Summary
UK meat exports to the EU are down 50% in the first six weeks of 2021, with the decline in poultry meat being initially most pronounced. In the long term it is expected UK exports will be down between 230% and 50% depending on the product and size of the exporting enterprises. Particularly in the poultry meat sector this could lead to a surge in exports to non-EU markets, with African and Caribbean markets for frozen poultry parts likely to be targeted. This could easily double current levels of UK exports to targeted African and Caribbean markets. The eventual level of UK trade diversion in the poultry sector will be determined by the nature of the controls placed on mainland UK to Northern Ireland poultry trade.
The British Meat Processors Association has posted a report on the impact of Brexit on UK meat exports to the EU in the first quarter of 2021. The findings are stark. In the first six weeks of 2021 exports were running at just 50% of the pre-transition volumes, with most companies expecting a permanent loss of export levels to the EU of 20%, although some expect permanent losses of 50% of pre-transition export volumes (1).
The impact at company level will be affected by the type of meat products being exported and the size of the company, with smaller scale UK exporters facing most serious challenges. Smaller exporters have been worst affected by the virtual halting of ‘groupage’ road haulage operations to the EU (this accounted for over 40% of UK meat exports to the EU) (1).
The BMPA estimates the costs of certification of consignments destined for export have risen between 60% and 100% depending on the size of the consignment, with the total cost to the industry estimated at between £90 million and £120 million per annum. These additional costs include ‘the costs for customs declarations, customs agents, freight forwarders and additional veterinary inspections.’
These additional costs do not factor in the internal business costs required to get to grips with the new trade complications and increased logistical costs (higher freight insurance, higher haulage costs to compensate for delays). These cost increases ‘are rendering certain exports un-viable.’
However, in addition, it is now taking up to an extra 3 days to deliver cargoes to customers in the EU. This is reducing the shelf life of the products delivered and hence the value of the export sales. This is seeing some EU customers cancelling orders because of these extra costs and delays. With customers turning to other sources of supply, it will be difficult for UK exporters to regain previous secure markets, unless the commercial disadvantages arising from the increased costs now faced can be effectively addressed (1).
It is highlighted how, while some of the sources of extra cost and delays in the livestock products sector are transitional (arising from mistakes made in documentation linked to a lack of familiarity with new procedures and systems of trade administration). While transitional cost increases should ease over time, as businesses and officials become familiar with the new procedures and new trade management systems are put in place, other sources of delay are structural, being a result of the new UK/EU trade arrangement simply not being ‘designed to cope with the next day, just-in-time food supply chains’ which have been developed over the past 30 years. These structural problems will remain and will make British exporters less competitive on the EU markets.
The BMPA identifies three areas where UK government action is needed:
- Inspection and certification: Currently, the ‘UK export certification system relies on a small pool of fully qualified vets’, to fulfil all necessary trade administration requirements, with this meaning there are ‘simply not enough vets to process the volume of checks and paperwork needed to maintain the export volumes’ at pre-Brexit levels.
What is more, the private sector-based system is generating a situation where
increased demands in the context of a limited supply of vets is driving up certification
costs, with lower value export products struggling to carry these increased costs. The
BMPA has therefore called for the creation of a government run SPS inspection service
to carry out ‘appropriate checks at each stage of the supply chain by a variety of
Government employed veterinarians and other auxiliaries trained to perform different
levels of checks.’ This it is held could be modelled on similar arrangements in the
Netherlands, Germany, and Denmark.
- Electronic documentation: The absence of electronic export health certificate (EHC) systems ‘is causing lengthy delays despite trade volumes being around 50% of normal.’ Currently the Animal and Plant Health Agency (APHA) is ‘only processing 250 EHCs a day’, compared to a likely demand of 1,000 per day should export volumes return to pre-Brexit levels.
Against this background the BMPA calls for the UK government to establish ‘an
integrated, end-to-end electronic tracing and certification system’, employing
‘technology already in existence’, so it can be easily integrated with EU systems.
- The conclusion of a veterinary agreement with the EU: the BMPA has called for the conclusion of a ‘close veterinary equivalency agreement with the EU’, preferably modelled on the Swiss model. This largely follows ‘EU rules but without being legally bound to do so’ (so called ‘autonomous adaptation’). While this allows a certain ‘divergence from EU rules’, it does so without compromising animal health or biosecurity, while at the same time allowing Switzerland to ‘pursue its own international trade policies’ (1).
Significantly the BMPA notes how it will not be possible to find alternative non-EU markets for UK fresh meat exports. This needs to be seen in a context where exports account for 19.5% of the total production of BMPA members and ‘between 75% and 90% of overseas trade’ of BMPA members goes to EU countries (2).
Of perhaps equal significance are calls from the BMPA for the UK government to apply comparable SPS checks to imports from the EU to those applied to UK exports to the EU, if a long-term deterioration in the competitive position of UK livestock product producers is not to emerge. This is an issue of growing concern to the NFU (3).
While the non-tariff issues facing livestock product exporters were highlighted by the BMPA report, the specific issues faced in the poultry sector were highlighted in a submission of British Poultry Council (BPC) to the House of Lords European Union Committee.
This submission highlighted how 75% of UK poultry meat production consists of ‘dark cuts like wings, legs, and thighs’, with exports being essential to the sale of these products and hence, exports being ‘important to the sector’s viability.’ As with other meat products the BPC highlighted how the current challenges being faced were ‘far bigger than teething problems’, with in the poultry sector ‘the additional cost of applying the bureaucracy alone (additional resources, time, people, etc)’ estimated at ‘around £10 million across the industry’ (4).
According to the BPC, ‘Every delay, every piece of additional paperwork, every additional check, every new requirement, every rejected load impacts the flow of food, adds to the cost of production and challenges business viability and sustainability’. This is particularly the case since ‘certain rejected loads have to be returned to their point of origin and will likely be destroyed or rendered’, which constitutes an additional cost and food waste (4).
It was highlighted how in the poultry sector, ‘delays during the export process could result in businesses losing 50-100% of the value of the product depending on the length of delay and the amount which might have to be redirected to rendering or elsewhere.’ It was highlighted how ‘the cost per lorry load of fresh meat would see a swing of up to £15,000 per load rejected (this includes the value of the load plus the cost of disposal/rendering).’ What is more the ‘addition of new requirements needs more people, more time, and more resources, and disruption of the flow of food leads to increased cost in the supply and demand dynamic’ (4).
This has created a situation where UK poultry businesses have been reluctant to export to the EU ‘due to concerns over the administrative barriers, fear that the systems would not work’, or simply being ‘unable to find hauliers to make the journey.’ According to the BPC ‘overall trade in the first week of January was only one fifth of normal volumes’, although export volumes subsequently recovered to ‘around a half of normal’ levels (around 100 lorries of fresh poultry exports per week compared to normal levels of around 200 lorries of fresh poultry meat departing the UK for the EU) (4).
The Chair of the BPC maintained if this situation was allowed to continue it ‘could have catastrophic implications for the British food sector’ (5). This need to be seen in the context of the tight profit margins in the poultry sector (6)
This also needs to be seen in a context where 1/3 of the British broiler industry is located in Northern Ireland, which remains part of the EU customs union and single market and hence continues to have free access to the EU27 market.
For the mainland UK poultry industry, the BPC highlights how current fresh poultry meat exports to the EU simply cannot be stockpiled. In this context the BPC calls on the UK government to:
- Bring export health certification ‘into the service contract between the FSA and the food business operators’ and ensure a ‘reliable and consistent’ processing of EHCs, including through the introduction of electronic certification, in which the necessary investment should be made.
- ‘Work with EU partners to agree clear and consistent instructions on the interpretation of the export health certificates to eliminate administrative errors.’
- ‘Commit people and resources to trade missions in target markets, e.g., China’.
- Ensure sufficient Official Veterinarians are available to do the work.
The ability of the UK government to get to grips with the shortage of official veterinarians is seen as ‘questionable’ given ‘95% of the Food Standards Agency’s vets are non-UK citizens and veterinary public health is a low priority in UK vet schools’ (4).
This situation potentially raises serious doubts about the ability of the UK to return to pre-Brexit levels of livestock product exports to the EU and the credibility of the UK as a partner for the granting of equivalency status by the EU.
The British government meanwhile continues with its ‘Panglossian’ view of all matters Brexit, with a DEFRA spokesperson maintaining ‘the “majority of businesses” were “adapting well” to the new export requirements’, with the government continuing to support traders ‘in their transition to these new arrangements’ (7). In this context it should be noted the BMPA maintains ‘even if the government acted to improve the export system immediately… a continued drop in trade would be likely as fixes would be “complex and lengthy”, forcing some companies to cut back on production and others to cease trading’ (7).
This issue is likely to be further complicated when in April 2021 the EU begins to introduce a series of changes to EHC requirements, which will be phased in up to October 2021.This will require the UK EHC process ‘to be updated to reflect the new rules’, with these new rules also applying to mainland UK to Northern Ireland trade, once agreed grace periods lapse (8).
| Comment and Analysis In the poultry sector the inability of UK exporters to find alternative non-EU markets for UK fresh meat exports, suggests this is likely to give rise to higher levels of UK frozen meat exports. This is particularly the case given UK exports of poultry parts are intimately linked to production of breast meat for domestic UK consumption. This prevents a scaling back of production of poultry parts since this would then reduce supplies of breast meat to the UK market.This strongly suggests the current problems faced by UK livestock producers in exporting to the EU, will in the first instance see a significant expansion of UK exports of frozen poultry parts to non-EU markets, most notably markets in ACP countries. Between 2013 and 2020 African and Caribbean markets took over 50% of UK poultry meat exports to non-EU markets. African and Caribbean markets annually took between 38% to 63% of total UK extra-EU poultry meat exports over this period.Any diversion of UK fresh poultry meat exports to the EU into frozen poultry meat exports would therefore be likely to target African and Caribbean markets. This is particularly the case since UK exports of poultry meat to the EU are dominated by poultry parts, in a context where frozen poultry parts also dominate the UK’s poultry meat export trade to African and Caribbean markets. In terms of the potential significance of trade diversion, in 2019 the UK exported a total of 340,289 tonnes of poultry meat to the EU27. If all of this displaced trade were switched from fresh to frozen poultry part exports, a decline in UK average exports of 50% would give rise to the displacement of some 170,000 tonnes of UK poultry meat exports (largely poultry parts) to non-EU markets. This far exceeds the total volume of UK extra-EU poultry meat exports, which in 2019 stood at 119,978 tonnes. Thus, UK exports of poultry parts to African and Caribbean markets could easily double, if a permanent 50% decline in exports to the UK were to occur. Similar even if only 20% of current fresh poultry meat exports to the EU were diverted to frozen poultry meat exports, this would see an additional 68,000 tonnes exported to non-EU markets. Given in 2019 the UK exported 63,945 tonnes to African and Caribbean markets (48,937 tonnes and 15,008 tonnes respectively), a major expansion of UK exports could still occur under this scenario. This needs to be seen in a context where the current problems faced by UK exports of livestock products are only likely to get worse in the coming years. This is in part due to the exceptionally high dependence of the UK abattoir sector on non-UK nationals for the conduct of veterinary controls (95% of whom are non-UK nationals) and the introduction of full UK import controls on livestock products crossing over from the EU (see companion epamonitoring.net article ‘Implications of the Veterinary Constraint on UK Export Health Certification’, 15 April 2021). This being noted, the continued free access of the Northern Ireland poultry industry to the EU customs union and single market (in a context where it accounts for 1/3 of UK poultry production), will serve to ease pressure on UK poultry producers to find alternative non-EU markets. In terms of the overall level of UK poultry part production seeking non-EU markets, a lot will depend on the rigour with which the EC seeks to ensure the UK complies with commitments to conduct phytosanitary controls on poultry products crossing over from the mainland UK to Northern Ireland. If the UK is allowed to get away with serving Northern Irish markets without standard EU 3rd country import controls being applied to the movement of poultry products between the mainland UK and Northern Ireland (the current situation under the ‘grace period’ arrangement), then this could see poultry produced on the mainland UK being shipped to Northern Ireland, without any need for EHCs or other phytosanitary controls. This mainland produced UK poultry meat could then be cut and packed in Northern Ireland, from where it could be freely traded throughout the EU without further import controls being applied. This is a real concern, given the trend towards trade diversion away from mainland UK to Republic of Ireland to mainland UK Northern Ireland shipping routes which is already underway (9, 10). While this would be likely to generate considerable tension in the core EU/UK trade relationship, it would serve to ease trade diversion pressures on UK poultry meat producers and hence reduce the prospect of sudden surges in UK poultry meat exports to African and Caribbean markets. How, this mainland UK-Northern Ireland trade in poultry evolves, will have an important bearing on the market pressures brought to bear on ACP poultry sectors, as a result of Brexit related trade disruptions. UK Exports of Frozen Cuts and Offal of Gallus Fowls to African and Caribbean Countries 2019 (Tonnes)
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Sources:
(1) BMPA, ‘New Impact Report reveals the real cost of Brexit to the UK meat industry’, 24 March 2021
https://britishmeatindustry.org/industry-news/new-impact-report-reveals-the-real-cost-of-brexit-to-the-uk-meat-industry/
(2) BMPA: About Us
https://britishmeatindustry.org/about/about-us/
(3) thedairysite.com, ‘The UK’s new Border Operating Model must deliver a level playing field, says NFU, 15 March 2021
https://www.thedairysite.com/news/56639/the-uks-new-border-operating-model-must-deliver-a-level-playing-field-says-nfu/
(4) House of Lords, European Union Committee inquiry, ‘Witten evidence British Poultry Council – EEH0040’
https://committees.parliament.uk/writtenevidence/22505/pdf/
(5) poultryworld.net, ‘UK poultry meat sector survives triple whammy’, 4 March 2021
https://www.poultryworld.net/Health/Articles/2021/3/UK-Poultry-Meat-sector-survives-triple-whammy-715692E/
(6) thecattelsite.com, ‘The UK’s thin deal with the EU will not over the cracks’, 26 February 2021
https://www.thecattlesite.com/news/56571/editorial-the-uks-thin-deal-with-the-eu-will-not-cover-the-cracks/
(7) The Grocer, ‘UK meat industry facing up to £120m in extra Brexit costs, BMPA report says’, 24 March 2021
https://www.thegrocer.co.uk/brexit/uk-meat-industry-facing-up-to-120m-in-extra-brexit-costs-bmpa-report-says/654509.article
(8) BMPA, ‘New composite product Export Health Certificates coming in April’, 16 March 2021
https://britishmeatindustry.org/updates/new-composite-product-export-health-certificates-coming-in-april/
(9) Sky News, ‘How Brexit has changed trade between Britain and Ireland’, 18 March 2021
https://www.fpcfreshtalkdaily.co.uk/single-post/how-brexit-has-changed-trade-between-britain-and-ireland
(10) The Guardian, ‘Brexit blamed for British exports to Ireland falling 65% in January’, 18 March 2021
https://www.theguardian.com/business/2021/mar/18/brexit-blamed-for-british-exports-to-ireland-falling-65-in-january