Written submission from the National Farmers’ Union (CVT0031)

The NFU represents 47,000 farm businesses in England and Wales involving an estimated 55,000 farmers, managers and partners in the business. In addition we have 55,000 countryside members with an interest in farming and the country.

NFU response to the Commons International Trade Committee inquiry on the COVID-19 pandemic and international trade

Executive summary

• Despite the fact that the majority of NFU members are not directly trading on international markets themselves, the impact of the COVID-19 pandemic will be felt by many as agri-food markets readjust to a new operating and trading environment.
• It is crucial that government ensures financial assistance is provided in view of maintaining operation/viability of the whole supply chain. There is a risk that the focus on “bailing out” individual companies will not feed into rest of supply chain, maintaining production and added value. Therefore, we call for assistance to be contingent on maintaining supply and value chains. 
• We have been calling on the government to delay the phase out of the basic payment scheme that is foreseen in 2021, as part of the reforms under the Agriculture Bill. We believe that such a delay is justified in light of the economic concerns set out elsewhere in this response, the hugely uncertain times all parts of the economy, including farmers are facing and the tight legislative timetable to develop and implement the Agriculture Bill.
• While the NFU supports ongoing international free trade and opposes unjustified trade barriers, we believe policy-makers should revisit the issue of food security and domestic food production as a priority policy area. The NFU has long argued that domestic food production is a critical strategic industry that needs to be supported so that it can provide a sufficient proportion of the food consumed in the UK alongside imports.

What impact will the global COVID-19 pandemic have on UK businesses trading internationally, in the short-, medium- and long-term?

1. Despite the fact that the majority of NFU members are not directly trading on international markets themselves, the impact of the COVID-19 pandemic will be felt by many as agri-food markets readjust to a new operating and trading environment.

2. The current situation is incredibly fast-moving and we are seeing supply chain issues emerging almost daily. Moreover, many agricultural businesses are supported through diversified activities – including tourism and leisure.  Many of these diversified activities are on hold and many businesses are unable to access government schemes due to their business structure.   This has a knock-on impact on the viability the primary food producing parts of the business. Below are some of the issues the UK agriculture sector has experienced since the start of the pandemic. This list, may not be exhaustive and other issues are likely to arise following submission of this evidence:

• Labour shortages impacting different commodities and all levels of the supply chain (e.g. seasonal labour in the fields, stores, transport, packaging and manufacturers). In particular, the UK horticulture and potatoes sector employs around 70,000 seasonal workers a year, the majority of which travels into the UK and goes home each year. With global lockdowns and travel restrictions, accessing workers is extremely limited. According to NFU survey data, 75% of workers arrive between April and August, when travel restrictions are at their most extreme). There has been a positive response from UK workers to help fill roles, but it is expected most will return to their ‘day job’ when lockdown restrictions are lifted, leaving agriculture businesses reliant on the movement of EU workers.

• Border delays to cargo as a consequence of restrictions and the uncertainty over movements of people.
• Lack of freight containers and increased cost of moving goods.
• Reduced flow of spare parts onto farm as well as broader supply chain due to local engineering firms closing and imports being disrupted. 
• Disruptive buying owing to concerns over accessibility to vital fuel supplies.
• Some concern over the lead in time and price of bought in animal feeds. Concern for soy supply as COVID-19 arrives in South America. Also concern for organic soya imports from China and India which are majorly disrupted.
• Concern over tightening availability of plant protection products (PPPs) and delays in deliveries, although this may be a logistical rather than a supply issue. 
• Exposure to greater risk arising from terms of credit between delivering and receiving goods businesses.

3. Below we have listed some sector specific challenges arising from COVID-19 that affect both businesses trading domestically and internationally.

4. Dairy: 

• There has been major market dislocation, notably for liquid milk and specialist cheese products, resulting from closure of food service markets such as coffee shops, pubs, restaurants and cafes, domestically and internationally for those supplying export markets. Despite some overall  increase in demand from supermarkets & convenience stores, farmers aligned to disrupted supply chains are facing significant disruption, including

•      Increasingly volatile milk price and low spot prices for commodity products e.g. milk powder, which feeds through to the value of raw milk.  

•      Loss of market for producers and manufacturers of added value products such as specialist cheeses. 
•      Loss of food service demand globally has fuelled competition for export markets and reduced opportunity for domestic exporters. 
•      Loss of organic value, which is largely derived from the foodservice market.
•      An increasing number of milk buyers are publishing price cuts and payment deferrals and extending payment terms.  
•      Powdering capacity is at full utilisation causing raw milk surplus, which is in increasing volumes due to the spring peak of milk production. Some milk buyers have asked for reduction of production.
•      Some milk collections were delayed with milk having to be disposed of, this risk still remains.
•      Farmers looking to cut input costs has resulted in increased number of cull cows being sent to slaughter, which is putting further pressure on beef markets.

• The milk flow is volatile against an unpredictable demand from consumers and retail orders are adapting to new consumer buying patterns. Liquid milk is available in a reduced product range and availability is poor by pre COVID 19 standards. Producers have had to dispose of milk because collections have been defaulted on, milk payments halved and farmers outside retail aligned chains have had to attempt to reduce production while consumers have seen depleted shelves.  

5. Red meat:

• There is a pronounced carcass balance issue as beef mince demand out strips sales of joints and steaks in retail and pushing large volumes of hindquarter beef into store. This situation is exacerbated by the closures in the out-of-home market and the disruption in the beef market in ROI and in Europe.
• Lamb exports were disrupted part way through the crisis because of trade uncertainty and a fall in food service demand. British lamb new season supplies are slowly rising and returns for farmers are critically dependant on accessibility of European markets.
• Retaining a core of skilled slaughter and boning hall staff is crucial to maintaining processing capacity and throughput. Smooth running of processing facilities are important for maintaining supply chains and buying relationships as well as ensuring the timely marketing of stock that are produced to specification.
• Limitations to the government’s “job retention scheme” mean that staff cannot be “furloughed” on a part time basis. Many meat plants are now seeking to reduce the number of days of operation, however the nature of the abattoir business is that they cannot run the production “line” with a reduced staff headcount because it reduces efficiency and certain key roles are skilled and cannot be diluted. It is more practical to operate the processing “lines” for fewer days in the week given the need for a full complement of specialised staff and cleansing / disinfecting after each day’s kill. This is an issue that affects poultry processing plants too.

6. Poultry: 

• Wholesale poultry meat supply chains have collapsed, with 2million birds backing up through the supply chain. Some demand has been redirected to retail chains. This is impacting on future crops as chick placings have fallen by 10% which means production will soon fall by this same level.
• We have seen the demand for both poultry meat and eggs increase significantly at retail level, with the egg retail demand still up 20%-30% over normal levels but not making up for the loss of food service markets. There remain several obstacles in the way of simply moving product from the food service sector to retail, including for example packaging, equipment, logistics and contractual agreements. 

7. Pigs: 

• The UK pigmeat market is in general more reliant upon retail outlets than foodservice sectors, which predominantly sources European pork. The shift towards retail has resulted in a much higher demand for bacon and sausages and a slight increase on primal cuts. Less favoured cuts such as belly and shoulder however have been increasing in cold storage. It is vital that the UK can export these cuts to either the EU or to China as far as possible otherwise they will continue to stay in cold storage.
• China has been an ever growing market as a result of African swine fever spreading around Asia and resulting in huge loss of pigs there. As a result, UK pork and offal exports to China were at an all-time high in 2019, at a value of £191m and 131,000 tonnes. Although the early outbreak of COVID-19 in China did affect export activity, this now appears to be improving again with more exports taking place. There has been a shortage of containers to export pork to China, as a result of fewer imports from the region.
• There is uncertainty around the value of the cull sow export supply chain given there is no processing capacity in the UK. In the initial fallout from COVID-19 there were notable trade frictions in place on exports of cull sows to the EU but thanks to co-ordinated planning between government agencies, logistics firms and European partners, this has now been resolved.
• As a result of the above issues, UK pork prices are remaining firm but this will only continue to be the case if pigs can keep moving off farm to slaughter. In the USA, infection of COVID-19 amongst meat processors has seriously affected processing capacity, leading to price drops in pork and shortages of pork at retail. In order to stay viable as businesses, the whole supply chain must continue to function.

8. Crops: 

• Malting barley. Demand destruction in the malting barley supply chain caused by closure of on-trade (pubs, restaurants etc). The hit on demand since the 20th March has led to the loss of premiums (value of barley) for the remainder of 2019/20 season and going into 2020/21 season for the malting barley market.  There is also an increased cost for growers who will now need to store malting barley for longer because of the drop in demand and the absence of an outlet for it to be moved to.
• UK oilseed rape (OSR) oil. The closure of restaurants, pubs and take-aways has overnight taken out the demand for human consumption cooking oil. Demand for spot OSR has dropped leading to slower movement of OSR contracts for farmers which is impacting cash flow on farm.  External market pressures from COVID-19 on the oilseeds market have reduced the value of the crop.
• Coronavirus is having an impact internationally which is creating enormous volatility in the cereals and oilseeds markets. There is domestic and global concern for grain-ethanol demand and the reduced protein feed co-product. Biodiesel and cooking oil demand have fallen dramatically due to lock down and service sector closures.  Analysts, such as the USDA, have been re-assessing the supply and demand for agriculture grains and the demand outlook has now decreased for wheat and corn in the US and EU.
• Road haulage tightness has been exasperated in some regions of the UK and agri bulk haulage costs have increased since the lack of back loads after the closure of quarries and construction.  This has resulted in some key inputs onto farms such as fertiliser to be slower and costs for moving grain off farm have increased.

9. Horticulture/Potatoes: 

• Disrupting trade patterns are causing fresh produce to go to waste as food service demand falls away across Europe and the UK.
• Potatoes: Chipping and processing demand is down with huge difficulty in repurposing these crops into retail, local or online markets.
• Hops and cider apples: There is a significant drop in demand with pub and restaurant closures and concerns that these will be the last to be permitted to re-open.
• Ornamentals: The market has been drastically cut due to closures of garden centres with huge stock wastage and financial losses already being faced. This all comes at a time when finances and overdrafts are already stretched due to the seasonal nature of the ornamental supply chain, with the majority of the income (80% of turnover) being made between March and May.

How effectively has the Government responded, both in the UK and in overseas posts, to the short-term negative impact of the pandemic on UK businesses trading internationally? What further steps could be taken to mitigate this impact?

10. The government was quick to announce in the Budget on March 17th 2020 a £330bn emergency rescue package with a number of measures to support businesses with their response to the cost and cash flow pressures COVID-19 presents. This included expanded Business Rates Relief, a Coronavirus Business Interruption Loan Scheme for SMEs and a dedicated helpline for those who need a deferral period on their tax liabilities. The government has now made further announcements which expand on many of these budgetary announcements. Key measures include government backed guaranteed loans, Business Rates Relief, Small Business Grants, Coronavirus job retention scheme, next quarter of VAT payments deferred, Universal Credit Standard Allowance and Working Tax Credit basic element for next 12 months increased by £1000 a year  and a self-employment support scheme. The government support package will be important for many people in agriculture and associated industries. Business interruption loan (CIBL) is now eligible for agriculture and most relevant to farm businesses but the initial exclusion has dissuaded many from reassessing suitability. Since the launch of CIBLs, the NFU, alongside other industry groups, has been instrumental in pushing for CIBLs to be made more accessible so that all viable small businesses affected by COVID-19 are now eligible, not just those unable to secure regular commercial financing.  Given the limitations of the scheme, the NFU proposes the following reforms to help improve its suitability as a crisis mitigation measure and its uptake from farmers.

11. Increase the maximum term of the loan from 6 years to 10 years – This will significantly improve the serviceability of the loan and support businesses through the short and medium term impacts of CV19. The NFU understands that as the scheme is implemented under Article 3.1 (rather than Article 3.3) of the Commission Temporary Framework on State Aid there is no limitation to the term length from a state aid perspective. The Enterprise Finance Guarantee Scheme (EFGS) upon which CBILS design is based offered 10 year terms albeit for lower lending limits. The balance between loan amount and loan term should be considered to structure a product better suited to the many businesses that will find serviceability a challenge. This may require the launch of a variation of this scheme, as has been achieved with CLBILS in order to serve this purpose.

12. Increase government guarantee to 100% - This will aid simplification of the loan process particularly for amounts below £250,000, therefore speeding up deliver of the scheme which is imperative given the urgency of the need for intervention. The NFU accepts that as a standalone measure this may only have limited impacts and therefore this should be a component of broader operational simplification measures to speed up scheme responsiveness and delivery.

13. Simplify operational delivery - The Chancellor has indicated that actions are being taken to simplify the delivery of the scheme. The NFU is working with the financial services sector, government and trade associations to understand where improvements could be made. It is our understanding that the interactions of a new unfamiliar scheme, state aid rules and the consumer credit directive have resulted in a significantly complex delivery process. We are working to understand where urgent improvements could be made to speed up delivery of this much needed scheme.

14. Moreover, other measures have been announced by the government to respond to the daily challenges that the pandemic is causing on businesses. Of great importance to our sector was the announcement that furloughed workers are eligible to collect wages with a second job. We are working with government, agencies and industry to stream workers towards existing recruitment providers and farmers/growers. 

15. In terms of further steps, the NFU has called on government to ensure visas can be issued for the seasonal worker pilot, that government ensures borders remain open for EU seasonal workers and for relaxations on the terms of daily harvest casuals and the ability to recruit UK resident asylum seekers.

16. As to the dairy sector, we have addressed three key asks to government: A cash grant similar to the one that the government has recently allocated to the fisheries sector; engagement with the EU Commission about schemes such as Private Storage Aid, production, reduction and promotion  as well as measures to inject cash into the sector via the 2020 Basic Payment Scheme; and measures to help manage flows of milk through the supply chain, for instance through production reduction, and including any necessary assurances on competition law.

17. With regards to the ornamental sector, we have been calling on the government to:

• Provide financial support to businesses which have had to dispose of stock.
• Enable growers to access existing government support, including the CBILS scheme and extending the repayment period.
• Ensure that garden centres are among the first businesses allowed to reopen under a phased exit of the lockdown.

18. More generally, it is crucial that government ensures financial assistance is provided in view of maintaining operation/viability of the whole supply chain. There is a risk that the focus on “bailing out” individual companies will not feed into rest of supply chain, maintaining production and added value. Therefore, we call for assistance to be contingent on maintaining supply and value chains. 

19. Finally, we have been calling on the government to delay the phase out of the basic payment scheme that is foreseen in 2021, as part of the reforms under the Agriculture Bill. We believe that such a delay is justified in light of the economic concerns set out elsewhere in this response, the hugely uncertain times all parts of the economy, including farmers are facing and the tight legislative timetable to develop and implement the Agriculture Bill.

What medium- and long-term negative impacts could arise from the pandemic for UK businesses trading internationally? What steps could the Government take to mitigate these impacts?

20. Firstly, we are concerned that structural changes currently underway due to large-scale disruptions to supply chains – most notably the switch from food service/wholesale to retail trade – will result in permanent reduction in production capacity, including loss of farm businesses and an overall decrease in domestic food processing and production. Moreover, there is a risk that the longer the food service sector closure remains in place, the deeper the impact could be in terms of stocks continuing to build. Hence, the time needed for the food service sector to recover might be long after restrictions on social distancing are lifted.  

21. Secondly, we are concerned over government continuing to pursue non COVID-19 policy programmes, for instance consultations and trade negotiations, which take up important capacity to deal with a rapidly evolving scenario. 

22. Furthermore, concerns remain over government’s intention to end the current Brexit transition period at the end of this year, and to negotiate an agreement with the EU to come into effect from 1st January 2021 or alternatively to leave the transition period without a negotiated agreement. This could seriously exacerbate the likely economic damage from COVID-19. Finally, ending of free movement of people and introduction of new immigration system would exacerbate existing labour supply problems.  

What steps can UK businesses take to mitigate the negative impacts of the pandemic on international trade?

23. The NFU is providing an information gathering service on behalf of the agricultural and horticultural industries across the UK to assist the government in building a dynamic and up-to-date picture of the impact that the COVID-19 outbreak is having on farmers and growers. The NFU is logging this information and uses it in an anonymised format to flag the key issues agriculture and horticulture are facing to government on a daily basis. As part of our role as an association of employers, we also keep our members informed with policy and business insight to help them make decisions on their businesses. Moreover, we are working with partners on what a recruitment mechanism would look like to ensure recruitment is as slick as possible. Finally, we are working with our European counterparts to support and help develop a co-ordinated European response from business across key policy and trade-related issues.

How best can the UK Government facilitate trade in essential goods during the pandemic?

How should the Department for International Trade work with the rest of central government, as well as devolved, local and regional government, to deliver a coordinated response to the pandemic?

24. We believe the UK Government could facilitate trade in essential goods during the pandemic by taking the following actions:

• Priority lanes for freight transport of essential goods, as authorized by the European Commission.
• Avoid the introduction of any new restrictions or trade barriers to safeguard the flow of food around the world.
• Ensure that measures are in place which enable key workers to move around, while preventing the virus from spreading.
• Ensure access to critical transportation, communication and legal infrastructures that facilitate the cross-border movement of goods and components.
• Work with partners at G7, G20, EU, WTO and bilaterally to promote the policies above.
• In terms of how the DIT can work with the devolved governments, we would stress the importance of maintaining good lines of communication between the UK and the devolved governments.  
• Where devolved competence is engaged, or matters intersect with devolved competence, we would urge the governments of the UK home nations to work together collaboratively to deliver a co-ordinated pandemic response

How can the UK Government engage with countries at the World Trade Organization and bilateral trading partners – including those with which the UK has a significant trading relationship or one facilitating trade in priority goods – to promote international cooperation and a coordinated global response to the pandemic?

25. The COVID-19 outbreak has predominantly been dealt with at a national level, as governments around the world work to protect the public health of their citizens and deal with an unprecedented threat to domestic economies. There is recognition that this is a global crisis and the NFU supports efforts to co-ordinate action, both in tackling the pandemic in the short term and in the longer term working to support economic recovery.

26. The UK Government has already been actively engaging through the G20. On 30th March following a virtual meeting of Trade Ministers, G20 members pledged to work together “to ensure the flow of vital medical supplies, critical agricultural products and other goods and services across borders.” This is something the NFU supports.

27. On a multilateral level the WTO has been asking members to come together and has called for greater transparency over the restrictions on trade in place on some goods, with the organisation collecting and publishing this information on a daily basis on its website.

28. On 31st March, the WTO came together with the UN Food and Agriculture Organization (FAO) and the World Health Organization (WHO) issuing a joint statement asking governments to minimise the impact of COVID-19 related border restrictions on trade in food. The three organisations called on members not to disrupt the international food supply chain, they suggest disruptions could include: hampering the movement of agricultural and food industry workers, extending border delays for food containers resulting in the spoilage of perishables and increasing food waste and any restrictions linked to unjustified concerns on food safety. Any uncertainty about food availability can spark a wave of export restrictions, creating a shortage on the global market. Such reactions can alter the balance between food supply and demand, resulting in price spikes and increased price volatility. We have already seen ‘panic buying’ in UK food retailers and this experience has been echoed across the globe, bringing negative impacts for producers and consumers alike. The NFU supports continued global working together on this issue.

29. The UK should continue to work with its European neighbours on tackling COVID–19. On 24th March, the European Commission requested member states and the UK to designate internal border-crossings on the trans-European transport network as ‘green lane' border crossings to help keep freight moving. These should be open to all freight vehicles and ensure that all checks take no longer than 15 minutes. This is vital for trade in agri-food goods with many food businesses operating just in time supply chains.

30. The UK has been working to ‘roll-over’ Free Trade Agreements (FTAs) and other preferential trading arrangements negotiated by the EU on behalf of the member states. Good progress has been made and NFU supports the continuation of this work, with many agri-food businesses in the UK benefiting from these preferential trading relationships. The WTO has identified that as a result of the COVID-19 crisis “world trade is expected to fall by between 13% and 32% in 2020”[1]. These bilateral discussions would also allow the UK to work with existing partners where trade is already taking place on preferential terms to ensure it can continue to move as freely as possible and identify areas to work together.

How might the pandemic impact global trade patterns and international supply chains in the long-term?

31. There is limited and early evidence emerging of restrictions to the flow of foods. For instance, the fact that China and India have blocked their exports of organic soya will lead to an issue with availability of organic soya. Kazakhstan, one of the world’s biggest shippers of wheat flour, has banned exports in this area, alongside including carrots, sugar and potatoes; Vietnam has temporarily suspended new rice export contracts; Serbia has stopped the flow of its sunflower oil. There is a risk that if the disruptions caused by COVID-19 continue in the long-term we may see more countries restricting exports of essential goods. Moreover, there is a risk that restrictions on trade in some goods lead to a tit-for-tat response among trading partners and that those temporary trade restrictions imposed during the crisis might become permanent if there is a sentiment shift against globalisation.

32. While the NFU supports ongoing international free trade and opposes unjustified trade barriers, we believe policy-makers should revisit the issue of food security and domestic food production as a priority policy area. The NFU has long argued that domestic food production is a critical strategic industry that needs to be supported so that it can provide a sufficient proportion of the food consumed in the UK alongside imports. In recent years, we believe policy discussion around food production and land use has played down the importance of domestic production, and that is has failed to envisage the sort of severe disruptions in global food supply chains that we are now experiencing.

April 2020