Category: Policy & Business

The Chancellor of the Exchequer, Philip Hammond, presented his Spring Statement on the 13th March.  It was rather overshadowed by the Brexit votes, and, with most major announcements now being made in the  Autumn Budget, it was largely an exercise in announcing updated economic forecasts.  The Office of Budget responsibility now forecasts 2018 UK economic growth at 1.2% – this is down from 1.3% estimated at the time of the October Budget.  Although quarter 3 growth was strong, the final quarter of the year saw economic activity constrained – as firms started to react to a possible hard Brexit.  The forecast for 2019 has been cut from 1.6% in October to 1.2% now.  Predicted growth in 2020 remains at 1.4%.  Despite fairly anaemic economic performance, tax revenues to the Government have been above expectations.  This will reduce the Government’s net borrowing requirements for the year, although the deficit is still forecast to be £22.8bn for 2019.

Protection from low-cost imports of agricultural goods in the UK could be sharply reduced in the event of a No-Deal Brexit.  The UK Government published a proposed tariff schedule on 13th March which sets out the level of tariffs which it will apply to imports to the UK if it leaves the EU without a deal and therefore is no transition period.  In these circumstances the UK would be operating under World Trade Organisation (WTO) rules not the EU framework.  The tariff scheme would only be temporary, lasting for 12 months, after which the Government would introduce a more long-term tariff regime, following consultation.  Over the coming days we will be looking into the tariff schedule in more detail, (which runs to 1,477 pages), but the key elements include:

• Cereals, Eggs, Fruit and Vegetables – No import tariffs will apply to these products.  This means unlike the current situation where these sectors receive protection from the EU’s tariffs, these markets will be open to all global exporters.  By contrast, UK exporters will face tariffs if they export to the EU now.
• Sheep Meat – No change to the existing EU tariff rates or tariff rate quotas (TRQs).  This means UK imports of sheep meat from New Zealand and Australia will continue to be imported tariff-free under existing TRQs.  But imports from the EU to the UK (21,400 tonnes carcass weight equivalent in 2018) would now face a tariff – this would have the most effect on the Republic of Ireland.  Looking at exports from the UK under a No Deal, which are currently tariff free to the EU, these would face the same tariffs as any other country without preferential access.  In 2018 95% of all UK sheep exports went to the EU, approximately 80,000 tonnes.  The sheep meat tariff remains at 12.8% +€171.3/100kg.
• Beef – The import tariff rate for fresh or chilled boneless beef will be cut from 12.8% + €176.8/100kg to 6.8% +€93.3/100kg.  There will also be a TRQ of approximately 230,000 tonnes which allows tariff-free access to the UK from any country, including the EU.  This is in addition to the 55,000 tonnes of pre-existing EU TRQs which the UK has agreed to take under the split of current EU TRQs (see December Bulletin), following Brexit.  However, in 2018, the UK imported 380,000 tonnes of fresh, frozen or processed beef, which means in the region of 95,000 tonnes will be subject to the new UK import tariffs.  In 2018, of the 380,000 tonnes, 340,000 was imported tariff-free from the EU with the vast majority coming from the Irish Republic.  About 30,000 tonnes would have been imported from non-EU countries at a reduced tariff under the pre-existing EU quotas.
• Dairy – The UK has announced reduced import tariffs for butter and some cheeses compared to current EU levels.  The UK will apply €60.5/100kg for butter and a tariff of €22.1/100kg for cheddar.  The EU rates are €189.6/100kg and €167.1/100kg for butter and cheddar respectively.  The existing rates on milk, cream, powders and yoghurts will be cut to zero.
• Poultry Meat – Two new TRQs will be set up; 166,196 tonnes for fresh and chilled poultry meat and 79,510 tonnes of frozen, the tariff for these will be set at zero.  There are tariffs for the out-of-quota lines, but these are considerably lower than the EU currently applies to 3rd country imports.
• Sugar – The tariff for out-of-quota raw cane sugar will remain at €33.9/100kg.  But there will be a TRQ of 260,000 tonnes, for which the duty will be set at zero.
• Fertiliser – All imports to the UK will be subject to a 6.5% tariff.

Below is a summary table outlining the tariffs that importers would face when bringing products into the UK from abroad (either EU or non-EU) as well as the tariffs that UK exporters would face when trading with the EU. Based on previous information published last year, the EU’s Common External Tariff also represents the upper limit of tariffs that the UK could impose on other WTO members (i.e. its “bound” level of tariffs). However, as pointed out above, the UK can apply a lower level of tariffs (in this case for an initial one-year period) as long as these tariff levels are below the bound rates and are applied equally to all WTO members. A summary, of the new Tariff Rate Quotas (TRQs) are also outlined.

Commodity	EU Common External Tariff (€ per tonne)	EU Total Tariff Rate Quota (TRQ) (tonnes)	TRQ available to UK (tonnes)	In-TRQ Tariff (€ per tonne)	UK No-Deal Import Tariff (% and/or € per tonne)	Additional UK No-Deal Import TRQ
Feed Wheat	€95	3.1Mt	2.39Mt (see Note 1)	€12	€0	n/a
Quality Wheat	Complicated formula based on US price	300,000	all	-	€0	n/a
Feed Barley	€93	307,105	all	€12	€0	n/a
Oilseeds	None	n/a	n/a	n/a	n/a	n/a
Sugar (Raw Cane)	€339	780,925	253,977	€0	€339	260,000
Skim Milk Powder	€1,254	68,537	all	€0	€0	n/a
Cheese (Cheddar)	€1,671	29,716	15,005	€210	€221	n/a
Beef Carcasses (fresh/chilled)	12.8% + €1,768	188,354 (see Note 2)	117,503	various	6.8% + €933	230,000
Lamb Carcasses (fresh/chilled)	12.8% + €1,713	281,190	200	€0	12.8% + €1,713	none
Pigmeat	€536	87,176	71,469	various	€71 (fresh carcasses)	n/a
Poultry Meat (cooked, processed and uncooked)	€1,024 (fresh poultry cuts)	806,850	67,760 (all poultry species and cuts)	various	€618	245,706

Note 1: includes 2.38Mt available to “other countries” (excluding US and Canada) and 0.1Mt available on an Erga Omnes (available to everyone) basis.

Note 2: relates to all beef.

There is one important point to note; to uphold the Government’s commitment to there not being a hard border on the island of Ireland, the tariffs will not apply to trade between the Republic of Ireland (ROI)  and Northern Ireland (NI).  It seems highly likely that a large volume of ROI produce will subsequently find its way onto the GB market.  The Government has stated that if it is found that trade flows shift, i.e. from ROI through NI to GB for the purposes of tax avoidance, HMRC would investigate, but quite how this would ever be policed in practice is unclear.

The combination of lower import tariffs, relatively generous TRQs, and likely ‘leakage’ of ROI produce into GB markets at zero tariff rates, means significant lower protection for the farming sector from low-cost imports.  It appears the Government has, not surprisingly, prioritised keeping food prices low rather than helping the UK farming industry.    

These new tariffs will only apply if we leave the EU with no deal and to imports to the UK.  Without a trade deal, exports to the EU would have to pay the EU’s own tariff rates, which in many cases are higher, making UK exports to the EU more expensive and less competitive.

After a short delay, the online application window is now open in England.  If applicants log onto Rural Payments, scroll down to ‘Basic Payment Scheme Applications’ and click on ‘Apply for BPS’ they will now see ‘create a new Direct Payments application’ in green.  In addition all the scheme rules and guidance are now available at https://www.gov.uk/guidance/bps-2019

Those in England who are raring to get their BPS 2019 application season started, may have to wait a little longer.  The online application window which was supposed to be open today (13th) is not quite ready.  If applicants click on ‘Apply for BPS’ it still says ‘no data found’.  This will change once the functionality is ready.  The delay is not expected to be long and it may even be open later today (13th).  We will keep readers informed.  It is still possible to view land, transfer entitlements & land and also input 2019 land use.

Farm profits fell across most farm types in the 2018/19 year.  This is the finding of the first forecasts of Farm Business Income (FBI) to be published from the Farm Business Survey.   Although titled ‘income’ what the series shows is average profit at the farm level for a typical farm in each sector.  The period runs to Feb/March 2019 and includes the 2018 harvest and Basic Payment.  The current figures are initial forecasts, derived from information collected up to February 2019.  Updated results will be published in  October.

As can be seen from the table below, profit fell for all farm types apart from Cereals.  Whilst the weather during 2018 was one of the contributors to the drop, rising costs were another important factor.  This is especially true in the livestock sector where higher grain prices resulted in increased animal feed costs.  In the pig sector, combined with lower selling prices, this has resulted in profit almost being wiped-out.  Dairy and poultry farms were also hard hit by higher feed prices.

The only farm type to buck-the-trend of falling profits was Cereals.  Although physical output was lower than in previous years, this was more than compensated by higher prices.  General Cropping farms did not fare so well as yields for crops such as potatoes, sugar beet and pulses were more adversely affected by the wet spring and summer drought.

Farm Business Income (England) – source Farm Business Survey
Real terms, 2018/19 Prices	2015/16	2016/17	2017/18	2018/19	Change 18 to 19
CEREALS	37,800	45,000	65,500	73,000	11%
GEN. CROPPING	66,700	73,200	95,200	85,000	-10%
DAIRY	46,800	52,100	122,200	93,000	-24%
GRAZING L’STOCK (L/L)	12,800	16,800	22,300	16,000	-30%
GRAZING L’STOCK (LFA)	20,200	28,100	28,900	24,000	-19%
PIGS	23,000	60,300	31,900	1,000	-96%
POULTRY	113,500	56,500	98,000	53,000	-46%

2018/19 Data is Provisional

 

According to a Freedom of Information request, Defra has recruited 2,700 extra staff to deal with Brexit.

Following the resignation of George Eustice, Robert Goodwill has been appointed as Minister of State for Agriculture, Fisheries and Food.  Mr Goodwill has a a degree in agriculture from the University of Newcastle and farms 250 acres near Malton, which has been in his family since 1850.  He is also managing director of Mowthorpe Ltd which offers environmentally friendly burials.

Mr Goodwill’s political career began in 1999 when he was elected as a Member of the European Parliament.  Goodwill was elected to the House of Commons at the 2005 General Election for Scarborough and Whitby and appointed as a Government Whip in 2006, being promoted to the post of Shadow Roads Minister in the transport team in 2007.  After being re-elected at the 2010 general election he was appointed to the Government as a Whip for HM Treasury and Defra.  Mr Goodwill, who supported Remain in the 2016 Referendum even though he describes himself as a ‘staunch Eurosceptic’, was dropped from his post as Children’s Minister in the Department for Education during the Prime Minister’s reshuffle of January 2018.

The Farming Minister, George Eustice, resigned his position on the 28th February in protest at the Government’s handling of Brexit.  A strong pro-Brexiteer, Mr Eustice was angered by Theresa May agreeing to a possible extension to the Article 50 deadline of 29th March.  He stated that such a delay would be the ‘final humiliation of our country’.   Mr Eustice has been at Defra since 2013 and in his current role as Farming Minister since 2015, serving under four Ministers.  He is widely regarded as having done a solid job.  No announcement of his replacement had been made at the time of writing.

The UK Government continues to update its No-Deal Brexit notices (https://www.gov.uk/government/collections/how-to-prepare-if-the-uk-leaves-the-eu-with-no-deal).  The Irish Government has now also taken its No-Deal planning to another level with the publication of a Bill covering 15 topics 9including agri-food) to try and mitigate the worst effects should the UK leave without a deal (see https://www.dfa.ie/brexit/news/news-archive/withdrawal-of-the-united-kingdom-from-the-european-union-bill-2019-and-explanatory-memo.php).

Whilst the Irish Government’s planning is detailed in a number of areas (e.g. financial services, Common Travel Area, EU funding programmes etc.), notably there was relatively scant information on post-Brexit arrangements concerning border inspection of agri-food products. What is perhaps more significant is that last week, Ireland’s Department for Agriculture issued a tender for the provision of Border Inspection Post (BIP) and Veterinary Inspection Services post-Brexit. The tender document, accessible via: https://irl.eu-supply.com/ctm/Supplier/PublicTenders/ViewNotice/212690, mentioned that there are currently 3 approved BIPs in Ireland (Dublin Port, Dublin Airport and Shannon Airport) and that another BIP will be in place at Rosslare Port in time for Brexit. However, it also reveals that it may be that “other BIPs in other locations may need to be established on foot of the restructuring of business that is inevitable post Brexit.” This suggests that preparations are being quietly made for some form of Border control along the 500km land border with Northern Ireland although the Irish Government remains keen to state that there would be no physical infrastructure along the border in the event of a No Deal. Exactly how this will be achieved remains to be seen. That said, as pointed out last month, temporary measures of some form, similar to what Ireland put in place during the 2001 foot-and-mouth crisis, remains a possibility.