Friday, 20 November 2020
In this week’s blog, our lead analyst for livestock Duncan Wyatt looks at the potential implications of leaving the EU for our beef, lamb and pork sectors and what producers can do to prepare.
As we inch further along in our negotiations with the EU it may feel everything is still up in the air but amid the uncertainty about the nature of our future trading relationship, one thing is definite: on 31 December we will leave the single market and customs union and this will impact domestic supply chains and prices.
To set the scene for our livestock sectors, for beef and pig meat we are net importers, at around 75-80 per cent self-sufficient and 60 per cent self-sufficient respectively. For sheep meat, we are 100 per cent self-sufficient on paper but due to seasonality, in practice this means we export and import the same amount. If we fail to reach agreement with the EU, sheep meat is likely to be the most exposed sector. This is because we import lamb tariff-free from New Zealand, an arrangement that is expected to continue, but our exports go to the EU, where they would attract tariffs, putting downward pressure on prices. Our modelling work shows that with a deal sheep meat sees a price drop of around five per cent due to trade friction, the transaction costs associated with exporting as a third country in terms of documentation, physical inspections, health certificates and so on. However if we fail to agree a trade deal, we’re looking at a dramatic drop in price of around 25 per cent.
In terms of beef, if we agree a deal with the EU, we’re anticipating a small price rise of about 4 per cent. If there is no deal, beef imported from Ireland would face the UK Global Tariff and there we get a substantial price increase of 22-23 per cent. Similarly for pig meat, we see a rise of 3.4 per cent in the event of a trade deal and 17 per cent with no deal.
While this appears positive for beef and pigs at least, it is important to remember the UK is currently negotiating free trade agreements with three major agricultural exporters, namely the US, Australia and New Zealand. Our price analysis has necessarily been done in the absence of those deals and any tariff rate quotas (TRQs) the Government might introduce in the event of no deal. So these results need to be taken with caution but I can say with little doubt there will be downward pressure on lamb prices, as well as the potential to displace some beef and pig meat imports in the short term.
Regardless of whether or not we get a deal, the cost of doing business is going to go up and at least in the short term, we can expect some disruption in trade for imports and exports. Trade will continue, albeit at different prices, but we will be a third country and that brings with it an administrative burden. We need to be aware beef, lamb and pork going into Europe are perishable goods and any disruption, be it administrative or logistical, will have a knock on effect on the supply chain. Livestock farmers need to be mindful that moving animals off farm could be interrupted and have contingency plans in place recognising their usual buyers or abattoirs might not be taking animals with the degree of regularity they are used to at the moment. I would expect a lot of these problems to be overcome in the longer term but at least in the early days of this new environment with new rules, expecting it to all go smoothly is probably a little optimistic.
Change is coming, regardless of the politics, so I’d urge levy payers reading this to get to know their market, understand the trends and talk to those they’re selling to (or buying from). Look at the risks of your own business and see what contingency plans you can put in place to cover supply chain disruption.
Duncan discusses this topic further with our strategic insight analyst Sarah Baker on our recent podcast.
For a long view of livestock markets, read our Agri-market Outlooks.