Brexit problems proliferate while negotiators procrastinate

An Agri Brigade piece in the latest Private Eye, that marvellous example of good old-fashioned investigative journalism, made me acutely aware of the law of unintended consequences that inevitably applies to trade agreements. With less than 18 months until Brexit, UK negotiators don’t appear to have made any tangible progress towards a workable agreement with their EU counterparts.

 

In fact each side is talking right past the other: the EU wants to set the amount the UK will pay to exit before discussing important things like trade and the UK doesn’t want to mention it for fear of causing political mayhem at home. And we think we’ve got problems with the coalition discussions which should have reached a conclusion by the time you read this.

 

Private Eye draws attention to imminent decisions to be made by UK farmers which will be dramatically affected by the lack of transitional arrangements or a trade deal. At least one of these will also have a significant impact on the New Zealand red meat sector. UK sheep farmers are faced right now with deciding whether to keep millions of ewe lambs for breeding or to send them for slaughter; if they keep them for breeding they won’t lamb until spring 2019, just when Britain is leaving the EU, with or without an arrangement.

 

40% of all UK lamb production is exported to the EU which without a trade agreement will incur a tariff of GBP2,689 per tonne, roughly equivalent to $125 per lamb by my calculation, and as a result the UK lamb price will collapse. I don’t imagine the price would react very well either, if the ewe lambs are sent for slaughter. This information coincides with the news about the proposed arrangement for the EU and UK to split New Zealand’s sheep meat quota on the basis of the last three years’ percentage to each market.

 

Not unnaturally B+LNZ and Meat Industry Association are most unhappy with this proposal which contravenes the tariff rate quota’s legal status under WTO rules, because it would remove New Zealand’s flexibility to switch product between all current EU members including the UK. Realistically the worst case scenario would see the UK flooded by cheap domestic lamb which New Zealand exporters would not wish to compete with, but would be unable to send surplus product to the EU above the reduced allocation. The UK quota would remain unused, unless by some freak of fate a trade deal can be reached before the deadline.

 

Other difficult decisions with similar or even longer implications face British beef and arable farmers whose production won’t be sold until after the March 2019 exit date. A specific example of this problem is the export of organic Kingdom Cheddar cheese to the USA under US-EU trade agreements. It took the Organic Milk Suppliers Cooperative eight years to build up supply from accredited organic farmers and develop the brand, but now says it will cease production of this niche product at the end of December because its 18 month production cycle means it may not be able to sell it after Brexit.

 

Although British beef, arable and dairy marketing problems may not have a direct impact on New Zealand’s exports, they will inevitably cause disruption of global supply and pricing patterns which will almost certainly end up affecting our markets. For this reason New Zealand’s trade relationships must be carefully nurtured to ensure our exporters enjoy the best possible access to overseas markets.

 

This is my main concern with the outcome of our general election, because whichever combination ends up in power will be under the influence of NZ First, a party whose attitude to free trade goes back to before 1984. More misgivings arise from Labour’s belief it can renegotiate TPP11 without delaying the whole agreement indefinitely because a change in New Zealand’s commitment will give other signatories the perfect opportunity to introduce their own wish lists to the exercise. Now is not the time to take the pressure off diplomatic efforts to secure the best and widest range of trade agreements.

 

NZ First’s well publicised objections to foreign investment in our productive value chains also signal the possibility of the establishment of a fortress New Zealand mentality which would sit very uncomfortably with a National led government. I am not averse to looking at the provisions of the Overseas Investment Act to ensure we are not losing ownership or control of strategic assets, but joint ventures or partnerships with carefully chosen overseas businesses bring the best of both worlds: capital and access to an international value chain combined with New Zealand’s innovative and productive capabilities.

 

Silver Fern Farms, Synlait and T&G Global (formerly Turners & Growers) are three agriculturally based companies with significant overseas shareholders which have brought stability and value to the New Zealand business. It would be a backward step if such constructive relationships were to be banned under the new government. Britain’s difficulties as a consequence of Brexit should give our politicians reason to be cautious about placing any undue restriction on our ability to trade.

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Tags: B&LNZ, BREXIT negotiations, EU trade access, Kingdom Organic Cheddar, MIA, NZ First, NZ Labour party, Organic Milk Suppliers Cooperative, Overseas Investment Act, Private Eye, Silver Fern Farms, Synlait, T&G Global, UK Lamb production