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EU trade negotiations - trade flows of livestock products

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The outcome of the trade negotiations once Brexit is triggered is critical for many industries. UK agriculture is part of a global trading environment therefore the trade negotiations for future relationships with the EU as well as those with third countries, are crucial to support a thriving domestic food and farming sector. Critical to the understanding of the best approach is knowledge of the major trading routes for the major agricultural products. This article highlights major trading routes for each of the main livestock sectors, summarises trading facts and figures for imports and exports and highlights some of the key factors that will be important for UK livestock producers during the trade negotiations.  Further articles will cover crops, fresh produce and dairy.

EU trade negotiations - trade flows of livestock products

UK Livestock Industries: Headline trade facts and figures

The UK is a net importer of Agri-food products, totalling £39.6bn in 2014.  We import nearly twice as many Agri-food products from the other EU countries than we export, however our exports are significant. Export value of UK produced Agri-food products is worth approximately £12.8bn per annum, with 73% of those products destined for other European member states (Ref. UK food and drink export statistics for 2014, Food and Drink Federation). More specifically, the export trade for UK meat and dairy products is expected to be worth £3.6bn in 2016.  Although significant, it should be noted that Agri-food products represent a relatively small proportion of UK trade in exported goods which totalled £283bn in 2015 (UK trade, Office of National Statistics).

Figure 1 and Table 1 compare the exports to and imports from EU and non-EU countries of each of the main traded livestock products.  As the UK is a particularly high net importer of dairy products, these will be discussed separately in an upcoming ADAS News article.
 

Figure 1: Quantities of livestock products imported and exported from within the EU and outside of the EU

Figure 1: Quantities of livestock products imported and exported from within the EU and outside of the EU

 

What these figures highlight is the importance of trade relationships with the EU, both import and export, for UK livestock products, with over 90% of beef and 70% of lamb exported to the EU. However, priorities in developing export markets with other countries may well be quite different for each livestock product sector and this will be explored further in this article. With the interdependency of cropping for livestock feed fundamental in determining current and future sustainability of the livestock sectors, trade flows for UK crops will be examined in more depth in other ADAS News articles.

 

 

EU

Non-EU

TOTAL VOLUME

TOTAL VALUE (£m)

BEEF1

EXPORTS (t)

117,100

31,100

148,200

403

Main countries of destination

Ireland, Netherlands, France, Italy

Hong Kong, Philippines

 

 

IMPORTS (t)

303,100

60,600

363,700

1275.9

Main countries of origin

Ireland

Australia, Brazil

 

 

LAMB

EXPORTS (t)

78,500

4,900

83,500

308.40

Main countries of destination

France, Germany, Belgium, Ireland.

Hong Kong, Africa

 

 

IMPORTS (t)

10,300

90,200

100,500

405.3

Main countries of origin

Ireland

New Zealand

 

 

PORK2

EXPORTS (t)

181,802

102,593

284,395

321.15

Main countries of destination

Germany, Ireland, Denmark and the Netherlands

China, Hong Kong, United States

 

 

IMPORTS (t)

884,220

984

885,200

1955.00

Main countries of origin

Denmark, Germany, Netherlands, Belgium, Spain, Ireland, France

n/a

 

 

POULTRY MEAT3

EXPORTS (t)

289,754

109,850

399,604

439.62

Main countries of destination

Netherlands, Ireland, Germany, France

Hong Kong, South Africa, Benin

 

 

IMPORTS (t)

531,786

237,889

769,675

2002.00

Main countries of origin

Netherlands, Poland, Ireland, Germany

Thailand, Brazil

 

 

EGGS4

EXPORTS - egg products

6,588

0

6,588

8.20

EXPORTS- shell eggs

0

3.30

Main countries of destination

Netherlands, Ireland, Germany, France

Hong Kong, South Africa, Benin

 

 

IMPORTS - egg products

75,340

 

122,247

109.90

IMPORTS - shell eggs

46,175

732

39.30

Main countries of origin

Netherlands, Belgium, Germany, Spain, France

Thailand, Brazil

 

 

Table 1: Import and export quantities, main countries of origin/destination and total value of UK livestock raw materials

1 including fresh/frozen,processed,offals
2 including fresh/frozen meat, bacon/ham, sausages, processed hams and shoulders
3 fresh frozen and processed, 2014 figures
4 2015 figures

 

The future?

Going forward, weakness of sterling relative to the euro following the EU referendum result has undoubtedly been of advantage to exporters of UK livestock products, at least for the short term. However, a downside of the currency weakness may be risk of food price inflation risk through more expensive imports, leading to lower consumer demand, although higher domestic prices could help to boost home production. Also, UK livestock producers will have a number of concerns over a number of trade-related issues leading up to the period of negotiation of trade deals, affecting each of the sectors in particular.

Beef

Prospects for exports will be enhanced for a more competitive beef sector, indications are that beef exports are already up 18% for 2016. Over 70% of beef exports are in the form of chilled boneless cuts rather than carcases or bone-in cuts. Export efforts are increasingly focused on food service industries in key affluent EU countries requiring premium or gourmet products, helping to drive added value for the beef sector. Imported supplies will become less competitive, due to weakened sterling values, providing a potential boost to the home market through potentially higher prices.

As over 90% of both exported and imported beef supplies are traded with EU countries, maintaining free access to and from EU markets will be crucial for this sector in providing least disruption to reciprocal trade formalised through Free Trade Agreements which should be attractive to EU countries based on the current trade balance where the UK is a net importer. 

Lamb

As with beef, forecasts for UK lamb exports are expected to be higher. Again, focus for export markets will be more on added-value cuts rather than whole carcasses. Use of attractive skin packaging for particular cuts is proving helpful in driving lamb retail sales in overseas markets through additional benefits of extended shelf life and lower drip loss.

Imports, representing 36% of production, and deriving mainly from New Zealand, are forecast to fall due to lower forecast output from the New Zealand national flock, combined with a weaker pound making the New Zealand product less competitive on the UK market.

The challenge for the UK lamb sector will be to negotiate free trade agreements with the EU despite the trade balance situation where over 90% of imported supplies derive from outside the EU. This is in sharp contrast with the beef sector where over 90% of imported supplies originate from within the EU.

Pork

At 55% self-sufficiency, the UK is a net importer of pork and bacon, the main countries of origin Denmark, the Netherlands and Germany.   

It would be in the interests of all that reciprocal free access trade with the EU continues without disruption, which is unlikely to pose problems unless free movement of labour becomes an issue.

There would clearly be concerns for this sector from Bilateral Free Trade agreements struck with third countries that operate lower cost, lower welfare systems. For example, use of sow confinement stalls throughout the entire gestation period, is outlawed by EU welfare legislation yet used extensively in major third world pork production.

With exports, there have been recent notable successes with non-EU markets, particularly China and Hong Kong, especially for products that are not in demand by European consumers, e.g. offals. Prospects for further exports to non-EU countries are likely to depend on wider / global negotiations whilst satisfying increasingly stringent food safety and regulatory requirements set by China and the US, for example.  As China holds half of the global pig population, a reduction in their domestic herd of 8% is of particular significance to potential exporters attracted by higher resulting domestic prices and attractive export margins.

Besides trade, ensuring sufficient resource is deployed to fully protect UK producers against imported animal disease and continued access to European network of disease health intelligence are chief requirements in managing risk of emerging and exotic disease and maintaining a resilient UK pork sector.

Poultry- Meat

As the fourth largest producer of poultry meat in the EU, the UK is not self-sufficient in poultry meat and imports around 40% of all poultry consumed in the UK (including primary meat and ready meals), over 60% of which originating from the EU, the balance from non-EU suppliers, mainly Thailand and Brazil.

The UK exports products not widely consumed in the UK to over 100 countries outside the EU, with whom export health certificates have been agreed either bilaterally or through the EU. However, UK poultry meat and live animal exports outside the EU were badly hit in 2015 by the outbreaks of Avian Influenza costing the sector in excess of £90 million.

For EU trade, the main requirement is to retain unrestricted access to the EU single market, through continuation of tariff-free trade. The favourable trade balance for EU imports should help to provide leverage in negotiations to ensure reciprocal tariff-free trade continues.  However, will UK poultry meat continue to have access to EU markets during an AI outbreak as it currently does or will the EU impose wider area restrictions which would harm export trade and potentially undermine the domestic market?

For non-EU trade, there is a reliance on supplying markets that take the carcase parts that are not valued in the EU e.g. dark meat, spent hens, offals, feet. There are further opportunities to expand trade with existing trade partners, such as China, India, Brazil, but these are dependent on gaining export health certificates reflecting high standards of UK disease control measures and suitably resourced disease monitoring and surveillance.

Poultry- Eggs

As a net importer of eggs/egg products, imports worth over £149m compared to export values of just over £11m, continuation of tariff-free trade with the UK would clearly be in the best interest of the major EU exporting countries for eggs and egg products, eg Netherlands.

Approximately 38% of all imports are in shell form, the remainder egg products such as liquid egg for food manufacturing/processing. UK is the sixth largest egg producer in the EU and is 85% self-sufficient. Loss of country free status due to recent Avian Influenza outbreaks has had a significant impact on the UK’s ability to export high value breeding stock and old hen meat to non- EU countries. The UK exports legs and wings to third countries with W Africa being an important destination, however trade into this area becomes more difficult following an outbreak of Avian Influenza.

The major issue for the UK egg sector is global trading of egg products, particularly through bilateral agreements with third countries without import tariffs or quotas in place to regulate volume of imports. Here there is a risk of the UK egg sector being undermined by cheaper imports of egg products originating from those non-EU countries operating lower animal welfare standards than the UK, for example using conventional cages banned throughout the EU due through EU Welfare legislation. Shell eggs will probably be less affected, 90% of UK egg production being to Lion code standards, imported shell eggs from EU countries generally going into the wholesale market.  

In Summary

  1. There is a need to maintain continued access to EU markets under Free Trade Agreements for a number of livestock sectors, including beef lamb pork and poultry meat. However in mitigation against imposition of tariff barriers, the UK imports 70% by value of agricultural imports from the EU, in comparison to 62%, by value, of agricultural products exported to the EU, hence the scope for reciprocal trade to continue with EU countries through Free Trade Agreements.  
  2. Bilateral trade agreements signed with non-EU countries would potentially remove external tariffs and attract imports produced at significantly lower cost and by production systems based on lower standards of animal welfare in comparison to the UK generally operating with higher cost: higher welfare production systems. Whilst this might seem superficially attractive to proponents of cheap food, lower priced imports, such as meat and egg products, could effectively undermine the UK livestock product industry.  It will be interesting to see how the Government follows up on its manifesto commitment to reflect animal welfare standards in any future trade agreements, especially with third countries, and seek where possible equivalent standards of production. Where this is not possible, there is an option for a quota system on non-tariff imports to ensure a measure of protection to the home market against cheaper, lower standard products.
  3. There will be concerns over the risk of introduction of Non-Tariff barriers, by EU countries, which can add further cost. Non-tariff barriers are rules, regulations and other practices that make it more difficult for goods and services to be sold across national frontiers such as Product Standards, Rules of Origin, Customs Controls and requirements for imported food to adhere to national hygiene regulations, for example.

Undoubtedly, the UK Livestock industries will need to work closely with the Government and negotiating team to ensure there is minimal disruption to trade either during or following the EU exit to ensure all trade opportunities, both within and outside the EU can be fully realised. At the same time it will be important for the government to provide a robust regulatory environment that ensures the UK livestock production industry is not undermined by cheaper imported products produced to lower standards of welfare and food safety.   

ADAS’s core strengths in both public and private sector markets are in the provision of informed, independent and impartial research and consultancy to provide robust evidence for policy development and position statements, impact assessments and feasibility studies, monitoring and evaluation, and industry intelligence and insights provided via a team of livestock sector specialists.   

If you would like to discuss policy implications in light of Brexit please contact us at brexitpolicygroup@adas.co.uk

For more Brexit related information please see the ADAS Brexit Policy Group Service page. Alternatively click here for recent ADAS Brexit news articles.


 

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