Thursday, 21 October 2021
The announcement of an ‘agreement in principle’ for a future trade deal with New Zealand has heightened concern that British farmers will be undercut by cheap food imports. Our head of strategic insight David Swales explores how New Zealand’s agricultural production and trade stacks up and discusses the implications for our UK farming sectors.
Today (21 October) the Department for International Trade announced the Prime Minister had sealed a “ground-breaking” deal with New Zealand which it says will give a “boost to British exporters and small businesses as both countries ditch tariffs and cut red tape.”
While full details are yet to be agreed, it is understood that the deal would remove all import tariffs on New Zealand’s agricultural goods, allowing New Zealand producers much greater access to sell their products into UK markets. Below we outline key implications of the deal by sector.
New Zealand produces around 680,000 tonnes (2017-19 average carcase weight equivalent) of beef compared to 906,000 tonnes for the UK. However, they are in the top five beef exporters in the world, with more than 90 per cent of production exported. The United States has been the primary destination for New Zealand beef, although in recent years there has been a marked shift towards China.
Right now, New Zealand has access to a Tariff Rate Quota (TRQ) for just 454 tonnes at a zero tariff rate into the UK. The new trade deal is likely to be similar in structure to the one agreed with Australia earlier in the year, meaning there will probably be a transition period during which quotas will put a limit on imports. We understand these will start at 12,000 tonnes for beef and rise to 60,000 tonnes by year 15, after which unlimited volumes will be able to access the UK tariff free.
In contrast to beef production, sheep meat production in New Zealand has been slowly declining over the past few decades. Production is currently around 464,000 tonnes (2017-19 average) compared to 299,000 tonnes for the UK. China is the leading market for New Zealand lamb, although the UK is also an important market, along with the United States.
For sheepmeat, New Zealand already have access to 114,000 tonnes of tariff free TRQs into the UK. This quota hasn’t been filled in recent years, as production volumes have reduced and the Chinese market has grown in importance. The new trade deal could provide an extra 35,000 tonnes of tariff free access for the first four years, after which it will rise to 50,000 tonnes. Like beef trade will be fully liberalised after 15 years.
Pork production in New Zealand is small, and therefore imports are required in order to match consumption. Currently around 60 per cent of New Zealand pork is imported, with many products made in New Zealand using imported product. Total pork imports are only around 52,000 tonnes (2017-19 average).
New Zealand dairy production is considerable. Much of the milk production in New Zealand is made into milk powders, with butter and cheese also being cornerstone products of the New Zealand dairy market. Again, production far outweighs domestic consumption and around 95 per cent is exported. China is a key trading partner, with more than 30 per cent of all exports by value heading to there.
For butter and cheese New Zealand doesn’t currently have access to any UK tariff-free quotas. Under the new deal these would start at 7,000 tonnes for butter and become fully liberalised after six years. For cheese, it is a similar process, with the year one quota set at 24,000 tonnes.
Arable production in New Zealand is on a fairly small scale, with most grains produced for the domestic feed sector to complement imported grain, primarily from Australia. Small-scale farming, and prohibitive transport costs to the major mills from the areas suitable for growing crops mean that widespread adoption of arable farming has been limited.
What about the opportunities?
At AHDB we feel it is important to weigh up both opportunities and threats from trade deals. We should acknowledge that UK farmers will also get improved access into New Zealand, although in reality this access is likely to be of limited value. This is because with a population of only five million the New Zealand marketplace is very small – and as we know from the figures above it is a major agriculture producer and exporter in its own right.
Even at the whole economy level, UK Government’s own analysis suggests that the deal will have little effect on GDP. Given this, many will question why we are striking a trade deal in the first place. In an article published back in March about a future trade deal with New Zealand, my colleague Tom Forshaw highlighted that he saw securing a trade deal as an important pre-requisite to joining the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) – a bloc of 11 countries around the Pacific Rim. There will be opportunities for UK agricultural exports to this broader group – so the deal with New Zealand might represent short-term pain before we get some gains in the longer term.
We will be publishing more analysis on the deal and its implications. This will include modelling the economic impact of the deal to quantify its likely impact on trade volumes and producer prices. We will also be publishing a comprehensive analysis of the Australia trade deal in early November.
With several new trade deals to be struck in the coming months and years, combined with reductions in BPS payments beginning this year, taking a wait-and-see approach isn’t an option for farmers and growers.
AHDB’s free Farm Business Review service, funded by the Defra Future Farming Resilience Fund, is designed to help businesses prepare for the biggest agricultural policy shift in a generation. Aimed at beef, sheep, dairy and cereals and oilseeds producers across England, this free and impartial service provides expert advice and an online tool. It's designed to support you through this transition period and help you prepare for a prosperous future:
- access tools and resources, tailored to you
- keep a record of how your business is performing
- connect with a consultant for free advice and support