Wednesday, 17 July 2019
Amid all the uncertainty around key policy issues for UK agriculture and horticulture, a direct result of Brexit is our industry is going to be increasingly exposed to global competition
The reality is agriculture is not always a government’s priority when it comes to negotiating trade deals. This was highlighted only a couple of weeks ago, when the EU–Mercosur trade deal was announced. In that case, it seems the EU industrial sector, particularly car manufacturers, were the winners, with agriculture having to offer concessions.
And that’s been the direction of travel. Over time, global trade reforms have reduced tariffs and facilitated international trade in many areas. Agriculture remains the most protected sector and the most difficult issues to resolve in trade negotiations tend to be around agriculture. But in or out of the EU, farming faces trade liberalisation – bringing increased competition.
In the case of a no deal, that will happen at an alarming rate. We know that the big agricultural exporters are already eyeing the UK market and it’s no secret the focus for initial trade deals are the USA, Australia or New Zealand.
We need to be competitively priced, which is a challenge. Whether abroad or at home, we will be up against businesses producing things cheaper than we can. On a global scale, we’re a relatively high-cost producer. We can point to our high standards and hope that’s a barrier to our domestic market for producers perceived as having lower standards. But based on my understanding of World Trade Organization rules, that’s far from a given.
If we are going to compete successfully we need to understand what we can and can’t control, and take better control of the factors we can influence. Farmers are essentially ‘price takers’. Commodity prices are determined by a complex set of factors, mostly outside farmers’ control. But there is scope to understand the market: determine where demand is less price sensitive, understand what consumers want and are willing to pay for. These will help UK producers decide what to produce, when and to what standards.
What we can do more about is costs, by looking at how we compare with other producers, at home and overseas, learning from them, scrutinising our own costs and making changes. This relentless cost management came out strongly in our work exploring the factors which set top-performing farms apart.
So those are my thoughts on price competitiveness. What about future opportunities?
Population growth means more food. In Asia–Pacific countries, the growth of the middle class consumer really supports that opportunity. In less than a decade, China has become the single biggest market for UK pork exports. We’ve also identified opportunities for livestock products in Africa, North America and the Middle East – but I think it’s fair to say that in the long run, it’s the Asian economies where we’re all looking at population and income demographics as triggering potential. You can read more in our international consumer insight reports.
However, opportunities aren’t just going to fall into our lap. Localisation is key to success: spending time immersed in local markets, partnering with local companies and conducting marketing research in potential markets. Understanding the types of meals your target audience eats and how they consume your products helps give the context of key selling points. In Asia, for instance, within the meat categories a lot of consumers look at the fat levels to provide taste/flavour. Similarly, health and functional benefits are huge – how do we fit in to that?
Push the premium – it’s likely that goods transported halfway across the world will need to sell at a premium to local equivalents to cover transportation costs. In order to succeed, the premium needs to be justified. Unique selling points may be around safety, provenance, depth of flavour or heritage, among others. Exporters need to work out how best to communicate these benefits to consumers and tell the brand story of products in a way that is both relevant and compelling.
We shouldn’t underestimate the amount of time and effort that market access takes. We’re a month on from the agreement of beef access to China, a move that’s valued at £230m in the first five years. But that’s the culmination of several years of site inspections and engagement between UK and Chinese government officials.
Taking advantage of increased market access is far from straightforward – there’s a range of issues to overcome, such as borders and tariffs, transport, labelling and packaging and health certification.
And depending on our future trading relationship with the EU, these are potentially all things that we’ve taken for granted when trading with our near neighbours. In a no deal situation, that all changes and these things become barriers to trade and make it harder for us to export to the EU. We’ll be publishing analysis of how these non-tariff measures may affect beef and lamb exports next week, keep an eye on www.ahdb.org.uk/brexit
Phil Bicknell, AHDB Market Intelligence Director
Phil will be speaking about trade and the UK agriculture sector at the Future of Farming: A National Conference