Post-Brexit analysis

// International Trade

B+LNZ's Trade Policy Team discusses what Brexit means for New Zealand’s red meat exports in their latest trade blog.

Brexit image

What Brexit means for NZ’s red meat exports

Beef + Lamb New Zealand’s (B+LNZ) Trade Policy Team discusses what Brexit means for New Zealand’s red meat exports in their latest trade blog.

The UK formally departed the European Union’s Single Market at midnight on 31 December. As the dust settles from Brexit, we can now look at what is happening in the UK and Europe and get a better sense of what it means for New Zealand red meat producers.

New trade arrangements between the EU and the UK

In order to understand what has changed as a result of the UK leaving the EU, it is important to understand how red meat was traded when the UK was part of the EU Single Market. Under the Single Market, goods could be traded within Europe with no internal borders or other regulatory obstacles. Basically, sending a leg of lamb from England to France was the same as sending a leg of lamb from the North Island to the South Island.

Now that the UK is not part of this Single Market, it has had to negotiate a new trade agreement with Europe – the Trade and Cooperation Agreement (which covers trade, citizens’ security and a governance framework) and which was only concluded in the closing weeks of 2020.

And what does the TCA say about trade between the EU and the UK?

The deal allows for tariff-free and quota-free access for trade in goods between the EU and the UK, but treats the UK as a “third country”, meaning that British goods exported to the EU will now be subject to same paperwork that New Zealand exports there require.

All of this paperwork takes time to understand and fill out. It is highly technical and getting it wrong means that the consignment will be rejected at the border – but even just the process of border checks has added significant time delays to trade processes for British exporters. All of this can add up to make the costs of exporting prohibitive, especially for small UK companies who may not have dedicated expertise. The costs to submit this paperwork also adds up, with the British government estimating that 265 million customs declarations would need to be filled out at a cost of around £7.5 billion per year.

What has happened to EU-UK trade since 1 January?

Because many companies had stockpiled products in anticipation of Brexit disrupting supply chains it has taken a while to understand how trade has been affected.

We are now hearing reports that trade from the UK to the EU is significantly disrupted. The British Meat Processors’ Association has said that even experienced exporters are having difficulty and exports to the EU are at 25 percent of normal levels for this time of the year.

Trade from the EU to the UK has also been affected, with businesses reporting that the new administrative burdens make exporting to the UK prohibitive. There have been reports of food shortages and empty supermarket shelves in the UK, including meat. The ‘special status’ of Northern Ireland (subject to EU rules while part of the UK) has meant particular challenges at the border there.

What about the impact on UK red meat markets?

While we are still learning what the full effects of Brexit will be on the British and European beef and lamb markets, if the current situation is anything to go by, there is likely to be ongoing disruption and potentially less trade between the two.. To date, the EU-UK lamb market has been dynamic, with lamb produced in the UK being exported to the EU for processing before being re-exported back to the UK. The UK market has a preference for certain cuts (legs) and the EU for racks. Around 90% of British lamb is exported chilled, with only a 27-day shelf life. If British lamb producers struggle to get their product to France for processing as a result of the new administrative measures, that is likely to drive down prices in the UK due to oversupply in the domestic market. At other times of year, however, there is likely to be under-supply. (British lamb is also exported during their production season and imported from NZ or Australia when British production cannot meet local demand.) A study conducted last year estimated that even with a deal like the TCA, UK lamb exports to the EU could drop by 30 percent, likely depressing prices in the UK.

On the other hand, the British beef market is not self-sufficient, with around 25% of beef consumed in the UK imported, mainly from Ireland and France. Any market distortion resulting from trade difficulties between the EU and the UK will therefore increase prices for British consumers.

What about New Zealand beef and lamb exported to the EU and the UK?

In a nutshell, other than navigating the disruptions in the market we talk about above (and a serious issue around tariff rate quota volumes we discuss further below), it should be business as usual for New Zealand exports.

The good news: Health certificates

New Zealand red meat products need to have certain documents in order to enter the EU. This includes a health certificate issued by the Ministry for Primary industries (this certificate verifies that the product meets the required animal and human health standards such as food safety and that the product carries no disease risk) and a quota certificate issued by the New Zealand Meat Board (this verifies that the product is eligible to enter the EU under the quota allowance).

As of 1 January, there was no change in the health certificate requirements for New Zealand meat products sent to the EU, but new certificates were needed for the UK market. Thanks to preparatory work done by MPI, MFAT, NZTE, NZ Customs, the Meat Board, the Meat Industry Association and Beef + Lamb NZ, this was all settled ahead of time and exporters had a clear idea of what they needed to do once the UK left the EU Single Market at midnight on December 31.

The challenges: Market disruption

New Zealand exporters have not faced the same ‘shock’ of new paperwork as their British counterparts; positively, our exports have largely been able to skirt around the current border chaos as in general New Zealand exports use different ports than those used by EU-UK trade. Much of the EU-UK trade is carried on lorries that use either the channel tunnel or ferries. Freight from New Zealand, Asia or the Americas arrives at deep-water ports such as Felixstowe on container ships.

That said, there have been reports of some minor effects on trade in terms of delays in border processes, although with COVID-19 also affecting port operations it is difficult to tell whether these issues are related to Brexit or COVID-19.

The bad news: Quota split

As you may remember, the EU and the UK unilaterally decided to split New Zealand’s existing WTO tariff rate quotas, which give preferential access for New Zealand product to these markets. (Outside of the quotas, tariffs are prohibitive meaning trade is unlikely to take place.) With the 31 December departure of the UK from the EU, those quota splits have now come into effect. What this means in practice is that the volume of sheepmeat that New Zealand is able to send to each of the UK and EU has been split roughly in half, and the volume of beef has been split around two-thirds to the EU and one-third to the UK.

New Zealand continues to oppose the EU and UK’s decision to split the quotas. Before Brexit, New Zealand exporters were able to respond to price signals in any of the countries that made up the European Union, by sending more or less product to those customers according to demand. But with the quota split, New Zealand exporters no longer have that flexibility meaning if there is increased demand in one market, product cannot be diverted to meet that demand. For beef, as well, the split volumes are so small that they will impact the ability of New Zealand exporters to build commercial relationships in the market, undermining the quality of our access.

Looking at the current food shortages in UK supermarkets a result of Brexit, this ability to respond to market demand and maintain good connections with customers has never been more important. Now that Brexit has been resolved, we expect to see the EU and the British Governments taking urgent steps to find a practical approach that ensure that, consistent with their WTO obligations, New Zealand will not be left worse off as a result of their choices.