Commissioner Hogan Highlights Agri-food Sector No Deal Brexit Preparations

The EU Support a €100 Million Assistance  Programme for Irish Beef Farmers

The EC has agreed a Brexit related support package for Irish beef producers totalling €100 million, with €50 million coming from the EU agricultural budget and €50 million coming from the government of the Republic of Ireland. The allocation was based on an assessment by the Irish Farmers Association of income losses to Irish beef farmers in light of the low prices for beef cattle prevailing between 1 September 2018 and March 2019 (2).

According to Agriculture Commissioner Hogan the fund was established by the EC in recognition of the ‘particular difficulties experienced by Irish beef farmers arising from significant price falls and market uncertainty’. The aim of the fund is to ‘protect a fragile but essential agricultural sector’ and ‘provide direct support to hard-hit farmers’ (3).

The EC continues to monitor the market situation in the beef sector and has advised the Irish government to ensure that in the design of the operational aspects of the scheme it avoids any distortion of competition. This constitutes an implicit acknowledgement of the potential trade distorting impacts of this kind of country/sector specific support. Indeed, the Ulster Farmers Union (which represents farmers in Northern Ireland which is part of the UK) has warned this Brexit related beef support programme ‘could potentially distort the UK and EU markets’ (4).

Despite the implicit acknowledgement of the potential for such support programmes to distort competition the EC is placing particular emphasis on the ‘development of new markets’ for Irish beef as an important aspect of the planned support package (3).

In contrast to this focus the IFA President Joe Healy has stressed the importance of ensuring ‘funding was paid out to the farmers who had incurred the losses and needed it most. He said the IFA was clear ‘the funding must go to farmers who sold prime finished cattle since last autumn and to suckler farmers’ (3). More broadly the IFA has set out the principles it wishes to see applied in the design of the operational aspects of the €100 million support programme, most notably: funds must be paid to beef farmers, not factories, feedlots, agents or dealers; farmer payments should go to those who actually incurred losses, funds must be paid out quickly; finished cattle sold in the marts must be included

Agricultural Commissioner Hogan’s emphasis on the EC’s considerable experience in deploying market support measures to address market imbalances in the 2014-16 period highlights the importance of reviewing the impact of the Russian embargo on EU-ACP trade flows in sensitive products. Such a review provides insights into the potential trade displacement effects of a ‘no-deal’ Brexit on ACP agro-food sectors. Two major trends stand out.

Firstly the surge in EU poultry meat exports to sub-Saharan African markets. This took place in two stages, first from 2010 to 2011 when the Russian government first introduced restrictions on poultry meat imports from the EU. This saw exports to Russia fall by 123,318 tonnes between 2010 and 2011, while EU exports to sub-Saharan countries increased by 209,442 tonnes. In the following two years changes were less dramatic. EU exports to Russia fell a further 11,369 between 2011 and 2013, while EU exports to sub-Saharan African in 2013 increased by 17,866 tonnes.

EU Poultry Meat Exports (0207) Sub-Saharan Africa by Region 2010-2018

Source: EC MADB

However the August 2014 Russian embargo on agro-food imports from the EU saw EU exports of poultry meat to the Russian market  grind to a halt, with only 5 tonnes of exports recorded in 2016 while EU poultry meat exports to sub-Saharan African markets increased 219,968 tonnes between 2013 and 2016. By 2016 markets in sub-Saharan Africa was taking almost half of extra-EU poultry meat exports.

EU Poultry Meat exports (0207) to Russian 2010-2016

Source: EC MADB

Between 2013 and 2016 extra-EU poultry meat exports to non-sub-Saharan African countries actually fell 2.1% (from 768,518 to 752,152 tonnes),  exports to sub-Saharan African countries grew 42.6%, with this being dominated by growth in exports to South Africa, which grew 80.4% increase.

While the December 2016 South African government decision to impose Avian Influenza (AI) related SPS restrictions on imports of poultry meat from 7 of the top 10 EU poultry meat exporting countries saw total EU poultry meat exports fall in 2017, EU exporters rapidly adjusted. Exports to other sub-Saharan African markets increased 27.1% between 2016 and 2018, while in 2018 exports to South Africa were once again increasing, as other permitted EU exporters stepped up deliveries to South Africa.

Between 2010 (the last year before Russian import restrictions kicked in when Russia took fully 18.5%  of total extra-EU poultry meat exports and sub-Saharan Africa accounted for only 25.5% of total extra–EU poultry meat exports), and 2016, EU exports of poultry meat to sub-Saharan Africa grew 157% (+ 450,181 tonnes). This needs to be seen in the context of 34% growth in total extra-EU poultry meat exports over the same period (+ 381,000 tonnes).

This experience strongly suggests that when market access problems are faced in major markets (in this case the Russian market), EU poultry meat exports to sub-Saharan African markets take off.

This needs to be seen in a context where a ‘no-deal’ Brexit will disrupt, and potentially halt, some 810,000 tonnes of EU27 exports poultry meat exports to the UK market. This is likely to see a major EC focus on expanding access to sub-Saharan African markets. This needs to be seen against the background of some African countries using a variety of trade measures to limit poultry meat imports, including  from the EU.

Evidence of EC initiatives in this area can be seen in June 2019 challenge to SACU’s application of safeguard duties on bone-in-poultry imports from the EU (see companion epamonitioring.net article ‘EU Formally Challenges Application of SACU Safeguard Duties in the Poultry Sector’, 27 June 2019).

Governments of potentially affected concerned ACP countries (mainly in Africa but potentially also the Caribbean) will need to pay close attention to EC initiatives in this area and the evolution of EU poultry meat exports in the immediate ‘no-deal’ Brexit period.

The second major trend emerging from the Russian embargo experience relates to the dramatic increase in EU production and export of milk powders, in the face of loss of access to the Russian market for its butter and cheese exports.  This expansion of EU production and export of milk powders impacted on efforts to develop milk-to-dairy supply chains in Africa in a number of ways.

Firstly through the increase in direct exports of milk powders to sub-Saharan African markets. In West Africa these exports were often linked to investment in local dairy sector companies. These investments focus on meeting growing African dairy demand through the repackaging and reconstitution of imported milk powders.  This has served to reinforce the trend towards meeting growing African demand through the importation of dairy products.

The number of jobs created through this import based model of dairy sector development is marginal compared to the deployment and income gains which would arise from the development of African dairy production to meet growing African demand for dairy products. What is more this pattern of dairy market development based on imported milk powders potentially has profound long term consequences in terms of the development of consumer tastes, which can become averse to fresh milk based dairy products.

The second impact is an indirect one, namely through the impact of the expansion of EU milk powder production and exports had on international milk powder prices. Since 2014 the EU has made a unique contribution to the depression of milk powder prices. Indicative of this is the trend in average annual prices for skimmed milk powder (SMP) between 2013 and 2018. By 2018 SMP prices were around half of what they were in 2013, with, since 2015, the annual average SMP price never having been less than 40% below the 2013 SMP price level.

This has transformed the commercial basis of efforts to promote local-milk-to-dairy supply chains in Africa and the Caribbean.  This has made even the most well intentioned corporate initiatives by EU companies aimed at developing local milk-to-dairy supply chains singularly ineffective in promoting the structural development of local dairy sectors (9, 10).

SMP Price Trends 2013-2018 (€/tonne)

Source: clal.it,

https://www.clal.it/en/index.php?section=panoramica_prezzi&prodotto_tabella=smp&zona=W&title=SMP

These two major policy trends which followed on from restrictions on EU access for dairy products to the Russian market is likely to be replicated in even more acute form under a ‘no-deal’ outcome to the current Brexit negotiations. This needs to be seen in a context where the Secretary General of the European Dairy Association has warned of the ‘catastrophic repercussions’ of a ‘no-deal’ Brexit in the dairy sector. This arises from the fact that the ‘volumes of EU-27 butter sold in the UK are three times higher than EU-28 butter exports to Russia were’, while EU-27 cheese exports to the UK ‘are twice the volumes that used to be sold to Russia’ (11).

Against this background those ACP governments whose domestic production and sector development strategies are likely to face the greatest threat need to ensure they retain the policy space to take appropriate safeguard measures to curb likely ‘no-deal’ Brexit import surges in sensitive products  such as poultry meat, beef and milk powders.

Ideally the EC should be encouraged to take into account the impact on ACP countries of the ‘no-deal’ Brexit related market crisis management measures under consideration prior to their implementation. An initiative from ACP governments to enter into dialogue with the EC on the nature of the market crisis management measures the EC plans to set in place in specific sectors in the event of a ‘no-deal’ Brexit, could potentially play a role in minimising EC challenges to any specific safeguard measures which ACP governments may subsequently wish to take in the event of the emergence of Brexit related import surges in sensitive sectors.