existing market access arrangements can be rolled over. However non-EU northern hemisphere producers such as Morocco, Egypt and Turkey (respectively 5.2%, 4.1% and 1.8% of UK citrus imports in 2015) could benefit more from the absence of an UK-EU27 trade agreement, if these countries could secure a rolling over of their existing trade arrangements with the UK. A lot will depend on whether the UK pursues a ‘hard Brexit’ or ‘soft Brexit’, with the recent UK election results suggesting a ‘soft Brexit’ may once again have entered onto the policy agenda (see companion article ‘The UK elections, Brexit and agro-food sector trade’, 12 June 2017). Developments in the Brexit negotiations will require careful monitoring, if South Africa is to position itself to capitalise on what is likely to be a very uncertain future. |
Sources:
(1) EC, Market Access Data Base
http://madb.europa.eu/madb/statistical_form.htm
(2) Agritrade, ‘Debate on Citrus Black Spot continues’, 12 January 2014
http://agritrade.cta.int/Agriculture/Commodities/Horticulture/Debate-on-Citrus-Black-Spot-continues
(3) Agritrade, ‘Pressure on EC to act pre-emptively on South African citrus exports as new season approaches’, 4 May 2014
http://agritrade.cta.int/Agriculture/Commodities/Horticulture/Pressure-on-EC-to-act-pre-emptively-on-South-African-citrus-exports-as-new-season-approaches
(4) levante-emv.com, ‘Andalusia and Valencia demand stricter phytosanitary controls’, 5 April 2017
http://www.freshplaza.com/article/173428/Spain-Andalusia-and-Valencia-demand-stricter-phytosanitary-controls
(5) Agritrade, ‘Tightening of Citrus Black Spot controls could pose challenges’, 28 April 2013
http://agritrade.cta.int/Agriculture/Topics/SPS-Food-safety/Tightening-of-Citrus-Black-Spot-controls-could-pose-challenges
(6) Agritrade, ‘South Africa looking for ‘parallel dispute resolution processes’ in EU citrus dispute’, 18 May 2013
http://agritrade.cta.int/Agriculture/Topics/SPS-Food-safety/South-Africa-looking-for-parallel-dispute-resolution-processes-in-EU-citrus-dispute
(7) Agritrade, ‘EU tightens controls on citrus imports from South Africa’, 4 July 2014
http://agritrade.cta.int/Agriculture/Commodities/Horticulture/EU-tightens-controls-on-citrus-imports-from-South-Africa
(8) Citrus Growers Association, ‘Annual Report 2016’
http://3b5dca501ee1e6d8cd7b905f4e1bf723.cdn.ilink247.com/ClientFiles/cga/CitrusGowersAssociation/Company/Documents/CGA%20AR%202016e(3).pdf
(9) Fin24, ‘SA cuts citrus exports to Spain’, 18 March 2015
http://www.fin24.com/companies/agribusiness/sa-cuts-citrus-exports-to-spain-20150318
(10) Freshplaza.com, ‘Citrus exports to EU get extended zero tariff period’, 30 August 2016
http://www.freshplaza.com/article/162593/South-Africa-Citrus-exports-to-EU-get-extended-zero-tariff-period
(11) OEC, ‘Where does the United Kingdom import Citrus from? (2015)’
http://atlas.media.mit.edu/en/visualize/tree_map/hs92/import/gbr/show/0805/2015/