The Challenges for UK and Welsh Beef and Lamb in Competing in

the Post Brexit World.

Presented at:

The Challenge of a Changing WorldHybu Cig Cymru Annual Conference November 2018

Brian J Revell

Professor EmeritusAgriculture and Food Economics

Harper Adams University

The nexus of challenges facing the UK and Welsh Red Meat Sectors

Brexit

Global meat market

trends. The export

challenge

Agricultural Policy

Change

Environmental pressures

Structural adjustment adaptation and change

Brexit

• Where we are now and where we are going?

• Tariffs and trade issues

• Implications for domestic consumption and market balance

Trade issues and possible outcomes

At present, a future EU-UK trade agreement is not formally on the Agenda until the Withdrawal Agreement is settled with which UK has problems with EU Backstop solution for N Ireland . The nature of EU-UK trading relationship will be discussed post WDA and during transition. Transition to Dec 2020 (or now to be extended?)

UK remains within the EU Customs Union for Goods but not Services in transition or beyond – either by default or decision. Inspections of goods at ports – perhaps relaxed but some additional transaction costs. UK applies Common External Tariff and shares in the EU Tariff Rate Quotas for Imported Products. Would be difficult for UK to strike FTAs of its own. Still mainly status quo. WTO MFN issues as UK no longer EU MS?

Government and EU27 agree a “Free Trade Agreement (FTA)” for Goods but not Services. UK adopts EU Tariff schedules but also has freedom to strike its own FTAs. Would ultimately need to agree its own schedule of TRQs and external tariffs with the WTO. Rules of origin on UK-EU trade would also be applied given greater open-ness of UK market to other third country exports. TRQs for inter EU UK trade might be part of the outcome but not currently envisaged

………………………………………………………OR

A Hard Brexit. No trade deal. The UK has indicated to the WTO that it intends to rectify/adopt the EU tariff schedule but could be free to apply its own external tariffs at lower levels. MFN considerations would mean such tariffs would also apply to the EU as to any other countries exporting to the UK. UK exports to EU taxed at EU MFN rates except where EO quotas exist. UK able to negotiate its own FTAs with other third countries.

If a Hard Brexit, UK Exports to EU face challenging times ahead

Product Description UnitEU-TRQ allocn

for Erga Omnes

Out/over quota MFN tariff

Live bovine animals (Male calves <80kg for fattening) head 25,491 45%

Live sheep & goats excl. pure breds for breeding t.cs.wt. 91 63%

Fresh chilled boneless bovine meat t.prod.wt. 0 44%

Boneless Meat & edible offal of bovine animals, frozen t.prod.wt. 43,732 56%

Meat & edible offal of bovine animals, frozen t.cs.wt. 19,676 50%

Meat of sheep or goats, fr.ch.fz t ccse.wt. 178 46%

• Without an UK-EU FTA, UK access to EU market would rely on Erga Omnes Quota allocation or Out of quota MFN tariff rates.

• All high quality fresh and chilled beef is in specific country allocated TRQs. OQ MFN rates would apply to UK exports

• In-quota frozen beef tariff is either 0% or 20% depending on cuts, and 0% for fresh, chilled or frozen lamb.

Consumer prices for imported beef may rise.

Converse for lamb.

• UK imports about 300,000t cwe of EU beef much of which (other than the frozen EO quota element and GSP beef) would enter at MFN tariff rates. This is likely to push up prices unless there is a UK decision to reduce MFN tariff rates unilaterally.

• Only third country beef with TRQ allocations would enter at lower tariff rates.

• Likely to be some import substitution of domestic for imported beef.

• No real change in access conditions for imported lamb. But UK exports to EU would attract high tariffs, hence seasonal price pressure on UK market

• Consider freezing lamb for domestic off-season sales.

ProductDescription

UK SHARE OF EU CURRENT EU 28 TRQ %

UK TRQ share in tonnes

TQ Rate

MFN Rate

Total "High Quality " Beefand edible offals fr, ch, fz(t.prod.wt) 12% 7783 0-20% 56%

Total frozen beef and offal(t.prod.wt) 30% 55170 20% 50%

Total Meat of Sheep andGoats (t. c'cse. wt.) 49.0% 137,659 0% 46%

Global meat market trends.

The export challenge

• Global meat consumption trends

• Exporting beyond the EU

• UK fit for purpose?

• Opportunities for export market diversification.

OECD-FAO project global meat

consumption to grow long term 2015-2027

• Meat demand is driven by economic growth, population growth and consumer preferences

• Global beef consumption projected to grow 17.5% or at 1.3% p.a. over the 12 year period and sheepmeat consumption by 22% at an annual rate of 1.7%.

• However consumption per head reveals more modest changes in growth, with beef consumption only rising by 4% and sheepmeat consumption by 8%.

• Population growth therefore likely to be main driver in the marketplace, with preference changes and lower economic growth moderating overall consumer purchases.

Total

Consumption 2015 2027

trend rate

change %

p.a.

total change

%

million tonnes

Beef and Veal 66.8 78.5 1.3 17.5

Pigmeat 116.2 130.7 1.0 12.5

Poultrymeat 115.6 138.9 1.5 20.2

Sheepmeat 14.3 17.4 1.7 22.0

Consumption

per head 2015 2027

trend rate

change %

p.a.

total change

%

kg per head

Beef and Veal 6.3 6.6 0.3 4.1

Pigmeat 12.3 12.2 -0.0 -0.3

Poultrymeat 13.8 14.7 0.5 6.5

Sheepmeat 1.7 1.8 0.7 8.2

Projected growth in beef and sheepmeat consumption by global regions 2015-27• Africa and Asia are the key growth region for total

consumption of red meats. In Asia, economic growth in China, Korea, India and SE Asia are key factors, and high levels of population growth in India and SE Asia.

• In Africa, lower expected economic growth rates and preferences for poultrymeat reduce per capita consumption levels of red meats.

• Despite a projected increase in European sheepmeat consumption , an exoected fall in beef consumption per capita and in total suggest lower red meat consumption in the region.

• Demand for beef in N America is expected to rise steadily but the small rise in total sheepmeat consumption growth is population rather than demand driven.

1.1

-0.2

1.4

2.0

1.1

2.1

0.1

0.8

0.1

1.8

0.7

2.2

N AMERICA EUROPE OCEANIA ASIA LATIN AMERICA AFRICA

Annual percentage growth rate in total consumption

Beef Sheepmeat

0.4

-0.2

0.1

1.2

0.2

-0.3

-0.6

0.8

-1.2

1.0

-0.2 -0.2N AMERICA EUROPE OCEANIA ASIA LATIN AMERICA AFRICA

Beef Sheepmeat

Annual percentage growth rate in per capita consumption

Exporting beyond the EU

Where are the non EU opportunities?

How competitive is the UK Red Meat Sector in Exporting ?

Growth of World Fresh and Chilled

Beef Imports HS 02 01

2008-17Volume 2.2%Value 2.8%

TOP 20 IMPORTING COUNTRIES IN 2017 AND GROWTH IN VALUE 2013-17

Positive import growth• USA• Japan• Chile• Taiwan• UAE

Growth of World Frozen Beef

Imports HS 02 02

2008-17Volume 4.1%Value 7.1%

TOP 20 IMPORTING COUNTRIES IN 2017 AND GROWTH IN VALUE 2013-17

Positive import growth• China• Vietnam• Korea• Chile• Taiwan• Iran• Indonesia• Philippines

Growth of World Fresh, Chilled and Frozen Sheep &

Goatmeat Imports HS 02 04

2008-17Volume 3.2%Value -0.2%

TOP 20 IMPORTING COUNTRIES IN 2017 AND GROWTH IN VALUE 2013-17

Positive import growth• USA• UEA• Iran• Korea Rep• Qatar• Malaysia

How competitive are UK Red

Meat Exports?

• UK is a net importer of red meat though still exported £0.8bn of unprocessed red meat in 2016

• Red meat offal exports have been the star performer over the past 5 years

• Volume and value growth in sheep and chilled beef exports has been negative,

• Exports of all 3 meats have lost world market share

• Lack of diversification in markets except for frozen beef and lack of variety in product form

IndustryExports

2016 £mn

Net trade £mn

% of World

Exports

5yr avg value

growth %pa

5yr avg volume growth

%pa

Share growth

%pa

Share of top 3

products %

Share of top 3

markets %

02 04 Fr ch frz Sheep & Goatmeat £333 -£12 7.68 -5 -4 -5 86 77.1

02 01Fr Ch Beef £316 -£517 2.02 -5 -3 -6 100 65.1

0206Red meat offal £128 £79 2.12 14 22 10 86.8 62.9

0202Frz Beef £56 -£122 0.38 -1 7 -3 100 47.9

Where is the UK Exporting ?

2017 £mn

WORLD 342.02

EU27 324.39NON EU... of which 17.63

Switzerland 7.90

Hong Kong 5.96

USA 1.45

Vietnam 0.50

S Africa 0.28

Singapore 0.23

Philippines 0.13

China 0.11

Fresh or Chilled Beef HS 02 01

2017 £mn

WORLD 385.84

EU27 371.77

NON EU... of which 14.07

Hong Kong 7.77

Switzerland 3.85

Vietnam 0.48

Ghana 0.46

China 0.18

Canada 0.19

2017 £mn

WORLD 62.83

EU27 35.60

NON EU... of which 27.23

Hong Kong 15.59

USA 0.86

Vietnam 1.81

French Polynesia 1.59

Gabon 1.35

Switzerland 0.59

S Africa 0.38

Frozen Beef HS 02 02 Fresh,chilled or frozen Sheepmeat HS 02 04

• Non –EU markets where import growth is above world average and UK export market share is increasing shown in blue

Agricultural Policy Change

• Status quo until 2021 then change proposed in the :-

• Agriculture Bill• 3 De’s

• Emphasis on public money for public goods

• Focus on innovation and productivity enhancement

• Supply chain functioning

• Quality Standards

• Marketing and Producer Organisations

Critical issues for the Red Meat Sector in the Agriculture Bill Proposals

• Decoupling of direct payments from production already implemented;

• Delinking of Basic Payment from the land.

• Degressivity of Basic Payment over 7 years from 2021 will follow; so an annual rate of reduction in BP will be applied. Dependence of the LFA and lowland cattle and sheep farms’ business income on the BP will add to pressures for adjustment –exit, reduction in levels of output where unprofitable at the margin

• Public money for public goods. How will Welsh agriculture adapt given the preponderance of small farm businesses ? In any event, extensification likely to involve reductions in stocking rates.

Environmental impact of livestock farming in Wales

• Paris Agreement of 2015 set national targets for GHG emissions reductions.

• The UK GHG reduction target includes all devolved administrations

• Agriculture’s role in GHG emissions

• Implications for policy

Agri Food and GHGs by Sector in

Wales in 2015

Agriculture and food processing accounted 12.9% of all GHG emissions in Wales in 2015 and 10.8% for the UK as whole

GHG emissions in UK between 2005-15

UK total GHG emissions fell by 27%

In Wales total emissions fell by 10%

Agriculture accounted for 10% of UK total emissions in 2015

In Wales it comprised almost 13% of total emissions

Given the continuing need to reduce future UK emissions, Wales may have to make a greater contribution in future than hitherto.

Attention will inevitably focus on agriculture given its relatively larger share of total national emissions and the key GHG contributing enterprises

Methane emissions by

sector in Wales2005-15

• Agriculture’s share of Welsh methane emissions has increased absolutely

• Welsh methane emissions have risen as a proportion of total emissions from all sectors of its economy.

Sources of Welsh Agricultural GHG

Emissions2010-15(% of CO2 eq)

• Emissions from beef production have fallen but those from sheep have increased .

• Including dairy, ruminant livestock emissions rose between 2010-15 accounting for over two thirds of Welsh agriculture’s GHG emissions

• Reduction in ruminant numbers is an obvious solution to lowering agricultural GHGs

Conclusions and Reflections

In the absence of an EU –UK trade deal, the UK meat market will suffer disruption both in its domestic beef and lamb markets.

Changes in agricultural policy, environmental and animal welfare concerns will exacerbate domestic market pressures on the UK red meat sector and the need for some structural adjustment in production, and focus on export development less reliant on EU markets.

Import substitution opportunities may arise in the domestic market –especially for beef, and perhaps for lamb if the industry considers freezing seasonally surplus product.

Whilst population and economic growth are expected to increase global demand and consumption for beef and lamb, much of this will be in more distant markets in Asia where total and per capita demand will grow. African market growth will be population rather than per capita demand driven.

Developing and penetrating new export markets in the event of a hard Brexit will be a long term project and unlikely to replace the security and opportunities which remain as part of the larger EU market and with the global access opportunities already established but somewhat unexploited by the UK red meat industry.