Self-sufficiency and the impact of EU exit

By Chris Gooderham

Trade is becoming an increasingly hot topic as the next EU exit deadline looms. We have recently published analysis looking at the UK’s self-sufficiency for a number of products. These give us an indication of which areas are likely to be the most severely impacted.

• Pig meat self-sufficiency
• Lamb self-sufficiency
• Beef self-sufficiency
• Butter self-sufficiency
• Cheese self-sufficiency

Self-sufficiency is important in regards to EU exit for two main reasons. Firstly, under no-deal, what impact will import tariffs have on trade and domestic prices? Secondly, it may affect the industry’s ability to feed the nation and to produce the kind of products that we love to eat.

However, it is often not easy to simply displace imports with home-grown alternatives. Let’s look at a couple of products to understand the complications.

Lamb

For beef and pig meat we are net importers, with self-sufficiency levels of 75-80% and 60% respectively. For sheep meat, steady production and a reduction in domestic consumption means, in 2019, the UK was more than 100% self-sufficient. That would suggest that the UK could satisfy consumer demand for all its lamb needs. Unfortunately, things are never quite so simple. The key challenges for lamb are:

• Carcase balance – UK consumers demand legs of lamb, and we do not have enough domestic production to satisfy that demand. So we import legs, and export whole or half carcases.
• Seasonality - UK production of lamb is very much focused towards the end of the year, peaking in October. However, demand is considerably flatter through the year, with spikes seen around Easter and Christmas.
• The imbalance of trade with the EU - Over 90% of exports are to the EU, but only around 25% of imports come from the EU, meaning the no-deal EU exit risk is on exports and not so much on imports.

This mean simply diverting home-grown lamb to satisfy domestic demand is not straight-forward. No-deal tariffs risk making UK lamb exports to the EU uncompetitive. Under such a scenario the industry will be looking for alternative outlets either domestically or further afield.

Cheddar

Based on the trade data for 2019 we imported 121k tonnes of Cheddar, and exported 95k tonnes. That means we were net importers to the tune of 26k tonnes last year. The first complication is that those numbers don’t include any grated or powdered Cheddar, and don’t include curd – which might be matured into Cheddar.

Nearly all our Cheddar imports came from the EU, and more than 80 percent of our Cheddar exports went to the EU. In terms of a no-deal EU exit, the UK import tariff would be £1,390 per tonne and a tariff of €1,671 per tonne would apply to exports to the EU. That means the majority of imports and 80 percent of our Cheddar exports would be at risk of being uncompetitive.

To displace all those imports would need more than 1bn litres of milk. However, we could, in theory, divert the Cheddar normally exported to the EU and use it to displace some of the imports. That would still leave a gap of 45k tonnes of Cheddar, requiring over 400m litres of milk and a significant amount of spare processing capacity. All of that is before we even think about storage and maturation times.

The other factor to consider is value. If we look just at our trade with the EU in 2019, Cheddar imports averaged £2,400 per tonne, while exports averaged more than £3,200 per tonne. We don’t know the pack sizes or maturity of these products, but it does highlight the disparity in values.

Simply using Cheddar destined for EU export to displace imports, could lose us £820 per tonne - or £63m pounds per year. That’s equivalent to 2 pence per litre across all the milk that went into Cheddar in the UK last year.

Summary

In reality things are a lot more complicated than simply moving products between customers. Consumer demand, supply chain relationships, brand loyalty, negotiations between companies, product specifications, storage, lead-times, availability and the ability to handle by-products all come into consideration. Even covering all of those probably isn’t going to give us the full picture.

Whether we thrive in a post-EU exit world really comes down to if we have the capability to produce the foods that consumers want to eat, and can deliver them in an efficient and sustainable manner.

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