Trade deals always cause a great deal of debate across the agriculture sector. Strong and polarised opinion seem inherent in any press coverage, with predictions of either untold benefits or devastating impacts depending on the respective viewpoints. The run up to the UK-Australia trade deal has been no different. AHDB’s David Swales looks beyond the rhetoric, exploring the potential significance of the recent announcement, as well as its potential impact.
The UK and Australia have reached agreement on ‘broad terms’ of a trade deal. Unsurprisingly details are thin on the ground but reports suggest we are heading toward tariff- and quota-free trade. This is the latest in a long list of trade deals the UK Government has signed over the past year. They list 67 non-EU countries, from Albania through to Zimbabwe, where we have a trade deal in place or ‘provisionally agreed’ on the gov.uk website. However, Australia is potentially much more significant for agriculture than the 67 that have gone before and I think it is likely to set a precedent going forward.
The trade deals announced before now have all been rollovers of those the UK already had as part of the EU. Replicating EU deals means that we were, in effect, working towards maintaining the status quo. There was limited likelihood of either more domestic competition or overseas export opportunities. Starting from an EU template meant the whole approach was pretty cautious with regard to the impact on farmers. The deals included strict quotas which restricted the volume of tariff-free trade, and other safeguarding measures to protect domestic producers, particularly in ‘sensitive sectors’ like beef, sheep and dairy.
The UK-Australia deal feels very different. It is the first genuinely new trade deal which has been negotiated by the UK. As such, it is telling that long-term quotas have disappeared and details of safeguards are thin on the ground. I should acknowledge that there is talk of a 15-year transition period, to give British farmers time to adapt to increased competition. But the language feels very different, rather than being protected or safeguarded now it’s all about farmers preparing for the competition that is coming.
What might the impact be?
AHDB have published analysis on Australia in recent months. Our work shows that Australia is a significant agricultural exporter, with large farms which have production systems that differ from those in the UK. This means that Australian farm costs of production tend to be much lower than those in the UK – notably for beef, sheep, dairy and to a lesser degree for wheat, barley and oilseeds.
Despite lower costs there are relatively low levels of Australian food exports to the UK at present. This is partly because the UK Global Tariff currently acts as a barrier. For example, Australian steaks will incur a tariff of 12% + £2,530 a tonne which makes them uncompetitive in our domestic market.
However, this isn’t the only reason we don’t have significant volumes of Australian product on our supermarket shelves. Strong economic and population growth means the demand for Australian food exports closer to home – in the Asia-Pacific region – is strong and prices are good. Australia can export its steaks and other boneless beef cuts for an average of £6,500 a tonne to markets such as Japan, China, South Korea, Indonesia as well as the United States. So why would they divert significant volumes of product to the UK, with our average import price at around £5,000 a tonne? We have analysed Australia’s key trading partners for livestock and cereals products in greater detail in website articles.
As such, even in a free-trade scenario I wouldn’t expect our market to be flooded by Australian product. This isn’t to say there won’t be an impact, as even a modest increase in supply will have a price effect. I’m also conscious that trade shocks tend to change trade flows almost overnight, particularly when markets close. Australia – China relations aren’t particularly positive at the moment. Any policy decisions there might impact trade flows, leaving Australia actively pursuing other markets.
At AHDB we see it as an important part of our remit to provide the industry with robust, impartial evidence to inform our levy payers and their representatives. We are already working with the agricultural economists at Harper Adams University to get precise numbers on the impact of this trade deal. We intend to publish results of this modelling when the full details of the deal are released – and ahead of scrutiny by the Trade and Agriculture Commission and parliament.
What about standards?
Much is made of our standards in trade talks. Standards are important and I agree with the sentiment that product that has been produced to standards lower than ours should not be given access. We will be looking out for the details that emerge in this area, as the Government has previously given assurances that product produced to lower standards will not be allowed access to our market. It will be interesting to see how they implement and enforce this when the details come out.
We also need to anticipate that overseas competitors will work hard to meet whatever standards we put in place. Australia will already meet a range of different standards and legislative requirements in different markets. If the rewards are there, they’ll pivot production and processing to meet the standards that we impose.
What happens next?
As only ‘broad terms’ have been agreed we expect further negotiations to take place between now and the autumn. The full details of deal are then expected to be published and are unlikely to come into effect in late 2022, assuming parliamentary approval.
Further trade deals feel inevitable, with the United States and New Zealand next in the pipeline. Like Australia these countries are also big food exporters and I would like to see some big food importers (like those Asia-Pacific countries) next in line. Globally, demand for food is growing. Due to our strong domestic market, we’re never going to be a net exporter but there will be opportunities. Exploring and developing these is a key focus for AHDB through our market access and trade development work overseas. We need to focus on UK product and its qualities, tapping into markets where quality and consistency is highly prized and justly rewarded.