Avoiding the Brexit “tariff cliff” on agri-food exports
Type Media Article
The Irish agri-food sector is heavily exposed to Brexit. A best case outcome for the agri-food sector would be a deal on trade between the UK and EU that is concluded by the time the UK leaves and which inhibits agri-food trade as little as possible. Fresh food products, like dairy and beef, have a limited shelf life but have a long lead production period. To minimize disruption, the agri-food sector will need a good deal and will need certainty about its post Brexit future, sooner rather than later.
The UK has made its opening trade negotiating position quite clear in its Brexit White Paper. The Irish government has been equally clear in its desire to continue to trade with the UK with as little red tape as possible. What is less certain is the position of other EU member states with regard to the UK trade relationship. Trade barriers would be bad news for the Irish economy and particularly for sectors such as agri-food, with a strong exposure to the UK market.
According to the White Paper, the UK is deeply unhappy with elements of the four fundamental freedoms of the EU (free movement of goods, services, capital and labour) notwithstanding the fact that this position puts free trade with the EU at risk. Even with an agreement on the terms of their “divorce”, the UK and the EU could fail to reach agreement on future trade terms. Alternatively, they might reach a trade agreement that departs significantly from the current deep and comprehensive free trade arrangements enshrined in the Single Market.
Ireland is an export dependent economy, deeply integrated with its nearest neighbour the UK. The Irish agri-food industry is particularly export orientated and more dependent on the UK as an export market than is the wider Irish economy. While Brexit would mean disruption to trade with the UK that would negatively affect all sectors of the Irish economy, the adverse impact on the agri-food industry is likely to be even greater. This heightened exposure results from the greater integration of the Irish and UK agri-food economies, due to proximity, common food standards, similar food preferences and the absence of trade tariffs.
Under a “hard” Brexit, tariff and non-tariff barriers to trade could render some of the existing trade flows between Ireland and the UK unprofitable, with negative knock on consequences for output and employment in the agri-food industries and the wider economy.
Time is a big factor in agricultural decision making. Biological processes underlie agricultural production. Cattle can take over two years to be reared to slaughter. Consequently, production decisions made by Irish farmers this spring will be realised close to the envisaged Brexit date in 2019. Agri-food produce is also highly perishable, meaning that farms and food processing firms have little capacity to use inventories to smooth the adjustment to demand shocks.
Post Brexit tariff and customs requirements could generate red tape that would affect Irish trade with the UK. Furthermore, such measures could also affect Irish exports to continental Europe that are shipped via land bridge through the UK. The agri-food sector cannot afford even short delays in the delivery of produce to the UK and continental Europe. Every extra hour in transit represents an extra hour in transport costs and an hour less in shelf life.
For these reasons the agri-food industry clarity, and soon, concerning the likely disruption to trade between the UK and the EU, post-Brexit.
In the absence of an agreement on EU-UK trade, falling back on WTO rules would amount to an enormous shock to the agri-food industry in Ireland, the UK and the EU. Trade under WTO rules could mean that some of the most important elements of current bilateral trade in agri-food products between Ireland and the UK would face taxes of over 50%.
Agriculture and food production in Ireland, the UK and the EU is in general a low margin business at both the farm and food processing stages. Significant tariff and non-tariff barriers to trade (or even the risk that such barriers could be introduced following Brexit) have the potential to reduce the levels of agri-food production, with negative consequences for farm level and food business profitability.
Farmers and food businesses need to plan ahead over a period of years and where possible the require certainty to make sound decisions. From an Irish perspective what can the UK and EU do to address some of these concerns?
First, negotiations on the nature of the future trade relationships between the UK and the EU should start immediately and seek to minimise the magnitude of any tariff and non-tariff barriers to future trade. Secondly, as early as possible in the negotiation prescribed under Article 50, the UK and EU need to consider transitional trade arrangements that would prevail for a specified period beyond 2019, should time run out in the two year negotiation. Right now this would reassure businesses in the agri-food sector and wider economy that a WTO tariff cliff in 2019 can be avoided.
Prof Gerry Boyle
Director of Teagasc