Written evidence submitted by the National Farmers’ Union (UKT0032)

Executive summary

 

Introduction

  1. The NFU represents 55,000 farm businesses in England and Wales involving an estimated 155,000 farmers, managers and partners in the business. In addition we have 55,000 countryside members with an interest in farming and the country.

 

  1. Trade is a key issue for NFU members. The EU single market is our main export destination and it is crucial for some sectors (e.g. 38% of lamb produced in the UK is exported into the EU). The future trading relationships between the UK and the EU and between the UK and the rest of the world will have a significant impact on UK farming and its regulatory environment.

 

  1. The UK self-sufficiency ratio is 61% for all food and 75% for indigenous food. UK food and non-alcoholic drink exports totalled £12.3bn in 2015. 72.2% of those exports go to other EU countries, 27.8% go to non-EU countries. The UK trade balance is -£22.8bn. The top three export markets are Ireland, France and Netherlands. While the top three non-EU export markets: USA, China and UAE.

 

Evidence gathered by the NFU

  1. The latest Defra figures show that currently many farmers in the UK do not make fair returns from the market (see table below). As a result, the Common Agricultural Policy (CAP) helps address the failure of agricultural markets to deliver a fair level of income for farmers. Latest figures from Defra show that 75% of UK Total Income from Farming comes from CAP support payments. A reduction or elimination of those payments poses a risk to the viability of UK farmers’ businesses. The NFU commissioned a world-leading agricultural research institute - the LEI at Wageningen University - to consider the impact of a number of possible trade and farm support scenarios that would be open to the UK Government in the event of the country voting to leave the EU. We have summarised the results in a report. Some of the scenarios appear to suggest that there could be serious risks to farm income from leaving the EU, while the results of others suggest there could be a more favourable outcome. It comes down to a matter of judgement as to which of the scenarios appears the most likely. This in turn will depend on the policy position adopted by the UK Government

 

 

  1. Three trade scenarios have been modelled: 1. A Free Trade Agreement (FTA) between the UK and the EU 2. The World Trade Organisation (WTO) default position 3. UK Trade Liberalisation. Under two of the three scenarios modelled (FTA and WTO default) the future British agriculture policy would become more protectionist. The impacts for British food and farming if either of these scenarios were to happen are: an increase in farmgate prices; imports would become more expensive due to trade costs and, under the WTO agreement, higher tariffs to pay to trade with the EU. This would result in stimulation of domestic production caused by higher farmgate prices. This would be a reverse of the policies that successive British governments have pursued for the past 40 years; it would go against a worldwide trend to more open agricultural trade and would be in contradiction to the stated aims of many of those who advocate that the UK should leave the EU. The third scenario is that of UK Trade Liberalisation. This appears more in line with UK Government policy and of those advocating leaving the EU. Impacts for British food and farming are: Lower prices for UK meat and dairy, as a result of low prices, there would be an impact on production levels and a decrease the UK’s self-sufficiency in these foods.

 

  1. After the EU Referendum vote the NFU conducted farming's most significant consultation over the impact of Brexit and what a future domestic farming policy should look like. For this occasion we launched a post-Brexit options paper outlining the key options in terms of trade arrangements between the UK and the EU and the rest of the world, the options in order to guarantee a stable labour supply and the options for a future domestic agricultural policy. The main outcomes of the consultation and internal discussions in terms of international trade and access to foreign labour are summarised in this report.

 

Key NFU policy asks in terms of UK-EU trading relations and trade with the rest of the world

  1. Of the existing models, the Norwegian European Economic Area arrangement was the most favoured in the consultation but a larger number are looking for some bespoke UK arrangements. The NFU appreciates the political sensitivity over issues such as labour movements, regulation and budget contributions. These are matters that will need to be settled by negotiation. The NFU’s primary concern is that our continued access to the EU single market should not be fettered by tariffs or non-tariff barriers.

 

  1. The EU has negotiated more than 50 preferential access agreements with countries around the world. In the worst case all these would need to be renegotiated by the UK, in addition to any further deals which the British government might like to conclude. Our determination is that any future trading arrangements with any country, in or out of the EU, must be balanced, with the same conditions applying to imports as to exports. And because of the opportunity presented by boosting British agriculture exports around the world, food and farming must be a part of our future trade talks from day one.

 

 

  1. The consultation demonstrated overwhelming support for arrangements which limit our exposure to imports produced to lower standards (for example, lower animal welfare standards, goods produced with chemicals prohibited domestically etc). This is not a straightforward matter as WTO rules prohibit discriminating against imports on the basis of their production methods. We can help ourselves by promoting the qualities and values of British production through assurance schemes, and the NFU believes more needs to be done both publically and privately in this area. But there are limits to what can be done and this can only be a partial solution. In addition we will need to see an adequate level of tariffs maintained and for “sensitive” sectors to be treated differently in trade negotiations.

 

World Trade Organisation (WTO) rules and tariffs

  1. If the UK leaves the EU without having negotiated free trade agreements with the EU and its international partners, it will fall back onto the WTO default position. This means that trade in agricultural products between the EU and UK would follow the WTO’s non-discrimination “Most Favoured Nation” (MFN) rules. Those rules apply equally to all 164 WTO members. The table below shows a few examples of the percentage of the tariff in terms of the value of the traded commodity (2015 export prices) and the actual value of the tariff (p/kg). The impact assessment produced by the University of Wageningen shows that under this scenario with the full abolition of direct support, farm incomes would fall on average by €17,000.

 

  1. All support measures in general are identified by “boxes” which are given the colours of traffic lights: green (permitted), amber (trade distorting, to be quantified and limited), red (forbidden). In agriculture, things are more complicated. The Agriculture Agreement has no red box, although domestic support exceeding the reduction commitment levels in the amber box is prohibited; and there is a blue box for subsidies that are tied to programmes that limit production. There are also exemptions for developing countries. England’s agricultural policy falls into the green box.

 

  1. The EU is not alone in providing support for its farmers. The OECD monitors support levels around the world. Switzerland and Norway are often cited as examples of trading relationships the UK could follow once it leaves the EU. These countries are not part of the EU’s Common Agricultural Policy. They have their own versions that offer significantly higher levels of support than the EU; in fact they have the highest ratio of support to their farmers in the world (support received by farmers as a share of gross farm receipts. See graph below).

 

 

  1. As countries or trading blocs introduce new technical regulations these can also impose barriers to trade if market access depends on meeting a given domestic regulation or standard. The WTO recognises non-tariff barriers such as:
    1. Technical barriers to trade, which can be divided into:
      1. Sanitary and phytosanitary measures covered by the Agreement on the Application of Sanitary and Phytosanitary Measures (the “SPS Agreement”)
      2. The general category of technical barriers to trade set out in the Technical Barrier (“TBT”) Agreement
    2. Customs formalities and procedures
    3. Government procurement practices

 

  1. As anticipated by the report the NFU commissioned from Wageningen University diverging regulatory standards impose ongoing costs for exporting businesses. This is because they adapt products to different regulatory requirements such as demonstration of origin, make payments for conformity testing or research into markets to assess the costs of entry. This often places exporting firms at a disadvantage to domestic companies and can leave them exposed to ‘surprise’ changes in standards or regulations over which they have no control or forewarning.

 

  1. The WTO agreement on Sanitary and Phytosanitary (SPS) Measures encourages governments to “harmonise” national SPS measures with international standards, guidelines and recommendations developed by WTO member governments in other international organisations. These organisations include the joint Food and Agriculture/World Health Organisation (FAO/WHO) Codex Alimentarius Commission for food safety, the Office International des Epizooties for animal health and the FAO International Plant Protection Convention for plant health. The Agreement allows members to choose not to use the international standards but if the national requirement results in a greater restriction of trade, the member will be asked to provide scientific justification, demonstrating that the relevant international standard would not result in the level of health protection the country considered appropriate. For instance, the EU lost a dispute at WTO with regard to its hormone-free beef standard. As a consequence, the EU chose to provide compensation to the affected countries in the form of better access to the EU market through a tariff-rate quota for hormone-free beef.

 

  1. For instance, for the use of Plant Protection Products (PPP) Maximum Residue Levels (MRLs) are set by countries (or the EU for its Member States) for traded agricultural commodities. An MRL outlines the maximum amount of pesticide residue that a country permits on specific commodities. The Codex Committee on Pesticide Residues (CCPR) provides international guidance on pesticide MRLs. The CCPR uses scientific evidence to recommend pesticides MRLs to the Codex Alimentarius Commission (CAC), who then determines whether it adopts the MRL as a Codex maximum residue limit. The Codex standards on pesticide residues set non-binding consensus-based MRLs which help form the basis for national pesticide standards. In the event of Brexit, in a WTO-default scenario, the UK might be in a better position with regard to PPP availability. In order to trade agricultural commodities with the EU the UK would have to comply with the EU MRLs. Equally the UK could develop its own pesticide MRLs based on international guidance.

 

  1. There is great uncertainty around the future of UK’s relationship with the EU and the rest of the world. The negotiated arrangements will impact on UK’s ability to regulate the agricultural sector. Our vision centres on delivering the nation’s food security in a sustainable manner using a policy framework that gives British farmers the best possible access to markets inside and outside the EU and protects famers and consumers from agri-food imports that do not meet the same high standards adhered to by British farmers.

 

17 January 2017