How trade impacts farmers

 Professor Alan Matthews of TCD reports: 

'The number of new studies, reports and policy briefs is now so overwhelming it is impossible to keep up, and I have only just come across this briefing for the European Parliament International Trade Committee on 'Trade aspects of the Strategic Dialogue on the future of EU agriculture and the impact of trade on the competitiveness and sustainability of European agriculture' https://lnkd.in/dhtEBim4 that was published in February this year. 

This short paper nicely captures the dual role of trade as both acting positively for farmers as a source of inputs and creating new markets, and acting negatively where it increases competition and introduces market volatility. A significant gap is that the paper discusses the need for a level playing field on regulatory standards with third countries to ensure fair competition, but surprisingly without mentioning mirror clauses or reciprocity or suggesting guidelines when they might be appropriate. Still work to be done here.'

Agri-food may stand in way of new EU trade deals

Professor Alan Matthews provides an authoritative and informative analysis of Trump tariffs and the EU agro-food sector.  Although originally published in February, it largely stands the test of time, other than for the ease of imposing tariffs on US spirit exports: http://capreform.eu/trump-ii-tariffs-and-the-eu-agri-food-sector/

As the EU seeks to expand and diversify its trade deals, it is evident that concerns about agriculture are a potential obstacle to its scope of action.   Discussions with Australia collapsed in 2023 over beef exports, although they could be revived after its general election next month.

Notwithstanding von der Leyen’s ambitions to secure new deals, the recent history of EU trade talks underscores how difficult it will be to consummate meaningful alliances.  Brussels has struggled to clinch agreements in recent years because of sensitivities in its 27 member states over agricultural products. 

Although the bloc has a €63bn trade surplus in agri-food, it does not want to allow more chicken, beef and sugar in after huge protests by farmers over the past two years. France and several other countries, for example, have yet to ratify a deal with Canada signed in 2016 because it would allow more beef imports. 

Paris, Vienna and The Hague have yet to back the Mercosur accord, saying they need greater protection for farmers, although it contains a mechanism to choke off imports if there is market disruption.

US opens offensive on agricultural trade

The United States is playing hardball on agricultural trade as part of any future US-UK trade deal after Brexit. Last week the office of the US trade representative (in effect, America's trade minister) issued a document that said the US was seeking 'comprehensive market access for US agricultural goods in the UK' through the reduction or elimination of tariffs. The US is also looking for the removal of 'unwanted barriers' related to 'sanitary and phytosanitary' standards.

The US Ambassador followed up with an article in the Daily Telegraph on Saturday which said that the UK risked getting trapped in the EU's 'museum of agriculture' approach: Smears on US farms

The EU has shown itself more than capable of innovation in agriculture with a new era opening up with the digital revolution. However, what the so-called 'museum of agriculture' about is a vision for European farming which emphasises the production of high quality products in an environmentally sensitive way, including observing animal welfare standards. An ecosystems compatible agriculture reflects the preferences of European consumers and voters who have no enthusiasm for corporate, industrialised American models.

EU needs to offer leadership on global trade

Alan Swinbank looks at Brexit, Trump and the unintended consequences of incomplete agricultural tariff reform: Incomplete CAP reform

He points out, 'Export subsidies are no more. Taxpayer support for Europe’s farmers is largely decoupled, and unthreatened by WTO disciplines. Despite successive reforms of the CAP, bringing down domestic support prices, these excessively high tariffs remain in place, rather like a whale’s carcass left stranded on a beach.'

'If the global trading system is to be saved, the EU needs to lead. Why not counter Trump’s threats and offer to unilaterally reduce farm tariffs?'

Hard Brexit threat to farm exports

Campaigning organisation Open Britain claims that agriculture could suffer if existing trade agreements with the US are lost as the result of a hard Brexit: How trade could be derailed

19 trade agreements could be lost. Exports including beef, lamb and oilseeds could face new trade barriers. It is argued that these agreements will be lost once Britain leaves the EU unless the UK can negotiate new deals with the US, or negotiate to remain within the EU-US agreements, which in my view is not very likely. As far as a trade agreement with the US, the Americans are likely to want concessions on agriculture.

The agreements include food safety and animal welfare standards covering beef and pork as well as concessions on cereals and oilseeds.

A farmer writes

In an interesting article a Northamptonshire farmer who has a mixed farm writes about how Brexit will affect him and other farmers: The impact of Brexit

Government giving mixed messages to agriculture

With Parliament now dissolved, the House of Lords Energy and Environment Sub-Committee has produced its report on Brexit and agriculture: Brexit report

The report implies that Government has not sorted out its priorities in relation to the sector: 'The Government is currently giving mixed messages to the agricultural sector. Its vision for the UK as a leading free-trade nation with low tariff barriers to the outside world does not sit easily with its declared commitment to high quality and welfare standards in the UK farming sector. Combining and delivering these two objectives will be a considerable challenge.'

The report notes the reliance of the UK agri-food sector on both permanent and seasonal labour from other EU countries. 'This is an immediate challenge which the Government must address urgently.'

The report warns, 'Farmers risk high tariffs and non-tariff barriers on exports, which could render their business uncompetitive, while simultaneously having to adjust to a new UK policy for funding.'

Four new papers on Brexit and agriculture

The Brexit working party of the Farmer-Scientist Network of the Yorkshire Agriculture Society, which I chair, has produced four new papers on Brexit and agriculture. They can be found here: Brexit papers

I have written papers on the future of Pillar 1 subsidies and migrant labour; Michael Cardwell and Fiona Smith have written on agri-food trade; and Alan Greer has covered devolution aspects.

More threats than opportunities

The agricultural trade dimension of Brexit posed more threats than opportunities according to NFU Director of Strategy Martin Haworth. He was speaking at a EurActiv seminar on 'After the CAP: what future for British agri-trade?' in London yesterday.

He thought that there was a lot of optimism about how easy it would be to negotiate a free trade area with the EU. How far could one replace EU markets with third country markets? With no frictionless access to the single market, we were looking at second best outcomes, the question was how second best?

Even with tariff free trade, there would be barriers with customs procedures. There was a great potential for disruption with perishable goods. He had a number of campaign medals from the past, but none of these problems had arisen since we had been part of the single market.

He noted that the horticulture sector was very integrated through importing and exporting. (Later, this led to discussion of how it was not in Spain's interests to have salad exports to the UK disrupted).

Our food exports to Belgium were three times those of China, India, Russia and Brazil combined.

Peter Hardwick of the ADHB noted that the advantages of proximity and speed of delivery in EU markets. Logistical issues around rules of origin were far more difficult than tariffs.

Molly Scott Cato MEP noted that it was difficult to justify paying people for owning land. There needed to be a discussion in government about what the future farming model should look like. A Defra staff member confirmed that no green paper was in prospect.

Phil Stocker, chief executive of the National Sheep Association, said we were not having a discussion about how we wanted agriculture to look like in the future. Upland farmers could respond by intensifying.

Lord Teverson said that the future relationship with the CAP was critical. The sequencing of agri-trade deals was important. Supply chains were now important even for SMEs.

Martin Haworth emphasised that a defined transition period was needed for everything.

The future of agri-food trade

In an informative and comprehensive treatment, two leading agricultural lawyers take a look at the future of agri-food trade post Brexit. Needless to say, it is complex! Agri-food trade

Be very, very afraid

At one point in yesterday's House of Lords committee evidence session, Professor Alan Swinbank envisaged a future in which there were fewer farming enterprises in Britain. I know that the committee were very interested in a paper he had written for the University of Sussex trade observatory entitled 'World Trade Rules and the Policy Options for British Agriculture Post-Brexit.' The contents, although rigorously argued, are somewhat more explosive than the anodyne title might suggest. You can download the full paper here: Key reflections

It is worth quoting a little of what he says in his conclusion. Professor Swinbank is one of the leading experts on the CAP, but also on agricultural trade policy.

He warns, 'It is highly unlikely that agricultural issues will determine the UK's future trade policy, as easy access for sugar, beef or butter to the UK's market for example could well be some of the key demands of potential FTA partners.' He continues, 'A unilateral reduction in tariff barriers to lower food prices and increase competitive pressures, would probably be unwise (although appealing to a number of economists) as it is those high tariffs that strengthen the UK's negotiating capital.'

He notes that alternative trade scenarios could result in a large number of farms being 'put under considerable financial pressures, with an uncertain impact on farming practices and the environment ... [Farmers] would probably protest vigorously if both taxpayer funded support and tariff protection were removed in a double whammy.'

In yesterday's session, Alan Swinbank was asked if any free trade pacts would be beneficial for agriculture. He noted that the real danger did not come from an agreement with the United States, but from agreements with Brazil or other South American countries, Australia and New Zealand. Australia would like to increase its tariff free exports of sheepmeat to the UK. Benefits could come from agreements with highly protected markets to which high value added goods could be sold: Japan, (South) Korea and Norway.

Further information about Alan Swinbank's remarks to the Lords committee can be found here: Irish Farmers Journal

Thinking about the consequences of Brexit

On a hot day a group of leading experts on the CAP and related issues gathered in a basement in London to discuss the challenges from Brexit on Chatham House terms.

Concern was expressed about the capacity of a hollowed out civil service to deal with the issues. How could we administer the more targeted policy that was likely to emerge after Brexit? Government departments were structuring and organising themselves with some staff transfers taking place, e.g., from Defra to the Brexit department.

It was somewhat ironic that the first trade pact being talked about was with Australia with which we had a small volume of trade. They would free access for agricultural products, not least for sugar. What would the EU think about that?

There was no idea how tariff related quotas or the amber box could be shared out.

After Brexit, should the focus be on labour saving technology development? But how near and how feasible/financially viable were some of the big developments like crops being picked by robots?

It was pointed out that existing domestic regulations were backed up in terms of compliance and enforcement by the possibility of reference to the ECJ.

The CAP was designed to slow down structural change, so we could expect more farm amalgamations after Brexit. Asset prices would fall. However, it was agreed that there were many variables that affected land prices, not least the availability of tax relief. There was no simple relationship between farm support and land prices.

The issue of price volatility was noted and it was pointed out that the 2010 food security study was very reliant on the fact that we were in the EU. Vulnerabilities to climate change could increase price volatility. A lot of things that were not really about price volatility were badged as such.

As far as food security was concerned, the biggest problem was the lack of storage in the food supply chain and the resilience of the system.

Lack of trade negotiators hits home

During the referendum campaign I made the point a number of times that the UK had no experienced trade negotiators which we would need after a Brexit to negotiate with the EU and with third countries. As Ken Clarke noted in a Sky interview when he was up against Nadine Dorries, trade negotiations are not a doddle. They are complex and demanding and require a special skill set. The legal context is baffling and I am pleased that we have two trade law experts on our Yorkshire Agricultural Society working party.

At one point I even thought that I had got The Times 'Red Box' interested, but it all came to nothing.

The only trade negotiators we have at the moment are working for the EU and they may be able to line up other, more lucrative jobs in Brussels where they are probably settled with their families with children attending an international school. The civil services does claim there are 10 or 12 officials 'with direct knowledge on trade negotiations', but that could mean attending as observers or summarising the outcome. Canada, which recently negotiated an as yet unratified agreement with the EU, has 830.

The head of the civil service, Sir Jeremy Heywood, has already spoken to professional services firms (among them Linklaters and McKinsey) but they and law firms are likely to charge an arm and a leg. Nevertheless, the aim is to have 300 experts by the end of the year when Article 50 is likely to be triggered.

Nigel Farage has come up with a unique solution: 'Let's get them from Singapore or South Korea or Chile or Switzerland or any of these countries who've managed to achieve far more in terms of global trade deals than we have', departing from his usual line on immigration.

Poor old Ken, by the way, not only did he have to try and have a serious debate with Nadine Dorries, at a meeting in Skipton where I was the warm up act, an elderly gentleman stormed out shouting 'Traitor' when Ken started to speak. He didn't bat an eyelid and gave his usual polished performance.

What I told farmers at the GYS

With Meurig Raymond at the Great Yorkshire Show

Here is the text of my address at the NFU breakfast meeting.

Harold Wilson used to say a week in politics was a long time. We have recently learnt than an hour in politics is a long time. Fortunately, we are now entering a period of greater stability as far as the Government is concerned. We have to wait to see who will be Defra secretary. I would expect Theresa May to approach the start of the Article 50 negotiations with some caution. Little preparatory work was undertaken by government, or at least little that was committed to paper. I think that our YAS report is actually quite helpful in terms of highlighting the issues that need to be considered.

Brussels is on holiday in August. Of course, too long a delay could lead to Article 7 being triggered. This invokes sanctions against an EU member for ‘failing to uphold the values on which the Union is based.’ However, I do not think that would be a very likely scenario.

How long the negotiations will take is a matter for speculation. They have to be completed in two years, but could be completed in less. France has a presidential election in April and May 2017, where the outcome is uncertain, and Germany has a federal election in September 2017. France is trying to carve out a leading role for itself in the negotiations and has set up its own task force led by their secretary-general for European affairs.

A few words about the negotiation process. The role of the European Council in the negotiations is to set the guidelines and key conditions while Commission staff will make concrete recommendations. The Council task force on the UK is headed by Belgian diplomat Didier Seeuws. There was some feeling in the Commission that he had been appointed too early. President Juncker’s chief of staff Martin Selymar is expected to be the Commission’s lead, at least unofficially.

The European Parliament won’t be directly involved in the negotiations, but will try to make itself felt before it carries out its official role, ratifying the final agreement. The Commission is likely to issue progress reports on the talks and the Parliament will vote on non-binding resolutions on them. One of our objectives with our report was to try and get greater attention given to agriculture and the food chain in the referendum debate. We were not very successful and I am concerned that this will happen again in the Article 50 negotiations.

The work of the YAS working party will continue and will have two main tasks:

• 1. Monitoring the negotiations in terms of their impact on agriculture
• 2. Contributing to the debate on a new domestic agricultural policy. That will be a policy for England as agriculture is a devolved matter. Up to now the constraints of the CAP have limited the scope for policy divergence. In future I would expect Scotland and Northern Ireland to spend more on agriculture and the rural economy, although budget constraints limit the scope of such divergence. I am less certain about Wales.

I have been asked to be positive today and I will try to be so, but it has to be recognised that farmers face political challenges and no longer have the support of farmers elsewhere in Europe. ‘Time to cut our greedy farmers down to size’ says this article in last Saturday’s Times. It is a very ill informed article and I have criticised it in my blog. The only good point in it is when it says that the NFU is a well organised lobby. But we can expect more of this sort of thing.

Before looking at various areas of policy, I want to say something about sterling. A falling rate against the dollar and the euro brings many advantages to farmers, but also some downsides. Exports become more competitive and the value of EU subsidies rises, but the cost of inputs such as fertilisers and soya increases. Fuel prices also increase, which is why the future of red diesel is something that needs to be watched.

The future of subsidies is clearly a matter for concern as for many enterprises they make the difference between running at a profit and a loss. Pillar 2 subsidies are in many cases protected by contracts that run beyond 2020, but we were also confident in our report that there was a strong domestic coalition of support for the continuation of agri-environmental subsidies, but hopefully putting right some of the failings in the existing scheme. There needs to be some discussion about whether subsidies should move up the hill to livestock farms.

We were much less confident about Pillar 1 or basic payment subsidies. We didn’t think they would be abolished, but we did think they would be a target for the Treasury. It has to be recognised that falls in tax revenue, some of which may be longer term, will put public expenditure under greater pressure, even though the budget surplus target has been rightly abandoned.

Inertia would suggest that a modified form of the basic payment would be used, hopefully with fewer form filling complexities and payments being made to farmers on time. I am clear that there will be no return to the deficiency payments that were used in the past because it is difficult to forecast how much they will cost in any one year.

The justification for general subsidies (or support payements) needs to be articulated. In my view the strongest argument is the need to maintain a level playing field with farmers elsewhere in Europe that will continue to receive CAP subsidies. There are also food security arguments given that our ability to grow temperate foodstuffs has declined over time. One also needs to consider environmental protection and the maintenance of the appearance of the countryside.

As far as regulation is concerned, hopefully we will see the back of the monoculture regulations that interfered in farm decision-making without making any contribution to environmental objectives. I think that it should be possible to eventually get rid of the Nitrates Directive in its present form and some aspects of the Water Framework Directive.

It does need to be recognised, however, that there is a strong coalition of domestic lobbies - environmental, conservation, animal welfare, consumer, public health – that often do not have a good understanding of the challenges that face farmers.

Take the case of badgers and bovine TB which I have written about a lot, indeed I am giving a presentation at the vet school at Surrey University next week. In forty years of working on agricultural policy, I have never encountered such an intractable policy problem in which emotion often trumps the evidence.

Plant protection legislation has not worked well in the EU. The internal market is not complete. Many of the national agencies suffer from very serious problems. There is too great a willingness to accept hypotheses about risk which are not evidence based. However, the UK Government is not necessarily sympathetic, as has been shown by the recent decision to reject a revised application to use neonics this autumn. It won’t be too easy to operate a pesticides regime in the UK that is at odds with that in the EU.

Trade agreements between the EU third countries or groups of countries, of which there are over fifty, provide one of the greatest challenges, although my guess would be that probably only fifteen of these are really important for agriculture. Trade negotiations are very complex and we lack enough experienced trade diplomats, although I believe that the Government is thinking of hiring them in from private firms, which will not be cheap.

There is a major issue about migrant labour which is particularly important in terms of planting and harvesting field vegetables and fruit. I don’t have time to go into this in detail, but in my view the way forward is through a revised version of the SAWS scheme that extends to specific countries beyond the EU. As far as the border with Ireland is concerned, I think that the most likely solution is to move it back to England.

The NFU is undertaking a major consultation with its members, probably one of the biggest it has ever undertaken. I await the results of that with interest, but in the meantime the work of our working party will continue.

Sources close to the NFU suggested to me later in the day that the biggest challenge would be managing the expectations of farmers.

Brexit and agricultural trade

Alan Matthews takes an in depth look at the implications of 'Brexit' for agricultural trade: WTO and Brexit

Certainly in the work we have been doing in the Yorkshire Agricultural Society working party on Brexit, we have found this to be the most complex issue.

Matthews concludes: 'There must be a high risk that Brexit would lead to disruption to supply chains (in the case of imports) and to export sales. Also, the time pressure on the UK to secure agreements will leave it in a relatively weak bargaining position vis-à-vis its trade partners implying that it may have yield more concessions that might otherwise be the case in order to secure these agreements.'