ACP Livestock Sectors and the Collapse of Cross Party Talks to Resolve the Brexit Impasse

Given the experience of trade displacement following the Russian import embargo on agro-food imports from the EU, this is potentially a matter of concern to specific ACP countries and regions targeted by both UK and EU27 exporters seeking out alternative markets. The hard reality is that in the event of a ‘no-deal’ Brexit high MFN tariffs would be charged on mutual EU27/UK trade in livestock products (6), with in addition the EU being compelled by WTO non-discrimination provisions to apply standard EU 3^rd country import controls on all livestock product imports from the UK. This would be likely to halt all UK exports of livestock products to the EU for a considerable period of time.

In the poultry meat sector this would affect 810,000 tonnes of EU27 poultry meat exports to the UK (mostly breast meat) and around 192,000 tonnes UK poultry meat exports to the EU27 (mostly poultry parts (7). EU27 poultry meat exports to the UK are equivalent 57% of total EU27 exports to non-EU countries (8).

A no-deal Brexit could therefore leave EU27 exporters seeking alternative markets for the equivalent of more than 3 times the growth in EU27 extra-EU poultry meat exports since 2014.  UK exporters meanwhile would be looking for new markets equivalent to more than double (+136%) current UK extra-EU exports. This needs to be seen in a context where ACP markets currently take over 2 in every 5 tonnes of extra-EU poultry meat exports from EU28 countries (8).

A similar situation could arise in the beef sector. Currently mutual EU27/UK annual trade in beef products has averaged around 436,000 tonnes (9). EU27 beef exports to the UK are 1 ½ times more than total EU27 beef exports to non-EU member states. UK beef product exports to the EU meanwhile at 127,000 tonnes per annum are equivalent to almost 15 times the level of UK extra-EU exports of beef products.

Against this background any disruption of EU27/UK trade would be likely to generate substantial pressures on EU27 and UK beef exporters to find alternative markets. This needs to be seen in a context where 1 in every 4 tonnes of EU frozen beef exports in 2018 were destined for an ACP markets (8).

Determining to what extent the disruption of local and intra-regional trade flows would be likely to impact on local production to a greater degree than consumers would benefit will require a country by country review. For example any upsurge in UK or EU27 beef exports to markets like South Africa would potentially be a source of concern to the neighbouring Namibian beef sector given the importance of the South African market to the Namibian beef industry. Similar concerns could also arise in regard to West African cattle and beef sector trade flows.

The extent to which this is the case however will need to be empirically determined. In this regard the market repositioning strategies adopted by the Irish beef sector in response to a ‘no deal’ Brexit are likely to take on considerable importance in future EU27-ACP beef sector trade flows.

Turning to the dairy sector mutual UK/EU27 trade in dairy products amounts to around 2.4 million tonnes per annum (10) According to the Secretary General of the European Dairy Association, Alexander Anton, any disruption of this mutual trade would carry ‘catastrophic repercussions’ (11). Putting this in perspective Secretary General Anton pointed out how 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).

The disruption of EU dairy exports to the Russian market in 2014 saw the accumulation of EU stocks of skimmed milk powder (SMP) which have taken almost five years to eliminate. During this time EU SMP stocks made a unique contribution to the sustained depression of global skimmed milk powder prices, while also stimulating investment in EU milk powder plants and innovative milk powder formulas (e.g. fat filled milk powders) specifically targeted at poorer African markets (see companion epamonitoring.net article, ‘Arla Plans Expanded Investment in Production of Milk Powder for Export to Africa’, 1 March 2018).

Global milk powder prices have been depressed to levels which have made dairy sector development based on imported milk powders far more commercially viable than dairy sector development based on the establishment and enhancement of local milk-to-dairy supply chains (see companion epamonitoring.net article, ‘Ageing EU SMP Intervention Stocks See EU SMP Prices Discounted’, 6 July  2018). This has been further compounded by the pattern of EU corporate investment in African dairy sectors, which is largely based on the processing and repackaging of imported milk powders. However it should be noted a ‘no-deal’ Brexit would be likely to generate substantial pressure to extend these trade and investment activities to include a focus on increased imports of butter, cheese and even liquid long life milk (see companion epamonitoring.net articles ‘FC WAMCO Dairy Development Programme Expands Amidst Continued Import Dependence’, 9 July 2018 and ‘RFC Announces Factory Expansion and Investments in Local Milk Supplies in Nigeria Amid Slowdown in Growth EU Exports of SMP’, 11 February 2019).

While accumulated EU milk powder stocks have been almost entirely depleted, a no-deal Brexit in November 2019 could see the rapid re-emergence of high levels of EU SMP stocks, as milk formerly used in cheese and butter exported to the UK is diverted into milk powder production (see companion epamonitoring.net articles ‘Brexit Overshadows EU Dairy Sector with Potentially Important Knock-on Effects on ACP Dairy Sectors’, 22 February 2019).

However in the immediate ‘no-deal’ Brexit period this could see a sudden surge in EU27 exports of cheese to the Caribbean markets and butter and liquid long life milk to African markets at highly discounted prices. While this could bring consumer benefits it could also further undermine efforts to develop local milk to dairy supply chains and local value added dairy processing industries in the affected ACP countries.

Overall this suggests a need for special safeguard measures under the existing EU EPAs with ACP countries and any ‘Continuity Agreements’ concluded by ACP government with the UK, in order to deal effectively with any sudden import surges which could threaten domestic production in ACP countries.

This would appear to be particularly important in the poultry sector in the case of the Caribbean where the poultry sector is the leading agricultural sector. It would also appear to be important in the poultry sector in Ghana and the SADC EPA region. Such special safeguard measures would also appear to have particular relevance for dairy producers in East Africa and the wider Southern African region.

Particular concerns would also appear to arise for the Namibian beef sector and in regard to Namibia’s relatively newly established poultry and dairy industries, which in recent years have periodically faced intense competition from imports from South Africa, not all of which were produced from South African originating raw materials.

The governments of ACP countries likely to be targeted by EU27 or UK exporters will need to assess what impact sudden import surges of poultry meat, beef and dairy products could have on markets served by local producers.

ACP poultry, beef and dairy companies meanwhile will need to review their marketing strategies and develop contingency plans to deal with the commercial consequences of the trade displacement effects of a ‘no-deal’ Brexit by November 2019, or a negotiate ‘hard’ Brexit by 1^st January 2021.