This paper looks at some the agricultural trade issues raised by Brexit.Jump to full report >>
Policy changes and the outcome of Brexit negotiations will impact on UK agriculture and UK trade trends in agricultural products. EU membership has driven agricultural support and funding through the Common Agricultural Policy, trade arrangements through the single market and external tariffs and supply of labour to UK farms. This paper explores some of the implications of Brexit for agriculture and trade.
The UK exported around £20 billion of food, feed and drink in 2016. Scotch whisky was the largest single export at £4.1 billion. The UK imported £43 billion meaning that the UK has a trade deficit in these products. There is a deficit with both the EU and with non-EU countries (taken as a whole).
The EU is an important trading partner in these products, accounting for 60% of exports and 70% of imports. The Irish Republic is the UK’s largest export market: UK exports of food, feed and drink to Ireland were £3.3 billion in 2016. Seven of the UK’s top 10 export markets are EU member states. On the imports side, the UK imported more from the Netherlands than any other country in 2016. The top nine countries from which the UK imported food, feed and drink in 2016 were EU members.
Trade between EU member states is tariff free. Imports from outside the EU are subject to tariffs which are high in some cases. The EU also has a regime of “tariff rate quotas” (TRQs) which allow a certain volume of particular products to be imported into the EU at a reduced tariff rate.
The Government’s intention is to secure a free trade agreement with the EU to allow free and frictionless trade between the UK and EU. If there is no agreement, then tariffs would be imposed on UK exports to the EU and vice versa. As tariffs are often high in agriculture and the EU accounts for a large share of UK exports, this could have a significant effect on UK agriculture. The UK and EU will also have to find a way of splitting the TRQs between them.
After Brexit, the UK Government will be able to decide the level of the tariffs it imposes on imports into the UK. The Government has said that it wishes to retain the current EU schedule of tariffs initially. In the longer term, the UK will need to decide whether it wants to retain these tariff levels or change them. Reducing tariffs would lower prices for consumers but mean more competition for UK farmers from imports. The industry argues that this would risk undercutting the UK’s high environmental and animal welfare standards. The value of sterling has declined since the referendum, and the short term impact of Brexit to date has been increased pressure on food and drink prices for consumers, which in turn has boosted farm incomes (although they also face higher costs), along with exchange rate gains from single farm payments.
On leaving the EU customs union, the UK will be able to negotiate its own free trade agreements. This has the potential to open up new markets for UK agriculture. It remains to be seen how easy these trade negotiations will be. Examples have already been raised where there could be issues such as around the import of hormone-fed beef and chickens washed in chlorine which are currently banned in the EU.
Commons Briefing papers CBP-7974
Author: Dominic Webb