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Clegg warns of potential UK farming calamity

October 18, 2016 11:39 AM
By Dr Alan Bullion, Special Reports & Projects Director, Agribusiness Intelligence

Former Deputy Prime Minister and Sheffield Liberal Democrat MP Nick Clegg today warned that the price rises already being seen across Britain's food and drink sector were indicative of a wider 'cliff edge' in other key sectors of the economy, ahead of an increasingly likely 'Hard Brexit', taking the UK outside of the EU single market and customs union.

Clegg said that 'Hard Brexit' poses a major threat to consumer food prices. This comes from four sources:

•adoption of the EU's Common External Tariff as our own WTO schedule of commitments, which includes significant levies on imports of food, drink and agricultural products. For agricultural goods, the tariffs would average 22.3%.

•increased transaction costs on imports (e.g. customs checks)

•loss of in-quota zero-tariff imports, particularly for sheepmeat, butter and poultry products

•further falls in the value of the pound.

On the combination of these factors, Clegg warned that "smaller operations will go out of business while larger more industrial farms may survive."

"Marmite and PG Tips (where a temporary price stand-off and supply shortage occurred last week between Tesco and Unilever) are a foretaste of the tension to come on falling sterling between long-term contracts and fixed supermarket prices," he continued. This posed a threat to smaller suppliers due to their unequal status in this relationship.

Clegg also cited examples where ingredient costs were rising rapidly. "One Scottish shortbread maker, Bill Dean, recently warned that he would have to raise prices or lay off workers due to a 75% increase in the cost of butter since the referendum - a combination of the drop in the currency and fluctuations in commodity markets."

Parliamentary challenges and CAP

Clegg also flagged up a growing cross-party parliamentary alliance calling for increased scrutiny and oversight of the Conservative government's Brexit policies, and for a vote by all MPs before triggering Article 50, which Prime Minister Theresa May has timetabled to occur before April 2017.

Clegg said that in the event of Brexit, a 'Soft' version based on a Norwegian-style relationship would be his ideal, as this would still retain essential access to the Single Market, also favoured by the NFU.

However, he conceded that this was problematic, given that the UK would still be paying considerable sums into the EU budget, but with a much reduced say on CAP and other policies.

On CAP, he said that the UK had been pressing for further reform and Pillar 2 environmental-style rewards for sustainable farming, which was the general direction of travel he also favoured.

However, Clegg said that a Switzerland-style sectoral arrangement, which already seemed to be emerging with regard to the automobile and financial industries, would be hugely unsatisfactory, and take many years to negotiate and reconcile, especially on farming, citing the ongoing impasse over the EU-Canada free trade agreement (CETA).

Clegg added that the way that Conservative ministers dealt with the UK food and farming sector was indicative of success or failure in other key parts of the economy.

"Due to its size and the way it is structured, the food and drink sector is a bellwether for the government's entire Brexit strategy. If ministers cannot navigate to a successful outcome in this area, they will inevitably fare badly in other parts of the economy," he maintained.

Workforce threats

Clegg also maintained that despite voter concerns over inward migration, this was vital in the UK food and drink sector.

"Many producers rely on EU workers, either for seasonal agricultural work, such as fruit picking, or for factory-based processing work. It may be harder to recruit such labour in future, both because of expected new restrictions on migration, and falling wages as a consequence of the collapse of the pound," he said.

The Food and Drink Federation (FDF) recently surveyed companies employing EU staff and found a large majority (71%) reporting that their EU employees had expressed concerns about the referendum outcome, with around one in 12 (8.7%) reporting that EU employees intended to leave the UK.

Around 29% of the UK's food and drink manufacturing workforce are non-British EU nationals (almost 120,000 workers). Some 70-80,000 work in horticulture alone. And over 90% of the vets working in the meat hygiene sector are EU citizens.

Even without the challenge of Brexit, the FDF estimates that the industry needs to recruit a further 130,000 workers over the next 10 years due to an ageing workforce.

Disruption to trade with Ireland

Cutting across all of this, there are very specific concerns about the implications of Brexit for trade with Ireland. "The working assumption has to be that a hard border will be required at the Irish (EU Customs Union) border with the UK in order to check goods as they cross it in either direction," Clegg said.

Ireland is by far the largest export market for British food and drink products, and also home to many highly integrated cross-border agri-food businesses. For example, all of the wheat that is grown in the Republic of Ireland is sent to Northern Ireland for milling, then re-imported.

"The imposition of tariffs (at 30% for the re-import of milled flour), customs checks and associated paperwork would hugely increase costs, with price and competitiveness repercussions further up the food chain," he observed.

There are similar concerns in the beef and dairy sectors, which are critical to the Irish economy as well as being a key source for UK manufacturers and retailers.

GIs

Finally, the UK has 73 products with EU Protected Geographical Status, representing all regions of the country (including Cornish pasties, Jersey Royal potatoes, Welsh lamb, Melton Mowbray pork pies, Stilton cheese, Cumberland sausages, Scottish wild salmon, Shetland lamb, and Scotch whisky).

There is no guarantee that the EU will maintain the protections awarded to these products post-Brexit, given that enforcement is in the hands of the Commission and the European Court of Justice over which we will have no influence, Clegg concluded.