Friday, 8 January 2021
In the first blog of the New Year and with a deal with EU finally agreed, our senior strategic insight manager Sarah Baker highlights some of the implications for our farming and food sectors.
Like many, I breathed a sigh of relief on Christmas Eve as the UK and the EU finally reached a trade agreement to take us forward into 2021.
Having been close to proceedings, and having been focussed on exploring the possible impacts of the various possible scenarios over the past four years, I was delighted that some of those possible worst-case scenarios will not now become a reality.
So, is it business as usual for UK farming?
The answer is no. We have entered a new era of EU–UK relations and that means change is inevitable.
The great news is that the new EU-UK Trade and Cooperation Agreement (TCA) allows for tariff and quota free access to each-others’ markets. This goes further than any previous trade agreement the EU has signed, with agriculture usually being the hardest sector to agree with many key offensive and defensive interests. This reflects the close trading relationship the UK and the EU share, the mutual benefits of access to one another’s markets and the positive impact on economic growth that international trade brings. It is a good economic solution in what was an increasingly tense political negotiation and I think we should all be grateful to the negotiators who managed to conclude this agreement in time for the end of the transition period.
However, tariff- and quota-free access are not the same as being part of a single market or customs union. The UK is now trading with the EU as a third country. This means that the so called ‘trade friction’, the additional physical checks, advance notification of loads, export health certificates, labelling requirements and extra time spent crossing borders all add cost in agricultural supply chains that are designed to be ‘just in time’ with little room for slippage and where margins are already squeezed.
In addition, new rules of origin (RoO) now exist that stipulate a product imported into the UK from the EU must undergo more than ‘insufficient processing’ in order to be exempt from tariffs if re-exported to the EU. This has huge implications for the agri-food industry. For instance, if Mozzarella cheese is imported into the UK from EU, machine grated and sent back, that counts as ‘sufficient processing’. But if a product is imported into a UK distribution centre, repackaged and sent across the UK, Northern Ireland (NI) and Republic of Ireland, (ROI) as is very often the case, that product entering ROI would now be subject to full EU tariffs as repackaging is considered insufficient transformation.
While not wishing to detract from the fact that reaching a deal with the EU is far preferable from having no trade deal, these issues will need clarification as we go forward. At the moment, due to the positive mood music, it would appear from anecdotal evidence that the EU is imposing a light touch on the cross channel trade flows. Some loads have been sent back from the EU but this is as much due to drivers not having the necessary negative Covid tests as lacking the necessary documentation. In addition, the volume of trade appears reduced at the moment as traders wait where possible to see how the new arrangements will affect them in practical terms before sending high value and perishable loads.
We are all having to navigate this era of change. Here at AHDB we will be monitoring the situation as closely as we have over the past four years and providing information to help you navigate the changes relevant to your business as soon as it becomes available. Over the coming weeks in this blog we’ll be delving more deeply into some of the issues I’ve touched on here, as well as any other practical consequences that arise as we get to grips with trading with the EU as a third country, at ahdb.org.uk/eu-exit.