Nabim (ABR0028)
nabim is the trade association for the UK flour milling industry. Our members account for 99% of the UK’s flour milling capacity; they operate 49 flour mills located throughout Great Britain and Ireland. UK flour millers work closely with suppliers and customers to ensure an uninterrupted supply of the right goods at the right time, with world class food safety and environmental standards.
The UK produces approximately 4 million tonnes of wheat flour per year for food uses (ie excluding wheat used for distilling or for starch, ethanol and alcohol manufacture), using more than 5 million tonnes of wheat. This is derived mainly from home-grown wheat (80 - 85%), supplemented with overseas supplies principally from Canada, Germany, France and the USA. Wheat from these origins is used because it has characteristics not readily available in UK grain which are needed to make specific products. If starch, ethanol and distilling uses are included, wheat usage rises to about 8 million tonnes per year, overwhelmingly of UK origin.
Flour is a basic foodstuff, used as an ingredient in a very wide range of foodstuffs. On the basis of government surveys such as the National Diet and Nutrition Survey and the Family Expenditure Survey, we estimate that it accounts for about 20% of food energy and a similar or greater proportion of calcium, iron, and dietary fibre intake along with some 20% of protein and a range of other minerals and vitamins (see Annex 1). It is therefore crucially important that an uninterrupted supply remains available through and beyond the process of leaving the European Union.
Import Duty regime
Whilst the UK is within the European Union, it operates on the basis of an EU wide tariff system. The basic tariff on wheat is set at €95 per tonne. However wheat from EU countries is available duty free; the system also allows for lower tariffs on some types of wheat, and the high quality wheat imported from North America by UK millers is available tariff free. Therefore the industry has access to all the raw materials it needs on a virtually duty free basis, but with an incentive to use home-produced grain when the correct quality is available.
For flour, the standard tariff is €172 per tonne. This in effect encourages primary processing of grain to take place within the EU by providing a margin of preference over imported flour.
For bakery products, the tariffs vary according to composition, but are generally more than €200 per tonne, once again encouraging manufacture in the EU.
When the UK leaves the EU, nabim would strongly support the retention of this system of low to zero duties on raw materials and higher duties on processed products. By encouraging processing of goods in the UK, it facilitates usage of home-grown wheat and ensures the maintenance of a food manufacturing base in the UK along with associated value addition and employment. It also contributes to national food security.
We are therefore pleased that early indications from ministers are that they will seek to replicate the existing tariff architecture when the UK leaves in 2019.
Trade
The overwhelming majority of trade in this sector is with EU 27 countries, the exceptions being wheat imports from Canada and the USA, wheat exports to North Africa, Japan and the USA and a proportion of trade in bakery products. In 2015/16, the EU accounted for 2.2m tonnes of wheat exports out of a total of 2.8m tonnes. Flour millers imported some 450,000 tonnes of wheat from the EU (mainly Germany). Flour exports in 2016 were 230,000 tonnes, with imports around 80,000 tonnes. The quantity of bakery products exported to the EU was close to 300,000 tonnes, with around 780,000 tonnes imported. These are significant volumes of goods, with exports to the EU in 2016 having a value to the UK of close to £1bn. This trade (whether imports or exports) would not be maintained if tariffs were imposed. Therefore the health of the cereals sector on both sides of the channel depends on the retention of tariff free trade between the UK and the EU 27 once we leave the Union. Clearly the potential for such an agreement to be reached will be helped if the UK maintains the existing tariff architecture which, as noted above, would in any event be nabim’s preference.
Easily the most significant trade issue for flour and bread relates to the UK and Ireland. At present, mills in the UK supply about 80% of flour consumed in the Republic - some from Northern Ireland but the majority from England. For the businesses concerned (ie millers in the UK and bakers in Ireland) it is vital that a way is found to maintain this trade flow when the UK leaves. Clearly a UK/EU free trade agreement would permit this; however if such a trade agreement cannot be reached, it seems to us crucial for many reasons that a way is found to permit tariff free trade in flour. Furthermore, like flour, a large volume of bread and bakery products is traded North-South between Northern Ireland and the Republic, and East-West between the Republic and Great Britain. Trade with the Republic accounts for approximately 80% of UK flour exports and 40% of bakery product exports (see table at Annex 2). The island of Ireland is certainly one market in practical terms, and the degree of integration between GB and Ireland is also very substantial. A future arrangement which did not permit tariff free trade would therefore require major business restructuring and it seems likely that there would be a notable inflationary effect, at least in the short term.
Transition
Whilst there is uncertainty about future relationships, businesses must prepare contingencies to take account of the possibilities. In our sector, it is common for contracts to be fixed a year ahead, sometimes longer. Given that the UK is scheduled to leave the EU by April 2019, businesses are already thinking about how to manage the change and from the spring of 2018 are likely to be implementing contracts which extend beyond departure. It seems doubtful that an agreement will be reached by then, meaning that there will be a need for some kind of interim agreement to cover the gap between existing arrangements and any new relationship between the UK and the EU. An early commitment on the part of both parties towards such an interim agreement (without necessarily spelling out the detail) would seem to be in everyone’s best interest and an important element in achieving a “smooth Brexit.”
Future Support for UK Food and Farming
UK flour millers require access to competitively priced raw materials – chiefly wheat - of the correct quality so that they can meet the needs of their customers and consumers. Millers work closely with plant breeders, farmers and grain merchants in the UK, and benefit from having an internationally competitive UK arable farming sector. Therefore we support policy initiatives that enable UK producers to compete effectively and ensure that the very high standards that have been developed in the last 20-30 years are maintained and enhanced. nabim would not favour changes that undermined these high standards in some form of regulatory race to the bottom, but would agree that support for farmers should be linked to the delivery of broader societal benefit and improved productivity.
We await the publication of the government’s food and farming plan later in the spring of 2017.
Will there be new opportunities?
Departure from the EU should provide opportunity to make sensible adjustment to some elements of legislation. However, these seem likely to be at the margin. For example, the flour milling industry strongly supports retention of the main elements of food safety legislation, although we would favour the adoption of a greater degree of pragmatism around such issues as the very low level presence of some contaminants where an independent assessment shows little or no risk; the UK might also adopt a more independent line on such matters as charges for renewable electricity – which now account for 50% of millers’ energy costs; there might also be scope for interpretation of environmental rules more tailored to local circumstances.
The biggest opportunity is perhaps the development of a different mind-set in relation to food exports. Flour is a heavy, relatively low value commodity that is unlikely to see export growth in its own right. However, the UK has an excellent food manufacturing industry, yet is a net importer of bakery goods. For that to change, development of export markets needs to become a priority. The barriers are less to do with tariffs (although they can be an issue) and more related to ensuring compatible standards, appropriate market understanding, managing paperwork and customs documentation and similar technical issues in each market. Addressing these barriers is a long-term project which is likely to require government support and investment over many years alongside a commitment from business.
Annex 1
