EU Exit Perspectives: The return to Oz? Thoughts on a deal from Down Under

Friday, 12 February 2021

In this week’s blog, our strategic insight analysts Tom Forshaw and Amandeep Kaur Purewal set out some facts and figures to put into context the potential future trading relationship between the UK and Australia.

On 1 February, one year on from Brexit, the UK Government formally applied to join the Comprehensive and Progressive Trans Pacific Partnership (CPTPP) in the hope of forging new and stronger trading partnerships for goods and services with the Asia-Pacific region. Meanwhile, we have completed the third round of negotiations on a Free Trade Agreement (FTA) with CPTPP member Australia, with a fourth round expected later in the month. While a lot of industry focus is currently on trade with Europe, it’s important to remember that Boris Johnson’s stated ambition is for the UK to be “an enthusiastic champion of global free trade.”

Australia and the UK are established trading partners, with UK exports worth £12 billion and Australian imports £6.5 billion in 2019. However, trade in agricultural products has been limited, despite Australia being a major global producer, due to high EU tariffs. Prior to joining the Common Market, the UK was an important market for Australian agricultural products, such as beef and sheepmeat but the loss of preferential access contributed to trade being diverted to the US and Asia.

Australia views a potential FTA with the UK as driving investment, economic growth and job creation, with the relationship underpinned by shared heritage and values. Its Government is also keen to open up the UK market to its agricultural products, although it doesn’t envisage a return to previous levels, saying on its website it wants more choice for its primary producers, particularly in light of post-Covid economic recovery.

So who are Australia’s current trading partners and who will the UK be competing with if an FTA is signed?

Australian beef production is more than twice that of the UK, at 2.3 million tonnes with a population of about 25 million, leaving a large exportable surplus despite a large domestic appetite for beef. Major trading partners include Japan, the US, South Korea and China. About 70 per cent of its exports are from grass-fed animals and its quality and sustainability credentials are used as an important point of difference in its marketing. Australian beef tends to be exported at relatively higher prices than the UK currently imports.

Australia exported on average 464,000 tonnes (2017-19) of a variety of sheepmeat products to a range of markets, with the US and UAE major importers alongside China. Unit costs are slightly higher than the majority of UK imports, which are mostly New Zealand lamb. But in recent years Australia has become heavily reliant on China, where domestic sheepmeat production is expected to increase. This combined with a recovery in pork production following the devastating impacts of African Swine Fever could see demand decline as Chinese consumers pivot back to pork. As a result, Australian lamb may switch to other destinations in the not too distant future.

On the crops side, Australia is a major global player as it exports a significant proportion of its production – up to 70 per cent for wheat, 60 per cent for barley and 70 per cent for canola (rapeseed). UK millers have imported Australian wheat over the past few years but in small amounts as they prefer Canadian varieties for their blends. China is usually the main market for Australian barley but a dispute has led to China imposing an 80.5 per cent import tariff, leading Australia to seek lower-value animal feed markets elsewhere. This could put them in direct competition with UK barley exports.

Although Australia is a hugely significant power in terms of agricultural exports and has stated its intention to open the UK market to its goods, a Free Trade Agreement does not mean seamless trade – as we have seen with the EU. There are still many considerations to take into account, on both sides of the world to cultivate a successful trade partnership, not least the sheer distance between the two countries and the array of lucrative and mature markets closer to home.  

Read the full analysis for cereals and oilseeds and for livestock products.