Parliamentary report warns of the complexity of Brexit challenges in the agricultural sector

Important WTO dimensions to future UK agricultural and agricultural trade policies are faced which could prove complicated to resolve. Depending on how UK/EU27 negotiations process works out, new opportunities for exports to the UK could be opened up for ACP agro-food exporters. For example stricter UK immigration controls on agro-food sector workers could make it more attractive for UK businesses to import consumer ready agro-food products, allowing ACP exporters to move up the value chain. The UK Parliamentary report highlights the need for transitional trade arrangements for UK trade relations, given the complexity of the issues involved. This recognition of a need for transitional arrangements is something on which ACP governments could usefully build.

At the end of April 2017 the UK House of Lords European Union Committee released a report entitled ‘Brexit: Agriculture’.  This report dealt with three main dimensions of Brexit and the agricultural sector:

  • the importance of CAP financial assistance programmes to UK agricultural producers;
  • the importance of UK-EU27 trade in the agricultural sector;
  • the importance of trade agreements with third countries for the agri-food sector in the UK.

In terms of financial support to the agricultural sector the report noted that while CAP programmes are ‘bureaucratic and burdensome…many (UK) farmers rely on Pillar I and II funding to keep their businesses viable’.  It was maintained any reductions in support levels would have ‘a significant impact on both the agriculture sector and the wider rural economy’ of the UK. Nevertheless it noted Brexit provided an opportunity to design more efficient support instruments better suited to UK agri-food sector conditions (1).

However a cautionary note was sounded with reference to WTO rules, which, it was argued, could ‘hinder the design of support schemes tailored to UK objectives’, unless agreement is reached on dividing up the EU’s amber box allowance, in ways which maximize the room for manoeuvre of the UK government. This however may not be straight forward; with the report noting the UK government should not be ‘overconfident that other WTO members would accept such a split’ (1).

The report noted how UK farmers would ‘need time and clarity from Government to make the transition to a new regulatory framework and a new funding system after Brexit’ (1).

More broadly the report noted how without access to migrant labour from EU27 countries ‘both the agricultural sector and food manufacturers will face severe difficulties’ in the UK (1).

In terms of UK-EU27 agricultural trade, the report highlighted how the CAP regime had facilitated ‘free trade in agrifood products within the EU Single Market’, with the EU being the single largest market for UK agriculture and food products’. EU membership is thus critical to UK-EU agri-food sector trade.

Outside of the EU the UK could find itself ‘subject to the high external tariffs applied by the EU to agricultural products—to the detriment of UK farmers and food manufacturers—unless a preferential trade agreement is agreed’ (1). In addition ‘the UK may also face non-tariff barriers when exporting agriculture and food products to the EU, resulting in delays at ports and additional administrative costs’.  This is an issue of particular importance in the agricultural sector given the perishable nature of agricultural products, with delays almost always reducing the commercial value of traded products. This it is felt could severely disrupt existing agri-food supply chains, particularly if UK and EU27 non-tariff regulations were to diverge post-Brexit (1)

The report highlights the doubts which exist over ‘whether the UK can negotiate the Government’s envisioned trading relations with the EU’, concluding ‘transitional arrangements will be critical to the long-term success of UK farming’ (1). Transitional trade arrangements with the EU are seen as essential since it is believed unlikely complex agricultural trade policy issues could be resolved in the coming two years. Such transitional arrangements would avoid ‘the potentially disastrous effects of trading on WTO terms on the agricultural and food sectors’. It further called on the government to consider ‘negotiating access to the EU’s preferential trade arrangements with third countries for a transitional period (1). The report advised the government to pursue a ‘phased transition, so as to allow time for the UK to negotiate new FTAs with third countries’.

Significantly the report notes ‘for a considerable period of time, it will not be possible’ for any expansion of exports to non-EU countries to off-set any reduced access to the EU27 markets (1).

In terms of trade with third countries, the report noted how ‘once outside the EU the UK must develop its own external tariffs’. This will need to balance farmer and consumer interests. 

In this context the UK will have to pay close attention to the tariffs it sets for agricultural products, since ‘high tariffs on imports would raise the cost to UK consumers, whereas lower tariffs could reduce the cost of food to consumers, but might undermine the domestic agricultural sector’s competitiveness’ (1).

An initial challenge faced will be securing agreement on the division of EU WTO commitments on tariff rate quotas.  This it is argued ‘could be challenging’ since any agreed UK/EU27 reallocation would also need to be negotiated with other WTO members. While this potentially could be based on current patterns of trade, individual WTO members could challenge this if they felt it limited their market access opportunities (1).

The report notes EU membership also provides the framework for UK agri-food trade with many third countries with which the EU has negotiated preferential trade agreements (1), (although this by no means covers all UK/EU agri-food exports to third countries). However it is unlikely ‘UK participation in these agreements can be preserved after Brexit’. The report therefore called on the UK government to, as a matter of urgency, ‘clarify whether or not such agreements could indeed be grandfathered to preserve preferential trade arrangements for agri-food products’ (1).

It notes how at present the governments vision of the UK as a ‘leading free-trade nation with low tariff barriers to the outside world does not sit easily with its declared commitment to high quality and welfare standards in the UK farming sector’. The report argues ‘combining and delivering these two objectives will be a considerable challenge’ (1).

Overall it conclude the UK’s future agricultural policy cannot be seen in isolation from future UK trade policy, since ‘the terms of future free trade agreements will affect or limit domestic policies on regulation, funding and farming standards, while those policies may in turn determine which countries UK products can be sold to’ (1).

Meanwhile the Institute for Government (IFG), a think-tank focussed on enhancing the efficiency of government, has warned ‘the U.K. must “radically” overhaul its approach to trade policy if it is to land post-Brexit deals with other countries’. It claims improvements will be required across the British government, with officials needing to show a much greater openness to collaborating across departments and with the private sector and non-state actors. It recommends setting up ‘an independent body to advise on trade

It warns ‘Whitehall is not set up to do trade well’ since it is secretive and staffed by ‘generalists’ who ‘lack the necessary expertise’. (2)

In addition the IFG reports notes officials are often ‘unwilling to make difficult trade-offs’. It argues the ‘government’s lack of experienced negotiators is a “major gap” in its credibility’.  It suggests the government should ‘build expertise by starting with smaller deals that are easier to achieve’, with priority being accorded “carrying over” existing EU free trade agreements’, with emphasis being placed on agreements with ‘Canada, Singapore, South Korea, Switzerland and Turkey’. In terms of new agreements, it recommends first focussing on negotiating with ‘like-minded, medium-sized economies’, such as  Australia and New Zealand, which it is maintained should be easier to negotiate than mega deals with the US, Brazil, China and India (2).

It warns UK government Ministers ‘taking back control of trade… means taking back responsibility for some very difficult political choices’ (2).

Comment and Analysis
There are a number of tensions within the UK governments approach to Brexit as this relates to the agri-food sector.Firstly, there is the tension between UK consumer interests and UK producer interests.Secondly there is the tension between the UK government’s free trade instincts and its commitment to high quality agri-food production.Thirdly there is the tension between the labour requirements of UK agricultural producers and food manufacturers and demands within the UK for stricter controls on migrant labour from EU27 member states.How these tensions are resolved could have important implications for individual ACP countries.

For example, in reconciling consumer and producer interests the UK government could resort to the simple expedient of first liberalising in those areas where the UK has no domestic production interest.  This would affect ACP exports such as rice, bananas and citrus fruit, where the UK has no domestic production interest, but the EU maintains high tariffs and seasonal restrictions to protect domestic producers in other EU member states.

This will primarily impact on only a limited number of ACP countries, notably Guyana and Surinam, in the rice sector, the Dominican Republic, Surinam, Ivory Coast, Cameroon, Ghana, Belize and St Lucia in the banana sector and South Africa, Swaziland and Jamaica in the citrus sector.

In all of these areas full UK tariff liberalisation, as part of the process of squaring the circle of competing consumer and producer interests, would intensify competition for ACP suppliers (for more details on the extent to which the UK’s departure from the EU will potentially affect these three areas of ACP exports see companion articles ‘ACP banana exporters and Brexit’, ‘ACP rice exporters and Brexit’, ‘ACP citrus exporters and Brexit’ parts 1 and 2).

However, full liberalisation of products where the UK has no production interest may not be immediate. In reconciling the governments free market instincts and respect for high quality standards for agri-food products, UK officials may prefer to liberalise in the context of formal free trade area agreements.  This would allow market access to be linked to product standards.

This being noted, capacity constraints within the UK administration are likely to place very real constraints on the ability of the UK government to pursue simultaneously multiple free trade area agreement negotiations.

An area where early liberalisation of the UK import regime would impact on a wider grouping of ACP exporters is in the sugar sector. This could arise from the mobilisation of political pressure by Tate & Lyle Sugars for an immediate abolition of the €98/tonne CXL duty on non-ACP preferred sugar suppliers (for details see companion article ‘What are the implications for ACP sugar producers of Tate & Lyle Sugars expectations on UK sugar sector policy post-Brexit?’ 20 March 2017). This could affect up to 17 ACP sugar exporters, although only 11 of them would be affected to any significant degree.  This would however compound challenges ACP sugar exporters already face from the combined effects of the final stages of implementation of EU sugar sector reforms and pressure from public health activists for a reduction in the use of ‘hidden’ sugars in prepared food products (for more details see companion articles, ‘Multiple challenges pending for ACP sugar exporters’, 1 May 2017).

However the issue of potentially greater structural importance lies in how the UK government will reconcile it migration control concerns with the labour requirements of the UK agri-food sector. Stricter controls on migrant labour from EU27 members would be likely to create acute labour shortages in the UK agri-food sector.  This could lead UK businesses to source more consumer ready agri-food products from preferred partners, with low wage costs.

Potentially, if UK standards can be cost effectively complied with, this could create substantial new opportunities for value addition in ACP countries prior to export of labour intensive agri-food sector products. The extent to which individual ACP countries are able to benefit from any such development will be critically determined by the costs of freight to the UK and the related issue of the length of time it takes for prepared food products to reach the UK market in comparison to their safe shelf life.

Some ACP exporters already export consumer ready products to the EU, ranging from Namibia’s individually vacuum packed steaks which are bar coded to retailer requirements, to Kenya’s exports of pre-packaged, washed and cut vegetables.

Opportunities in this regard will be critically determined by the nature of the future UK-EU27 agri-food sector trade relationship. An impasse on both UK-EU27 agri-food trade issues and migrant labour issues, could potentially maximise opportunities for ACP suppliers, if existing preferential access to the UK market can be retained. A smooth transition on agri-food sector trade arrangements, yet an impasse on migrant labour issues, could see labour intensive agri-food production being exported from the UK to lower wage economies in the EU27.

ACP exporters will need to closely monitor the state of play in UK-EU27 negotiations in order to identify the commercial viability of investing in moving up the value chain in future trade with the UK.

The proposal for the UK to consider ‘negotiating access to the EU’s preferential trade arrangements with third countries for a transitional period’, while potentially one means of securing a continuation of current terms and conditions of access to the UK market beyond 30th March 2019, would leave future ACP access to the UK market dependent on agreement being reached between the UK and EU27 governments. This will be by no means a straight forward process.

While the EU27 governments have recognised the need for ‘transitional arrangements’, the UK government currently denies any need for such arrangements, maintaining all required agreements can be negotiated in the 2 year period before the UK’s formal departure from the EU on 30th March 2019.

However, over time this UK view may well evolve as the enormity of the practical challenges faced becomes apparent.

Against this background the House of Lords identification of the probable need for transitional arrangements, given the complexity of the issues to be addressed and the manifest capacity constraints on the UK side, is a dimension which could usefully be taken up by ACP members in their discussions with politicians in the UK.

This is particularly important since transitional arrangements to ensure continued access to the UK market for ACP exporters on current terms and conditions from the 30th March 2019 are likely to essential.

The emphasis in the House of Lords report on starting with smaller deals that are easier to achieve and prioritising existing EU trade deals, is also a dimension which ACP governments could usefully pick up, in the context of a two stage approach to redefining future trade arrangements with the UK.

In this context, any transitional arrangements for the carrying over of existing ACP trade preferences on the UK market from 30th March 2019 could usefully be linked to fast-tracking negotiations leading to ‘EPA+’ arrangements which restore parity of tariff treatment for UK exporters with their EU27 competitors.

A final area of impact of the UK’s departure from the EU which should not be neglected is the impact of the removal of UK import demand on the functioning of EU27 markets, where existing EU bilateral TRQ arrangements will remain unchanged.  This could increase competition for ACP suppliers on EU27 markets.

(1) House of Lords, ‘Brexit: agriculture’, European Union Committee, 20th Report of Session 2016–17, 3 Mat 2017
(2),’Changes to trade deals could prove difficult for UK’, 17 May 2017
(3) Institute for Government, ‘Taking back control of trade policy’, 17 May 2017

Key words:          BREXIT, CAP

Area for Posting: BREXIT, CAP