Brexit – the shape and size of the iceberg becomes clear

In all the confusions and spin about the UK’s Brexit vote there was one obvious casualty – the facts. Sadly, the media (including the farming media) made little or no contribution to an informed and numerate description of what would be implied in the UK’s exit from the EU. This matters. It’s as if the crew of the Titanic were shouting to the passengers, “we know there is an iceberg there but we don’t think it is, “…very big/in our path/we can steer round it. You can rest safely in your cabins and/or order another drink from the bar.” Indeed. that is still the message from many Brexiteers.

I can accept that explaining the complexities of an EU exit (Brexit) is not easy – and I say that as someone with a PhD (majoring in international trade theory). But no-one in the media really tried – and the (well paid and resourced) commentators from some organizations (e.g. the BBC) did not do their bit to, “inform and educate”.  Politicos were allowed to assert that money grows on trees outside the EU without any serious fact-checking during or after interviews. It’s only now as Sterling drops like a stone (18% depreciation against the US dollar and falling) and the CEOs of multinationals warn of a pause/end on investment in the UK that the key facts are starting to emerge. In that regard two UK politicians have begun the process of determining the shape and size of the iceberg that the UK is steaming towards.Read on…

Richard Corbett, a Labour MEP, has set out a detailed description of the complexities involved in a Brexit negotiation and it’s worth visiting to read what he has to say. Brexiteers will be disappointed to read his explanation of why it will not be possible to put “quick and dirty ” trade deals in place with either the EU or the rest of the world. In his section on the WTO, he notes,

“The whole question of tariffs on agricultural imports can in any case only be settled once there is agreement on a UK agricultural policy which the government will have to thrash out in partnership with the Scottish, Northern Irish and Welsh administrations. Tariffs on beef, for example, which are currently high, will both be contentious domestically and of significant interest to many EU and third countries who will want to see them lowered. Aid levels to farms generally will be analysed by third countries to see whether they confer competitive advantages.

And besides tariffs, some agreement will have to be found on quotas. This will sometimes entail not only an agreement with the country concerned, but also with the EU. To take just one example, how will the quota of New Zealand lamb allowed onto the European market (a quota in place historically at Britain’s request) be shared out in a way acceptable to all EU countries and to NZ (irrespective of whether the UK takes an additional amount)? What knock-on demands will it trigger on other producers?”

Corbett’s note is factual and illuminating – and what a pity the points he makes were not put to the Brexiteers before the referendum by the appropriate media and commentators.

Similarly, Nick Clegg Liberal Democrat MP and former Deputy Prime Minister in the Coalition government, recently launched a factual report on Brexit focussing on the agri-food and drink industry. In his detailed exposition of different post-Brexit scenarios he described a reversion to WTO trading rules as having, “serious consequences for the farming industry”.   His view is that, “The food sector - which employs 850,000 in the UK -  is not faced with a  a sunny upland, it’s a cliff edge. A hard Brexit will lead to higher food prices, with a triple whammy of punishing tariffs, customs checks and workforce shortages.”  The report he launched claims that if UK farmers are outside the single market, then the £11 billion worth of agricultural products the UK sells to the EU each year will be hit with an average tariff of 22.3%. Tariffs of 59% will be applied to beef imports, 40% to cheese imports and 38% to chocolate imports, he claims.That’s more illumination – and not coming from the media or the academics.

Again, where were the media before the referendum asking about these numbers?

Just in case you think that the statements made by these politicians are biased or seriously inaccurate it’s worth looking at the (free market) Institute for Economic Affairs report on Brexit published in 2014

This was a prize winning report and in the summary the author deals with UK agriculture as follows,

“It is unlikely that the UK would continue to enjoy duty free access to the EU  in agriculture; nor would it be likely to be able to negotiate such access. In consequence, the UK agricultural sector will need to rely much more significantly on the domestic market to survive. To mitigate this, the Government should maintain some degree of targeted subsidy for the sector and/or maintain external tariffs to Europe at the rate the EU chooses to impose them on us. Subsidies would result in a lower price of food for consumers and may therefore be politically, as well as economically, preferable.”

Most analysts would respond to the idea of more farming “subsidies” to reduce the price of food/hand over to farmers with incredulity – apart from the implications for the (already stretched) UK national budget such policy action would certainly need WTO approval i.e. 164 countries would have to determine  whether the UK could implement new subsidies (farm policies must be WTO compliant). The fantasy continues when, in the body of this IEA report the author goes on to give examples of which directives/regulations the UK could repeal when outside the EU. He includes GMOs in this without any thought to the implications for the UK’s cereal, malting barley and rapeseed exports to the EU or China!

What does all this imply for the UK pig sector? Well it doesn’t look good from where I am sitting. The fall in Sterling will push up the price of feed imports and energy – two large components of UK pig producers’ costs. Unless there is a remarkable hike in productivity the price of pork and bacon in the UK will rise – with inevitable effects on demand. That doesn’t help the industry. And, by the way, pigmeat processors’ costs will also be rising as labour costs increase when their (almost entirely immigrant) workforce are constrained by new work permits or they just go home because the fall in Sterling reduces the attraction of working in the UK. And if the processor doesn’t make a profit the UK pig farmer will suffer.

It’s not over until the fat lady stops singing and the Brexit negotiation process has not even begun – but the shape and size of the iceberg that UK farm sector is steaming towards is starting to become clear. Will the passengers and crew wake up in time to see it? Keep watching this space – but, if you are a UK farmer or meat/dairy processor, best check on where your lifebelt is meanwhile.