Sep 6, 2017Brexit’s potential impact on UK, EU potato markets
With NAFTA renegotiations looming, it’s interesting to see how a divorce of sorts can impact trade in potatoes on the other side of the world. Cedric Porter, managing editor of World Potato Markets, shared his thoughts Brexit and its potential far-reaching consequences for the UK’s potato sector. Porter spoke at this year’s EuroPatat conference, held in Antwerp, Belgium in June.
Just over a year ago, 52 percent of UK citizens voted to leave the European Union (EU), a move that has raised a great many questions in the agricultural community. Talks began mid-June with the hope that a deal can be reached by the autumn of 2018. The UK’s official exit date is March 29, 2019, which means farmers and agribusinesses have just under two years to prepare for business in a post-Brexit world.
Porter, who is concerned about the transition, said it might not go as smoothly as people expect, pointing to the Canada-Belgium issue during CETA trade talks as an example of what could happen. The way he sees it, the EU has the upper hand with respect to negotiations.
“The EU position is much clearer and much stronger,” he said. “The EU wants to have its Brexit negotiations as soon as possible, and obviously it doesn’t want to disadvantage the remaining 27 members of the EU. And it wants to prevent any of those countries from leaving too.”
“I would argue that given what’s happened with Brexit so far, no one’s sort of clamoring to emulate the UK and leave too,” he continued.
When he spoke in June, Porter said he believed that the UK’s position had weakened considerably, especially with pro-EU results in both the Dutch and French elections. “The EU is in a strengthening position, whereas perhaps the UK is in a more uncertain, and arguably a weaker position,” he said.
Brexit’s potential impact on potatoes
The British are some of the biggest potato consumers in the world, falling only slightly behind Poland and Russia. On average, UK citizens eat 100 kg of potatoes per person per year. While there has been a significant decline in fresh potato consumption (from 1300g/person/week in 1975 to just over 400g/person/week in 2015), processed potato consumption has doubled from about 125g/person/week in 1975 to 250g/person/week in 2015. Potato chip consumption is also on the rise, having increased from just 25g/person/week to 75g/person/week in the same amount of time.
The UK, however, is only 61 percent self sufficient in food. “We’re a big importer of all types of foods,” said Porter.
Just like trade between Canada and the U.S., trade between the EU and the UK is significant. Some 14,000 trucks cart food between the UK and EU every single day.
Each year, the UK exports €25 billion of food; 61 percent goes to the EU. On an annual basis, the UK imports €52 billion a year with 71 percent coming from the EU. Unfortunately, the weaker pound has made imports into the UK more expensive. The British pound is 12 percent weaker than it was a year ago and 17.5 percent weaker than two years ago.
As a result of Brexit, the UK government has said that it wants to restrict the freedom of movement of EU citizens to the UK. Doing so would exclude it from the EU Single Market and Customs Union, which means a new arrangement will have to be negotiated or EU/UK trade will have to take place under WTO rules. What does that mean for potatoes?
“The UK is one of the largest potato markets in the whole world with the value of exports at 45 percent of the value of imports,” said Porter. “In potato volume equivalent, that’s nearly 2 million tonnes of imports of potatoes. The only country to come anywhere near that is the U.S., and of course, that trade is dominated by Canada.”
What would an 11.5 percent WTO tariff add to the cost of UK fresh potato exports to the EU? “You’re looking at around about €7.5 million extra tariff –
extra cost on top of the potatoes – for export,” said Porter.
On imports, the WTO tariff would add €7.5 million to fresh potatoes coming from the EU.
UK exports of seed potatoes are valued at around €55 million each year. Morocco and Egypt are big markets for the UK; exports to the EU amount to about €10 million each year. Based on these numbers, the 4.5 percent WTO tariff wouldn’t amount to much. The UK is not a big importer of seed potato.
“But where it really starts to hit is that UK-EU trade in fries,” said Porter. “The WTO tariff is 14.4 percent, and the UK being one of the biggest exporters with other €400 million worth of fries imported every year.”
The possible fry import tariff would be around €60 million, so that adds a significant cost to those, he said. The tariff for fry exports to the EU would amount to about €6 million.
Porter pointed out some other ways Brexit could impact the agricultural sector in the UK. For one, Brexit means the UK will leave the Common Agricultural Policy.
“The Conservative Government has committed to preserving support for the next five years,” said Porter. “Because we’re going now into the process of reform of the CAP, by 2020 this means the EU will have reformed before the UK.”
“The UK often wants to be ahead of the game in reforming the CAP,” he continued. “This Brexit decision actually means it could be behind the game.”
Restricted access to EU labor could also impact the agricultural sector in the UK. EU citizens take approximately 100,000 farm jobs and 40 percent of food manufacturing jobs. A scheme to give them access might be needed, said Porter.
Beyond Brexit, the UK will be responsible for regulations that are now covered by the EU. “Some farmers voted for Brexit thinking there was going to be a bonfire on red tape,” said Porter. “I don’t think that’s going to happen. I think the UK might be able to use some of the technologies earlier that the EU, but it’s certainly not going to be able to bring back some of the old technologies and some of the existing GM products.”
It’s not all doom and gloom. Porter thinks Brexit could bring opportunity for the UK as well. For one, he thinks the UK will remain a large and perhaps growing market for EU suppliers. He also believes processing and packing investment opportunities could arise.
No one knows for certain what will happen. The UK Parliament will want to approve the deal and it’s likely that there will now be stronger calls for another referendum to vote on that deal. While Brexit is most likely going to happen, there’s a new word in town, said Porter. “It’s the Breturn.”
Brexit could disrupt trade between the UK and EU, adding to costs and administration. “Rather than tariffs, I think it’s going to add to the bureaucracy and red tape administration,” he said.
Ultimately, though, trade between the two will continue, it’s just a matter of how, he concluded.
— Melanie Epp, contributing writer
