Feature: How the picture for international trade is shaping up

The UK government promised a world of new trading opportunities post-Brexit, but as the clock ticks down to March 29 the poultry sector is still sweating over whether it will benefit or suffer.

By Michael Barker

Ever since the era-defining decision to leave the European Union was confirmed, the British government has made optimistic noises about the potential for new trading routes and the chance for the UK to forge its own path across the world.

Unconstrained by needing to follow the EU’s lead, the argument goes, Britain can shape its own destiny by making deals tailored to its own needs, but with Britain’s poultry trade so closely linked to the EU and little clarity on the country’s relationship with its largest partner post-Brexit, what will the shape of trade really look like and where will the most fertile opportunities lie?

To understand the possibilities, it first needs to be put into context of the UK’s current position on international trade. According to IHS Maritime & Trade figures, between 2013 and 2017 the UK imported an average of 419,000 tonnes of poultry meat and offal, with the EU accounting for 95% of all shipments.

An average of some 327,000t were exported during the same period, with the EU taking around three-quarters of that product. The UK is even more reliant on processed poultry meat imports, with an average of 328,000t being imported between 2013 and 2017, and just 44,000t exported. The EU is, however, less important as a source of processed poultry, with just over half coming from non-EU countries such as Thailand and Brazil.

In short, as Promar International’s divisional director John Giles explains, the poultry trade is inextricably globalised, and there is therefore a huge amount resting on what kind of deal the UK leaves the EU with. As the March 29 deadline draws perilously close and the prospect of a no-deal Brexit becomes a real possibility, there is considerable nervousness over whether these well-established trade flows will be able to continue unhindered.

The International Meat Trade Association says a no-deal Brexit would be “particularly damaging for the meat sector as it is subject to the highest tariffs, and concerns at the border not only means customs declarations but also veterinary checks.”

Indeed, NFU chief poultry adviser Gary Ford produced an analysis of the industry’s position for AHDB’s February 2019 Horizon report into Brexit prospects for UK agri-food trade, and it makes for very interesting reading. Ford says that in terms of trade, the UK’s position as a net importer of poultry meat means that if the UK decided to impose third-country tariffs on imports from the EU, domestic prices would increase – a position unlikely to be acceptable to consumers.

“Import substitution is not really an option given that the UK’s consumption of chicken breasts would mean that it would need to more than double the size of its current flock and then have to find a home for the other parts of the bird for which there is not as much domestic demand, for example, the dark meat.” While the Chinese market offers some potential for chicken feet exports, he adds, disposing of the rest of the carcase could prove problematic.

Should the UK crash out of the EU without a deal, things would get very complicated. The country would immediately be subject to World Trade Organization tariffs, which on poultry meat range from €187/t to €1,283/t (and much more for processed poultry meat) and would mean that, if the UK also decided to impose tariffs on EU imports, the cost of both importing and exporting to the bloc would rise immediately. “It is unlikely that the UK would impose import tariffs on poultry due to its reliance on imports, but this would mean having to remove [tariffs]for all countries under WTO rules,” explains Ford. That could lead to a situation where the British market is flooded with cheap poultry meat, making UK farmers uncompetitive.

It’s pretty clear therefore that trade deals will be needed, and much of the nervousness among suppliers stems from the fact that the UK does not appear to have made a huge amount of progress in that area. As of mid-February only seven deals had been agreed: with Switzerland, Chile, the Faroe Islands, Madagascar, the Seychelles, Zimbabwe and Mauritius – hardly a lineup that is going to allay fears of food shortages or sky-high prices. A free-trade deal has been agreed in principle with Israel, and the government has been looking to tie up negotiations with South Korea, Hong Kong, Canada and Colombia among others following international trade secretary Liam Fox’s appearance at the World Economic Forum in Davos last month, but it’s a pretty underwhelming display given there are 69 nations that the UK currently trades with under EU free-trade agreements.

Fox, speaking in Davos, said a new report from Deloitte showing that the UK is the leading destination in Europe for direct foreign investment meant the UK is “a nation on the rise and, with my international economic department already working on our independent trade policy after Brexit, we will be able to place the UK firmly at the heart of the world’s fastest-growing regions.”

Fox’s upbeat tone is echoed by optimists who point to the fact that the UK now has the chance to set its own course in international trade, and one of the most talked about possibilities is a bumper US-UK deal. The two countries this month signed a Mutual Recognition Agreement – which essentially applies the existing EU-US terms to Britain after Brexit – and Fox said he hopes that will pave the way to a full free-trade agreement in the near future. President Donald Trump added that trade with the UK will “be very, very substantially increased” going forward.

That could benefit the two countries in many areas, but there’s angst around the spectre of opening up the British market to meat imports produced to different standards. American farming representatives have played down fears that the British market could suddenly become flooded with chlorinated chicken, arguing that the market will make its own decision regardless of what politicians agree, and that’s a view echoed by Giles. “Even if politicians have to give way on some things to achieve a wider trade deal, you still have to have people that want to buy chlorinated chicken,” he says. “So, having a trade deal that allows it to come in is one thing, but having people that want to buy it is another thing altogether. Consumers may or may not recognise they are buying American poultry, and it may or may not be chlorinated, but they’ll only actually see it if food importers, processors and retailers say they are willing to accept it in their supply chains.”

Giles says the likelihood that sterling will remain weak will continue to make UK exports more attractive and competitive, though he warns that there’s a lot of work for companies to do first to identify and then actually supply a new market. And he also warns that once the UK becomes detached from the EU, it’s not just a question of who we want to trade with – we will also need to make sure the UK remains a favourable market for international exporters. “Poultry companies in Europe may find it more challenging to supply us, and you might argue that if the EU’s trade deals in other parts of the world go through then those markets might become more attractive for them than the UK.”

There are hopes that Fox’s frantic world trade tour will yield some promising results for the future. Last year the British Poultry Council welcomed the trade secretary’s visit to Thailand, saying closer relations with the south-east Asian nation would boost the export of the UK’s poultry genetics, spur growth in the sector and bolster the UK’s competitiveness at home and abroad.

Giles says the top priority for poultry will be establishing continued access to Europe, and after that major markets like Japan, the Middle East, South Africa and south-east Asia. He also points out that there are wider factors outside of our control, namely if political tensions bring a halt on trade between the world’s two biggest poultry producers, the US and China – a scenario that could lead to huge volumes of extra poultry meat flooding the global market.

Things are going to need to happen, and fast, and we can expect Fox to be racking up the air miles over the coming weeks and months as the UK tries to minimise the disruption on trade and set up new deals to show the country is still very much open for business. For the poultry industry, it’s still very much a case of wait and see.

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