Sunday, February 04, 2024

Hard cheese for the UK dairy industry

In the lead up to the EU referendum, those who promoted Brexit promised that Britain would see to opening up new markets and new opportunities beyond the EU.

However, nearly nine years after that fateful vote and two years after Britain officially left the block after delays in negotiating a deal with the EU, Britain has failed to make any meaningful free trade agreements with any country outside the bloc and those it has managed to secure pale into insignificance compared to what was offered through being an EU member state.

A particular case in point is the trade deal made with Australia which, even according to former environment secretary George Eustace, has left worse off. Eustice, who helped secure the first post-Brexit deal negotiated from scratch, told a Commons debate that it was "not actually a very good deal for the UK" [Guardian / BBC].

The deal was even mocked on Australian breakfast television.

The deal removes tariffs on £4.3bn of exports, making it cheaper to sell iconic products like cars, Scotch whisky and ceramics into Australia, according to the UK government which called the agreement  'historic'. However, the deal was only forecast to raise Britain's GDP by 0.08% by 2035 [Guardian].   

In the northern hemisphere Britain has failed to make any inroads in terms of making deals. Despite a 'special relationship' with the US, a free trade deal seems as elusive as ever.

The same is true of Canada, a commonwealth country with Britain expected to reestablish stronger ties.

But despite nearly two years of negotiations everything fell flat in January leaving Britain worse off than had it remained part of the EU.

Canada had been pushing for the UK to relax a ban on hormone-treated beef, which its producers say in effect shuts them out of the British market [BBC].

However, the same meat products remain banned in the EU despite having a trade agreement with Canada known as CETA or Comprehensive Economic and Trade Agreement.

Britain previously traded under these rules but having left the EU had to negotiate its own agreement.

Under CETA there exists a tariff rate quota of 16,000,000 kilograms for EU cheeses with the likes of France, Italy and the Netherlands benefitting substantially. But after the 1st January 2024 Britain fell out of this arrangement and with no separate deal in place it could prove disastrous for the UK dairy industry.

From the 1st January 2024, for UK cheese to be eligible for export under Canada's WTO quota, UK exporters need to ensure the Canadian importer they are partnering with has access to an import licence for the 'non-EU sources reserve'.  

If UK exporters do not have this, any cheese products they export to Canada will be subject to the full tariffs which amount to 245% [UK Gov].

This could mean tougher trading terms for the UK with a partner that accounted for 1.4% of its total trade in the 12 months to June 2023.

The UK exported over two million kilograms of cheese to Canada in 2022. And a massive slice of that are Coombe Castle products. "Essentially, we're going to fall off the edge of a cliff at the end of this year," Darren Larvin, the managing director of Coombe Castle International, was quoted as saying by CBC last December.

Prior to January 2024 a 320 gram pack of Coombe Castle cheese cost Ca$12.99 [around £7.60]. With a 245% mark up this would push the price up to some Ca$31.82 [£18.65].

Goods trade between the two countries was worth £19.2bn in 2020, according to the UK government, with UK imports from Canada worth £7.3bn and UK exports to Canada worth £11.8bn.

And while overall UK cheese exports to Canada are relatively small, it is nonetheless significant. British cheese exports to Canada were worth £18.7m - or 2.4% of total cheese exports - in 2022, according to the Food and Drink Federation (FDF). That translates to Canada importing a little more than two million kilograms of cheese from the UK (its fifth largest supplier), international trade data indicates [BBC].

For some firms the loss of this market could be devastating with some being forced to reduce production and staff. The longer the situation continues the more difficult it will be to reestablish trade links.

Boris Johnson had sold Brexit with priceless opportunities such as being able to sell "more affordable high-quality cheese to Canada" [Daily Mail]. But instead the lies and failed promises have left a sour taste and left many cheese makers cheesed off [Guardian].

But it's no joke for the estimated 7,845 people employed in the British butter & cheese industry. A 2.5% loss in trade with Canada could potentially result in job losses. And while it might be a simplification to say the industry could see a similar cut in jobs, this could translate into around 200 job losses. For firms such as Coombe Castle, which send around a third of its products to Canada, it's an existential crisis.

Overall Britain's cheese exports have shrunk in the last year, decreasing by £-4.11M (-5.65%) from £72.7M to £68.6M [OEC]. The collapse of a potential trade deal with Canada will do nothing to boost confidence.

And it's not just cheese either. The breakdown in talks mean British car firms could also face higher tariffs. It will also mean Britain will miss out on opportunities to secure better terms for digital trade, which makes up four-fifths of the UK's services exports to Canada.

"This was supposed to be done quite quickly because it was just an upgrade of an existing deal," says William Bain, head of trade policy at the British Chambers of Commerce. "But in the end, it has taken two years to achieve nothing." [Telegraph]

Once again, Britain has found that Brexit was not quite the land of open opportunities, unicorns and sunny uplands that was sold to the British public.

tvnewswatch, London, UK

Tuesday, January 30, 2024

Brexit likely to hit Britain hard in coming days

The pain of Brexit has been a long burn with various transitions coming into effect over time. Should the consequential rules have come into effect the moment the UK left the EU, many people would have realised that Brexit was a mistake. However, the average UK citizen has not seen the direct effects because many of the consequences of becoming a third country have only been implemented over time.

Passport checks & queues

Already one has seen the effects of increased passport checks at borders. As a third country British citizens can only stay in the EU for up to 90 days in any 180-day period. Thus all UK passports need to be checked and stamped at entry and exit points. This has resulted in delays at airports and ports. The port of Dover has been particularly badly hit, especially at busy times, with massive queues and delays being experienced by holiday makers. But freight has been even more hard hit with parts of the A20 into Dover becoming an almost daily lorry park with queues sometimes exceeding 20 km.

Some customs checks have already been implemented meaning checks on lorries travelling to and from the EU. But this week sees the introduction of new government policy on the control of EU produce entering the UK, with firms fearing delays, rising costs and the ability of border posts to cope [BBC]. 

Red tape

UK food and farm exports to the EU have required extra red tape, checks and delays for two years, but their competitors on the continent have enjoyed unfettered access to the UK. As of Wednesday, four years on from Brexit day, new rules come into effect meaning  changes for food and plant product imports from the European Union.

In short it means extra, costly paperwork. This will mean further checks on both sides of the channel. This will likely mean further delays in shipping goods between the EU and UK. This in turn may lead to some exporters giving up on the UK as it becomes unviable. For larger exporters, costs may be swallowed up, but for smaller exporters the increased costs and delays may result in them giving up on the UK altogether.

Post-Brexit requirements mean that nurseries now have to secure phytosanitary certificates – health checks – before plants can be shipped, costing tens or hundreds of thousands of pounds each year and sometimes adding a week to delivery times.  In April, many animal and plant products coming from mainland Europe will also have to undergo physical checks at newly installed UK border posts.

From Wednesday, all imported plant and animal products will be categorised as low, medium or high risk. Those seen as medium and high, which includes meat and dairy products, as well as most plants, will now require checks from plant health inspectors or vets before they can be transported.

While the new rules bring a level playing field to both those exporting to the EU and those exporting from the EU into the UK, the change will hit UK consumers hard.

Until now the main effect on exporting requirements has little affected most Britons.

While there have been delays and disruptions to supply chains resulting in some shortages seen in supermarkets, the biggest effect of post-Brexit rules thus far has only affected UK exporters.

The main physical manifestation has been the long queues of lorries seen on the A20 near Dover. But the delays and extra paperwork has also resulted in many smaller UK firms giving up on the EU market.

Cost to business

There are countless tales of firms either going bust or downsizing due to EU exports becoming more difficult or too costly. In August last year the Guardian reported that at least 100 firms had gone to the wall because of post-Brexit red-tape [Guardian].

In May last year it was reported that UK fruit exports to the EU had dropped by more than half since Brexit [Guardian].  

While the pandemic certainly had some effect, it seems clear that Brexit was a compounding factor. Indeed figures published in June showed that Britain was lagging behind all G7 countries [Guardian].

As a third country Britain's fishing industry was immediately hit by Brexit following the transition. The UK-EU Trade and Cooperation Agreement (TCA) came into force in January 2021 and overnight hit mussel farmers and those exporting bivalve molluscs. Most bivalve molluscs, such as mussels and oysters, that have not been purified before export are essentially banned from the EU. This has impacted UK exports which were exempt when the UK was part of the EU.

However, the EU bans the import of live bivalve molluscs from third countries. One of the biggest markets for UK producers of mussels and oysters was France. But the ban resulted in making the farming of these molluscs unsustainable.

Britain represents only a small percentage of the mollusc market for UK producers. Thus, with much of their market essentially closed off, many of these firms have gone out of business [TheFishSite / Guardian]. 

Moules mariniére has been off the menu for Britons for some time now as live mussels have become as rare as hens teeth in supermarkets across the country. There are a few that stock pre packed products, but as anyone who has prepared the dish from scratch, they pale compared to a freshly cooked dish.

Uncertain future

UK producers have already said that the new rules that come into effect this week are impossible to plan for [Guardian].

And with further changes and checks expected to come into force in October, Britain could see some very dark times ahead.

While overall inflation has dropped to around 4%, food inflation remains high at 8% according to the ONS.

Further disruptions to the supply of food from Europe is only likely to impact prices.

Food industry bodies in Europe and the UK are already warning of impending supply chain disruption as Britain introduces new border bureaucracy on EU food and drink and imports for the first time since Brexit according to the Financial Times.

The introduction of complex paperwork to certify all EU products of plant and animal origin entering the UK from 31st January risks fouling up the supply of a number of products, including pork and sugared liquid eggs used in cake and sauces.

But it's not just a few specific food items. The new checks apply to a wide range of imports. In the last week the Independent reported that specialist meats such as Parma hams and Spanish chorizo sausages could begin disappearing from the shelves of UK supermarkets and delicatessens.

Shortages possible  

The Brexit border rules could cut shelf life of fresh food from the EU by a fifth, some experts have suggested with the requirement for importers to give 24 hours' notice of deliveries described as 'unfeasible' by suppliers [Guardian].

Currently, suppliers in the EU do not need to notify the UK government before delivering meat and dairy products, meaning deliveries can arrive in the UK within hours of being dispatched from their farms or processing plants in the EU.

However, under new border rules coming into effect in April, the government requires importers to notify the UK authorities at least a day before they arrive at a border post, which businesses fear will add huge delays to deliveries of perishable goods.

For large businesses the extra red tape may be only a small part of the whole procedure. The costs involved may also be swallowed or spread across their business model as a whole. But for smaller EU exporters these extra costs could prove detrimental.

Rising costs and inflation

The extra costs will, of course, be passed on to UK buyers, supermarkets and ultimately consumers. Thus, the outcome will manifest itself with disrupted supply chains which in turn could well result in shortages on the shelves. In turn the price of goods from the EU could increase.

The costs of extra paperwork has already been estimated to result in a 0.2% increase in inflation over the next two years. The figure might sound small, but in a country where there is already a cost of living crisis with food inflation already the highest in Europe.

The overall price of food and non-alcoholic beverages rose around 26% between December 2022 and December 2023. In the 10 years prior to this, overall food and non-alcoholic beverage prices rose by 9%. Prices in restaurants and cafes rose by 7.7% in the year to December 2023, down from 8.2% in November [ONS]. 

In comparison, the cost of food in the European Union increased 5.87% in December of 2023 over the same month in the previous year. Food Inflation in the European Union averaged 3.63% from 1997 until 2023, reaching an all time high of 19.19% in March of 2023 and a record low of -1.20 percent in June of 2014 [Trading Economics]. 

It would be fair to say that Europe as a whole has experienced higher food prices. But Britain has been harder hit, arguably due to rules imposed by Brexit.

Annual inflation in the EU has been declining whilst food inflation remains high, hitting low-income families across Europe.

Inflation in the euro area has slowed down since its peak of 10.6% (11.5% in the EU) in October 2022 to 2.9% (3.6% in the EU) in October 2023.

However, food inflation remains stubbornly high as consumers continue to grapple with a cost of living crisis [Euronews].

But Britain has seen far greater inflation with few signs of recovery.

Opaque reporting

Unfortunately, there are few media outlets reporting any of this, bar a few reports in the FT, Guardian, Independent and BBC. BBC Newsnight, which has seen its audience drop significantly, did highlight the impending problems just two days before the second anniversary of Britain leaving with a 'deal' [Twitter]. But the warnings are still falling on deaf ears as the country heads towards a general election.

The Tories are still maintaining that there are benefits to having left the EU and proclaiming there are more opportunities to come. The Labour party meanwhile either refuse to discuss the topic or say they will 'make Brexit work'. Even the Liberal Democrats which famously released its 2019 manifesto with the slogan 'Bollocks to Brexit' has gone very quiet on the subject.

Without a doubt, the pandemic and the war in Ukraine has affected the UK economy, but it is Brexit that is the elephant in the room.

Collision course

Like a starship on a trajectory towards the sun someone must eventually make the decision to turn the ship around. The Tory's blind faith of remaining on course will only result in the starship burning up altogether. Labour's belief of simply altering course ever so slightly might just send the starship deeper into space never to be seen again.

Damage has already been done to starship Britain, but by returning to Earth the damage could be repaired.

False promises

Proponents of Brexit claimed that Britain could make deals with countries beyond the EU and forge new free trade deals. Yet all of the deals made thus far have been roll-on deals whilst negotiations to establish new free trade deals have all but broken down.

A much hoped for US free trade deal has been rejected out of hand by both the previous Trump administration and and the current Biden administration. And in the last week negotiations with Canada broke down but like many such stories was little reported [CNN / Guardian / BBC]. 

There was a slight glimmer of light some seven years after that fateful 2016 vote as the DUP in Northern Ireland eventually accepted a post-Brexit deal and agreed to return to Stormont to reestablish power sharing, with Sinn Féin set to nominate its inaugural first minister after Westminster legislated to end checks on goods moving within the UK and imposition of EU law [Guardian].

But while this is a significant shift in Northern Ireland which will surely bring some stability, the new checks to come to the rest of the UK concerning EU imports will bring more instability to an already ailing economy.

tvnewswatch, London, UK