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How Brexit is set to impact the U.K.’s beef industry

Deal or no deal — each could have consequences

It’s an anxious time for all farmers in the U.K. as they await the outcome of Brexit, or in other words, their fate once they leave the European Union.

Having been supported by EU farm subsidies in the past, U.K. farmers wait to see what program, if any, the U.K. government will come up with to replace the EU’s Common Agricultural Policy (CAP) that provided the previous crucial financial support.

That support has proven invaluable as the subsidies alone have represented any profits on many farms.

At this issue’s deadline, the U.K. is destined to leave the EU March 29, but the main concern is whether it will leave with a deal which will provide favourable trading incentives, or crash out with no deal which will mean trading under WTO tariffs.

Current trading

There are about 1.5 million beef cows in the U.K. which, along with dairy beef, helped the U.K. export an average of more than 156,000 tonnes of beef and other bovine products per year between 2013 and 2017, equating to an average value of £456 million (C$788m) per year.

By far, the EU is the top market for U.K. beef, accounting for about 82 per cent of exports. The U.K. is a net importer of beef as exports generally remain well below imports. The U.K. is around 75 per cent self-sufficient in beef production.

According to statistics from AHDB, the U.K.’s levy-funded meat promotion body, Ireland and the Netherlands are the top two export destinations for U.K. beef, accounting for just more than 50 per cent of total exports.

Outside the EU, Hong Kong has been growing as a key export outlet in recent years, with exports up from 4,300 tonnes in 2013 to 14,500 tonnes in 2017. Frozen offal products make up around 66 per cent of exports to Hong Kong.

The U.K. imported just more than an average of 360,000 tonnes of beef and beef products annually between 2013 and 2017. Imports from the EU accounted for an average of around 86 per cent of the total in the same period with Ireland as the dominant supplier.

No deal

If the U.K. breaks away with a no deal, it would need to be registered as a third country by the EU, with exports of beef and other animal products requiring an export health certificate approved by the EU.

Although the process is underway, there’s no guarantee the paperwork will be in place for exports to the EU to continue unhindered after March 30, 2019.

Most U.K. beef imports are from the EU, so if the U.K. decided to impose tariffs on these, domestic prices would likely rise. This would probably improve beef farmers’ margins and encourage domestic production.

If the U.K. decided against imposing tariffs on EU beef imports, it would be obliged to do the same for all beef imports, including those from outside the EU, which could lead to higher supplies and therefore lower domestic prices.

Future

So where will the U.K. send its beef post-Brexit at a profitable rate? Well, U.K. beef exports to non-EU destinations have increased recently, although they can struggle to be price-competitive.

As a result, opportunities lie in exporting premium cuts such as topside and fillets to China, for example, and promoting the U.K.’s pasture-based production systems.

Arguably, the biggest potential gain for U.K. beef exports could be for lower-value cuts and offal products, which have less value on the domestic market but are more highly valued elsewhere, for example in China and West Africa.

This would likely improve overall returns to the U.K. industry as it improves carcass balance, using more of the animal.

“We could see higher exports to China and Hong Kong in the future,” says Duncan Wyatt, a lead analyst at AHDB. “Beef imports in these markets are forecast to increase considerably over the next few years.”

Good news for the U.K. is that China lifted its 20-year ban on beef imports in June 2018, imposed following the outbreak of BSE. The U.K. is now into market access negotiations, which typically take around three years. Five years after that the trade could be worth as much as £250 million (C$432m).

“It’s worth bearing in mind that the U.K. will face strong competition from Australia and New Zealand, countries that already have free trade agreements with China in place,” says Wyatt.

“On top of that, production in some of the major global beef producers, such as the U.S. and Argentina, is expected to increase in the long term. Both of these countries benefit from economies of scale as their production becomes increasingly commercialized.

Wyatt says if tariffs are imposed on U.K. beef exports to the EU, exports will be limited considerably. The tariffs could be as high as the price of the product itself, if not more. “This would really reduce the price competitiveness of U.K. beef on that market,” he says.

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