UK and EU diplomats finally agreed a trade deal at the end of 2020, with negotiations going right to the wire. Abi Kay explores what it means for individual farming sectors.
On Christmas Eve, just one week before the final deadline for the end of negotiations, a historic trade deal was agreed between the UK and the EU.
The agreement has been broadly welcomed by the agricultural sector, because it goes further than any other trade deal in the world by keeping all tariffs and quotas at zero.
This is a massive achievement, and one which did not always seem possible when politicians were discussing a ‘Canada-style’ deal which includes many tariffs and quotas on agri-food products.
But in order to take advantage of the zero tariff, zero quota nature of the deal, Great British goods will need to meet Rules of Origin requirements.
This means imported cane sugar refined in the UK or basmati rice from India milled in the UK will not qualify for tariff-free access to the EU market.
The elimination of tariffs and quotas also does not remove the need for Sanitary and Phytosanitary (SPS) checks, with frequent physical inspections and specialist paperwork required for products of animal origin.
The UK had wanted an ‘equivalence mechanism’ to be established as part of the deal which would have limited checks to 1 per cent of goods, similar to the EU-New Zealand veterinary agreement, but this was not included as the EU wanted more regulatory alignment in this area than the UK was prepared to concede.
AHDB has estimated that these checks and additional paperwork will add costs of between 5 and 8 per cent for livestock products and 2-5 per cent for crops, with farmers likely to bear the brunt of the expense.
But David Swales, head of strategic insight at the board, warned these estimates must be treated with ‘a pinch of salt’.
“There may be a small element of cost on everything which moves,” he said.
“But we have had pallets or loads which have gone into the Middle East which have been customs checked and the customs person may be a bit overzealous and reject a whole pallet.
“In that instance, the cost is not 5 or 10 per cent, it is 100 per cent.”
Other important aspects of the deal include specific arrangements for the organic sector, which avoid businesses trading in the UK and the EU having to comply with two sets of rules and regulations, and an agreement to continued cooperation on antimicrobial resistance, sustainable food systems and animal welfare.
There will now be opportunity for divergence from EU rules, with the Prime Minister suggesting the UK could ban farrowing crates and slap a tariff on EU pork products which do not meet domestic standards – a move the pig industry has raised concerns about.
All aspects of the deal will be up for renegotiation in four years’ time.
Chief executive of the National Sheep Association Phil Stocker said his initial feeling about the deal was ‘relief’ as sheepmeat exports to the EU will not be subjected to tariffs or quotas.
But he did warn some disruption to trade would be likely, with exporters and processors now facing additional paperwork and controls and question marks over the capacity of vets to sign Export Health Certificates (EHCs).
“We are not expecting any problems for the next few weeks because we know processors got a lot of product over before the end of December, and they are not planning on getting very much over in the next few weeks,” he said.
“It will not be until that trade starts to creep up again that we know whether we will see any problems.”
Industry is expecting additional costs of about 5 per cent, with some passed back down to the farmgate.
But Mr Stocker remained optimistic about the future for the sector, with demand for sheepmeat strong globally.
He said: “We are in a fairly good position in terms of high numbers of lambs being killed pre-December, so the supply and demand economics are probably in as good a place as they could be to limit the amount of pressure processors could put back down to the farmgate.”
NFU dairy board chairman Michael Oakes described the deal as ‘the least disruptive option’ from a dairy perspective.
“If you look at Northern Ireland, a lot of dairy products go across the border several times, but even products such as whey and powder will go out of the UK into Europe to get processed and come back,” he said.
“It looks as though that kind of trade will still be able to happen without too much friction, even though there will be new paperwork.”
Mr Oakes also said the agreement would allow industry to ‘look forward’ and create new relationships with other countries where demand for dairy is growing, such as Vietnam, as well as giving processors confidence to invest in the UK.
“Hopefully we will see more innovation in dairy in the UK and get away from the reliance on the liquid milk market which is delivering very small margins for farmers and processors,” he added.
Neil Shand, chief executive of the National Beef Association (NBA), said the deal ‘could have been quite negative’ for the beef sector, were it not for the pandemic.
He suggested imports of Irish beef supplied to the food service sector would have been higher were it not for coronavirus restrictions.
“One of the biggest reasons we have had a surge in UK price and an increase in demand is because people can only get beef through four sources at the moment – retail, small convenience stores, farm shops and butchers – none of which will be supplying imported product,” he said.
“Irish beef comes without a tariff, so retains its competitiveness within the market. However, it is still faced with the pandemic situation, which is closed food service.”
Mr Shand also warned the NBA would be ‘watching very closely’ to ensure cattle from the Republic of Ireland which is processed in Northern Ireland is labelled correctly.
He said: “Live cattle can move from Southern Ireland to Northern Ireland freely within the deal arrangements for the next six months. It must state very clearly that it is a product of the Republic of Ireland.”
NFU deputy president Stuart Roberts pointed out the deal was ‘good news’ for beef farmers because it allows them to continue to send exports to the EU to balance the carcase.
Current beef exports are 18 per cent of production, with 84 per cent of that going to the EU – worth £400m in 2019.
Emily Roads, EU exit and international trade adviser at the NFU, said the cereals sector would benefit from the lack of tariffs and quotas in the deal, but warned checks and paperwork would add costs into the supply chain.
She also highlighted an EU ban on UK exports of certified seed such as fodder seed as a particular concern.
This means fodder seed cannot move from Great Britain to Northern Ireland, which is a ‘significant’ export market, because the island of Ireland is treated as a single sanitary and phytosanitary zone under the terms of the deal.
“We have heard positive noises that the EU is looking at this, so we are hoping for positive news, but the authorisation has not currently come through,” said Ms Roads.
Rules of origin also pose a threat to the cereals sector. At the moment, UK millers can produce flour using a mix of British and non-British wheat, then export the finished product to the EU with no tariff or quota.
But under the terms of the deal, millers would not be able to go over a 15 per cent weight threshold for non-British wheat and have full and free access to the EU market for finished flour.
National Pig Association chief executive Zoe Davies welcomed the zero tariff, zero quota nature of the UK-EU deal, which allows UK exporters to continue to send surplus belly and shoulder pork and cull sow carcases to the continent.
“There is no demand for cull sows in the UK, they all go to Germany,” she said.
“We would have had to have found homes for 200,000 cull sow carcases a year, which would have been very difficult.”
But Ms Davies went on to point out UK exporters were starting to encounter difficulties sending cull sow carcases to the EU, because European sellers could no longer make composite products such as sausages with pigmeat from several countries and label them ‘product of the EU’.
She said: “There is some resistance in the EU to take UK product because of the labelling problem.
“It is costly, and our trade of carcases is relatively small compared to the trade they will be getting from other countries, so it is not going to stack up financially.”
The NPA has also highlighted uncertainty around Trichinella testing for UK exports to the EU and concerns about new paperwork which requires all UK farms to prove their pigs are kept separately from wild cloven-hooved animals.
This pig-specific clause in the EHC is believed to be related to concerns over African Swine Fever.
“We need to find out why it is in there and whether we can try to get it kicked out again,” said Ms Davies.
Another major issue for the sector has arisen around exports of breeding animals.
Over 10,000 pigs were exported to the EU on the Dover-Calais route last year for breeding purposes, but because there is no border control post at Calais where the EU can carry out its newly-required inspections, this trade has had to stop.
“We have been working with the NFU to try to find alternative ports and there are some which have shown more interest than others,” said Ms Davies.
“If breeding companies decide to shut up shop and go to the EU, that means we are going to have to import any new breeding stock which is going to add huge cost and also be a massive biosecurity risk.”
Richard Griffiths, chief executive of the British Poultry Council, said it was a ‘good thing’ that the deal kept tariffs and quotas at zero.
But he claimed cost of production is likely to increase this year, with friction added to existing trading routes with the EU, though he did say it was too early to understand the full impact of the deal.
“This first week, people have been very risk averse, so have not actually sent product out,” he said.
“They have either decided to store it or render it. The pictures of Dover may be quiet, but we have seen a massive drop in trade flow.
“It will not be until they all start trying that we will know whether the new systems are effective.”
Mr Griffiths went on to say any difficulty or delay in the system would add costs and potentially spoil products in transit.
But he expected any additional costs to be passed on to the consumer, rather than squeeze farmgate prices.
One of the biggest problems for agriculture which has resulted from the UK-EU deal is around seed potatoes, of which about 20,000 tonnes were exported annually from the UK to the EU as of last year.
The EU introduced a ban on UK seed potato imports from January 1, 2021 because the UK Government refused to be dynamically aligned with EU rules on this ‘sensitive product’ which is deemed to be a plant disease risk.
This means Great British exporters cannot send seed potatoes to Northern Ireland either, because it remains under EU regulations.
The Scottish Government has estimated that the EU ban will have an immediate £15m impact on the sector, with wider effects across the supply chain.
An earlier EU ban on UK ware potato exports was lifted in recent days.
David Swales, head of strategic insight at AHDB, said the EU does not accept imports of seed potatoes from any other third country, so the UK would be unique if it were able to overturn the ban.
“I do not think this issue will be resolved particularly quickly, but the ware potato issue was sorted out, so maybe there is some hope there,” he added.
In the horticulture sector, Jack Ward, chief executive of the British Growers Association (BGA), does not expect there to be huge changes as a result of the deal.
“The biggest issue for UK growers is trying to get a margin out of what they produce and that will not be affected,” he said.
“I am not sure Brexit in the short-term is going to massively change things, other than a few short-term interruptions at ports while everybody gets used to how the new system works.”