On 22 February 2018 ACT Alliance convened Seminar on the Implications of Brexit in the agro-food sector for ACP countries and for the forthcoming ACP-EU Post-Cotonou negotiations. A series of twelve 2 page summary notes were produced for the seminar covering both substantive issues arising within the Brexit process and the current state of play in the Brexit process. Note 6 explores the impact of Brexit on the functioning of EU27 markets with specific reference to the sugar and banana sectors given the extent if EU bilaterally agreed TRQ arrangements and the scale of UK import demand within the overall EU28 market equation.
Sugar
In the post sugar production quota period the main source of extra-EU competition for ACP sugar exports to the EU is projected to be the bilaterally agreed country specific duty free Tariff Rate Quotas (TRQs).
The UK’s departure from the EU will remove a significant proportion of EU raw cane sugar import demand (approximately 20%) in a context where the EU’s bilateral TRQ market access arrangements for sugar imports agreed under reciprocal trade agreements will remain unaffected.
In December 2017 the EC projected future EU28 import demand of between 1.3 million tonnes and 1.5 million tonnes. On this basis total EU27 import demand could easily fall to below 1.2 million tonnes up to 2030 (perhaps even as low as 800,000 tonnes).
In 2017 EU bilaterally negotiated sugar import quotas for the Balkans; Moldova, Ukraine, Colombia, Peru, Central American countries and South Africa totalled 683,2100 tonnes. This represents over half of the higher end projection for total annual EU27 import demand in the coming years.
EU Duty Free Sugar TRQs Under Bilateral Trade Agreements
| Country | Basic quota (tonnes) | Entry into force | Annual expansion | TRQ 2020 |
| Colombia | 62,000 | 2013 | +1,860 p.a | 75,020 |
| Peru | 22,000 | 2013 | +660 p.a. | 26,620 |
| Panama | 12,000 | 2013 | +360 p.a. | 14,520 |
| Central America | 150,000 | 2013 | +4,500 p.a. | 181,500 |
| Ecuador | 15,000 | 2017 | 450 p.a. | 16,350 |
| Moldova | 38,000 | To be determined | +38,000 | |
| Ukraine | 32,000 | To be determined | +32,000 | |
| Balkan agreements | 202,210 | +202,210 | ||
| Sub-total | 533,210 | 586,220 | ||
| South Africa | 150,000 | 2016 | 150,000 |
By 2020 imports under these TRQs will have reached 736,220 tonnes. The combined effects of expanded TRQ access and reduced EU import demand will intensify competition on EU27 markets for traditional African sugar exporters (South Africa has only recently been granted access to the EU sugar market).
This will require individual ACP sugar exporters to get closer to EU sugar refiners who are currently seeking to reposition themselves within the evolving EU sugar/sweetener market.
This will need to form part of national strategies aimed at building long term relationships with EU sugar companies and end users based on complementarities of interest.
Bananas
Since 2010 the EU has begun to increase the Tariff Rate Quota tonnages allowed reduced duty access under various bilateral trade agreements with Central American and Andean Pact countries.
For signatory countries this saw EU import tariffs fall from €145/t in 2010 to €110/t in 2015, with the individual TRQs also being expanded, from 2,929,500 tonnes in 2010 to 5,246,361 tonnes in 2015. This process of tariff reductions and quota expansion is ongoing and will continue until 2019 (see table below).
The agreement with Peru and Colombia entered into force on 1st March and 1st August 2013 respectively, with Honduras, Nicaragua and Panama on 1st August 2013, with similar concessions being subsequently introduced for Costa Rica, Guatemala, El Salvador, with the agreement with Ecuador only entering into effect on 1 January 2017.
EU $ Banana TRQs 2015 and 2019+
| Reduced Duty TRQs | |||
| Country | 2015 (€110/t) | 2019+ (€75/t) | |
| Colombia (Andean Pact FTA) | 1,687,500 | 1,957,500 | |
| Ecuador (Andean Pact FTA) (6) | 1,645,111 | 1,957,500 | |
| Costa Rica (Central American FTAs) | 1,281,250 | 1,486,250 | |
| Panama (Central American FTAs) | 468,750 | 543,750 | |
| Peru (Andean Pact FTA) | 86,250 | 101,250 | |
| Guatemala (Central American FTAs) | 62,500 | 72,500 | |
| Nicaragua (Central American FTAs) | 12,500 | 14,500 | |
| El Salvador (Central American FTAs) | 2,500 | 2,900 | |
| Mexico (Bilateral FTA) | *2,000 | 2,000 | |
| Sub total | 5,248,361 | 6,138,150 | |
* Duty €70/tonne
The rolling out of expanded reduced duty access for $ banana exporters is now impacting on the competitive position of ACP exporters.
These EU TRQ commitments agreed under bilateral trade agreements will remain unaffected by the UK’s departure from the EU.
EU27 countries will continue to carry the same import obligations despite the departure of the UK from the EU in a context where the UK has accounted for around 20% of total extra-EU banana imports in recent years.
These bilateral EU trade agreement commitments will see the tariff on bananas imported under these arrangements fall from €110/tonne in 2015 to €75/tonne in 2020 and an expansion of the volume of reduced duty $ bananas imported into the EU from 5,246,361 tonnes in 2015 to 6,138,150 tonnes beyond 2019.
In this context the disappearance of UK demand for bananas from within the EU market, will proportionally increase the commercial significance of these banana TRQs on EU27 markets.
This will be particularly significant if existing access to the UK market currently enjoyed by $ banana exporters under EU concluded trade agreements are not replicated from the date of the UK’s departure from the EU.
This will create a situation where beyond 2019 the TRQ access granted under bilateral EU trade agreements will be almost 38% higher than total extra-EU27 banana imports in 2016 (some 6,138,150 tonnes compared to 4,454,438 tonnes).
Despite the 15% expansion of EU per capita banana consumption since 2010, in the short term there is little prospect of EU banana consumption growth balancing the impact the loss of the UK market will have on overall EU import demand.
This could exert a strong downward pressure on EU27 banana prices, squeezing out less competitive banana suppliers.