Summary
Developments in the UK poultry sector in the context of the uncertainties created by Brexit highlight the importance of the EU trade framework for investment and production expansion in the poultry sector.  Major UK poultry producers have downsized their capital expenditures and frozen production levels in the face of uncertainties over future UK poultry sector trade policy. This UK investment and production response to the possible loss of the EU’s protective trade policy framework, suggests the EU’s poultry sector trade policy based on high MFN duties and strictly managed TRQ access, has been critical to the phenomenal growth in EU poultry production over the last decade since the financial crisis (+3,289,000 tonnes or +29%). This EU domestic poultry sector trade policy experience is in stark contrast the EU’s insistence under EPAs that ACP governments abandon any use of quantitative controls on imports from the EU, in a context where the EU is their major international agro-food sector trade partner.

Analysis of the UK food supply chains has highlighted how the effects of Brexit are not an event but a process, to which businesses respond within a multi-annual framework. One of the most important  effects of Brexit in terms of long term investment, is the uncertainty over the future UK agricultural trade policy framework, once the UK is no longer subject to EU trade policy disciplines. Current developments in the UK highlight just how important the continuity of the EU poultry sector trade policy framework has been to the structural development of the sector over the past decade since the financial crisis.

For example, James Hook the Managing Director (MD) of one of the UK’s largest poultry producers (PD Hook) has pointed out that while the company has been ‘expanding at between 3% and 5% per annum for the past 30 years’, in the face of Brexit related uncertainties the company is ‘holding our volume as it is for this year and next year’. He highlighted how the company was reducing its ‘capital expenditure by half until we know what’s happening’. He said this meant the company was ‘going backwards’, but he held this was ‘the smart decision’ (1). Across the UK poultry sector as whole the most recent EC figures show that up to June 2018 compared to the corresponding period in 2017, production growth had slowed to 1.9%, only some 41% of the EU average production growth (2).

At PD Hook meanwhile central to this ‘smart decision’ According to MD James Hook the main consideration behind P D Hook’s ‘smart decision’ were the uncertainties over future UK trade policy: ‘if we have a hard, cliff-edge Brexit, then (the UK) might have to make trade deals that result in cheap chicken coming in from the US. We might have cheaper product coming from Thailand and Brazil, and that would mean a price drop across the market’ (1).

This reflects broader UK poultry industry concerns. To date the UK poultry sector has benefitted from common tariffs on imports from beyond the EU’s borders, as well as ‘a single legal operating framework’ and the free movement of poultry meat across all EU28 markets (3).

The tariff system which protects UK producers consist of high MFN tariffs with quota restricted access for different types of poultry with no less than 38 tariff rate quota’s (TRQs) being applied to poultry meat imports. Virtually no imports of poultry meat take place outside of these TRQ arrangements unless a company is seeking to establish a track record of exporting to the EU in order to gain access to a TRQ allocation.

This EU trade regime has made a major contribution to the growth of the poultry sector in the UK and other EU member states. Indeed this created a situation whereby between 2008 and 2017 the growth in EU domestic poultry meat production (+30%) was able to exceed the growth in EU poultry meat consumption (+25) with imports of poultry meat falling slightly in 2017 compared to 2008 (4).

While a hard Brexit would put an end to the single legal operating framework and the free movement of poultry meat across all EU28 markets, of particular concern is the prospect of opening the UK market to unfettered competition from low cost poultry producing countries.

EU Consumption, Production Imports and exports (thousand tonnes)

	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	+
Consumption	11,349	11,584	11,771	11,904	12,214	12,264	12,721	13,266	13,866	14,013	+2,664
Production	11,380	11,660	12,134	12,371	12,706	12,793	13,271	13,790	14,477	14,669	+3,289
Imports	873	860	797	832	842	793	823	856	884	831	– 42
Exports	903	937	1,159	1,299	1,334	1,322	1,372	1,381	1,495	1,486	+ 583

Sources: Table, ‘Poultry meat market projections for the EU, 2005-2030 (thousand tonnes c.w.e.)’, 18 December 2017
https://ec.europa.eu/agriculture/sites/agriculture/files/markets-and-prices/medium-term-outlook/2017/2017-tables.pdf

This is a particular worry given the views expressed by some UK Ministerial advisors that the best response to solve the food supply challenges thrown up by a ‘no-deal’ Brexit would be to ‘abandon all checks and regulation of food coming into the UK’ (1).  While The UK Secretary of State for the Environment, Food and Rural Affairs Michael Gove has repeatedly asserted the UK’s high food standards will not be compromised, the issue of an early elimination of tariffs on poultry meat imports remains.

This needs to be seen in a context where ‘over 50%  of all meat consumed in the UK is poultry’ and the UK is around 60% self-sufficient in poultry meat.  95% of UK poultry meat imports consist of ‘whole chicken breast or made-of-chicken-breast products’. ‘The majority of these imports come from the EU’, and reached 456,000 tonnes in 2017 (3).

In addition it has been argued that ‘crashing out of the EU without a deal, means (the UK) would lose much of the EU external infrastructure that allows us to monitor and inspect the food we eat and how it is prepared’. It has been highlighted how while it would be possible for the UK to construct its own regulatory system ‘given the glacial pace of the Government around all elements of Brexit, it seems unlikely that this would happen before we are due to leave next March, exposing consumers to food produced to lower standards’(5).

It is the prospect of the abandonment of this tightly managed trade regime if the UK leaves the EU under a ‘no-deal’ scenario in the context of the limited institutional capacity to enforce high quality standards which is of such concern to UK poultry producers.

At PD Hook meanwhile the market challenges potentially arising from across the board UK tariff liberalisation would be compounded by the cost challenges facing the company arising from a Brexit induced reduction in access to workers from EU member states. Already the company which is ‘dependent on eastern European labour ‘has double the number of vacancies’ it used to have (1). This again illustrates the process nature of the Brexit effects.

The experience of PD Hook in regard to access to EU labour is indicative of broader challenges facing the UK poultry sector. According to the ResPublica report a workforce of some ’37,200 are directly employed by the poultry industry, with around 28,000 employed in poultry meat processing and 9,000 in poultry production and farming. Of these an estimated 60% are migrant workers, mostly form the European Union’. It is estimated that loss of access to this non-UK workforce would increase labour costs by 50% (3).

Comment and Analysis The downsizing of capital expenditures and the production freeze at PD Hook alongside the slowdown in UK production expansion in 2018 (which occurred despite the flock rebuilding process underway following the 2016/17 HPAI outbreaks), would appear to demonstrate the importance of the EU’s import regime to the past expansion of the UK poultry sector. The maintenance of high MFN tariffs and a system of strictly managed TRQ based access has meant the EU has been able to maximise production and employment growth in the domestic poultry sector in the face of rising consumer demand for poultry meat. This increase in demand has been fuelled by a shift away from red meat consumption on health grounds and the household income pressures arising from the financial crisis. Current developments in the UK poultry sector suggest without the certainty provided by the EU’s tightly managed poultry meat trade regime the expansion of EU poultry meat production would have been much lower over the past decade than has in fact been the case. It is this expansion of EU poultry production which has been a key factor in the growth in EU exports of frozen poultry parts to ACP markets, particularly in Africa, over the past decade. There is only a limited market for these poultry parts in Europe and so overtime African markets have become more and more important to the EU poultry sector, as EU companies come under increasing pressure to maximise revenues earned on sales of the whole carcass. Against the background of the centrality of managed poultry trade arrangements to the growth of the EU poultry meat production, the EU’s insistence under recently concluded economic partnership agreements that African and other ACP governments abandon any use of quantitative restrictions on imports from the EU (including poultry meat) in a context where the EU is Africa’s principal agro-food sector trade partner, would appear to be inconsistent with the EU’s own trade policy practice, which alongside CAP reforms in other related sectors (i.e. animal feed), has played such a critical role in the expansion of EU poultry meat production.

Sources:
(1)  Guardian, ‘Food and Brexit will our cupboards be bare?’, 15 Sept 2018
https://www.theguardian.com/food/2018/sep/15/food-and-brexit-will-the-cupboard-be-bare-jay-rayner
(2) EC, ‘EU Market Situation for Poultry Committee for the Common Organisation of the Agricultural Markets’, 20 September 2018
https://circabc.europa.eu/sd/a/cdd4ea97-73c6-4dce-9b01-ec4fdf4027f9/24.08.2017-Poultry.pptfinal.pdf
(3) ResPublica, ‘Coming Home to Roost: The British Poultry Meat Industry After Brexit’,  5 September 2018
https://www.respublica.org.uk/wp-content/uploads/2018/09/ResPublica-Report-Coming-Home-to-Roost-Sep-2018.pdf
(4) EC, ‘EU Agricultural Outlook for Markets and Incomes 2017-2030’, Tables, ‘Poultry meat market projections for the EU, 2005-2030 (thousand tonnes c.w.e.)’, 18 December 2017
https://ec.europa.eu/agriculture/sites/agriculture/files/markets-and-prices/medium-term-outlook/2017/2017-tables.pdf
(5) ResPublica, ‘Coming Home to Roost: The British Poultry Meat Industry After Brexit’, press release, 5 September 2018
https://www.respublica.org.uk/our-work/publications/coming-home-to-roost/

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