The media has recently reported extensively on the negotiations to establish a free trade agreement (FTA) between the UK and Australia (see articles in the BBC, The Guardian, Financial Times, and Farmers’ Weekly, for a small sample). Much of this attention has been paid to the impact that the agreement may have on UK agricultural sectors. This blog explores concerns from the agriculture sector regarding aspects of the deal.
What is the UK-Australia Free Trade Agreement?
A Free Trade Agreement (FTA) seeks to increase trade between two or more countries by reducing trade barriers. There are two types of trade barrier, tariffs and non-tariff barriers.
Tariffs are a standardised charge levied against imported goods. The purpose of a tariff is to ensure that imported products do not undermine domestic production if they are cheaper to produce, or produced to different or lower standards. Tariffs cannot be targeted against any single producer or market, and the World Trade Organisation requires that countries do not discriminate in the level of tariff they apply (except where an FTA has been agreed).
Non-tariff barriers are more diverse, but include requirements such as minimum standards in relation to the environment or health and safety, or appropriate professional accreditation. In negotiating an FTA with regard to trade in goods, the negotiating parties could agree to lower or drop import tariffs, or agree to measures that would reduce other trade barriers.
Following EU exit, the UK may now negotiate FTAs with any country it wishes. Whilst a member of the EU, this was not possible, as EU member states strike trade deals as a single trading bloc.
Negotiations have been underway with several countries, including Australia. The Australian trade deal is said to be significant as it is the first to go beyond the terms agreed previously when the UK was an EU member.
It is difficult to scrutinise an FTA before it is concluded as the negotiations happen behind closed doors. However, recent reports in the media have focussed on the possibility that the UK-Australia FTA may allow Australian agricultural products to enter the UK tariff-free after a transitional period.
Why are farmers and crofters worried?
Typically, Scottish producers are known to be high-quality and high-cost producers, and the average livestock farm in the UK is small compared to farms in other countries. In a scenario where tariffs and quotas are not applied, this means that it may be difficult for Scottish and UK producers to compete with producers from other countries such as Australia. There, the cost of production is lower, as a result of lower environmental standards in some areas and larger-scale operations.
Furthermore, concerns for UK food standards as a result of trade deals have been voiced by both producers and consumers. Several consumer surveys have shown high support for maintaining food standards. James Withers, Chief Executive of Scotland Food and Drink told the previous Rural Economy and Connectivity Committee during an evidence session on Brexit and Agriculture that
“It will be important, as we go into wider trade deals, that we do not use them to lower our standards…It is important that we do not take an opportunity to unpick the regulatory framework. To some extent, the industry is never a fan of regulation: people round this table will frequently complain about levels of regulation, but the reality is that regulation underpins our brand. We do not want to gold plate regulation, but we want to maintain our world class standards of food protection.”
In Scotland’s food and drink industry growth strategy – Ambition 2030 – high-quality production in terms of environmental and animal welfare standards is seen as key to Scotland’s brand.
Likewise, environmental organisations have expressed concerns about the environmental outcomes from lowering or undermining domestic standards. A reduction in standards is therefore often seen as counterproductive economically, as well as contrary to plans to address climate and environmental challenges.
The UK Government produced a scoping analysis for a trade agreement with Australia in July 2020.
It modelled two scenarios; Scenario 1 modelled a “substantial tariff liberalisation” by the UK, but maintaining tariffs for “sensitive sectors”, such as beef, lamb, dairy, fruit and vegetables, cereals and sugar. Scenario 2 modelled full tariff liberalisation, i.e. an agreement on zero tariffs on imports into the UK, including for agricultural sectors. The scenario reportedly on the table in current negotiations is more like Scenario 2 once a transition period (reportedly of around 10-15 years) has passed.
Under Scenario 1, there is expected to be a neutral impact on all sectors, including agriculture and food processing. In Scenario 2, however, the document anticipates that while most sectors may stand to gain (or be unaffected) by a trade deal in terms of output and employment, the largest detrimental impact may be in agriculture and semi-processed food sectors. The processed food and beverages and tobacco sectors, however, may benefit. The scoping report notes:
“In the deeper liberalisation [Scenario 2], the agriculture and semi-processed food sectors are estimated to see a fall in output and employment relative to the baseline as resources move towards expanding sectors.”
The difference in the increase in imports from the UK to Australia between Scenarios 1 and 2 is significant, though small in the context of total UK imports. The report highlights:
“UK imports from Australia are estimated to increase by 7.4% in scenario 1 and 83.2% in scenario 2…Imports from Australia increase significantly relative to UK exports to Australia in scenario 2 due to the assumed tariff and NTM reductions, especially in areas where Australia is relatively specialised such as semi-processed foods. Changes on imports of specific products are not modelled but given the current pattern of UK imports on semi-processed foods from Australia, it is expected that this would, in large part, reflect an increase in imports of sheep meat (including lamb) and bovine meat. Although imports from Australia could increase by 83%, overall total UK imports could increase by a more modest 0.1%.”
Furthermore, the report notes,
“In the long run, Australian producers may be able to supply domestic retailers and downstream producers at lower cost than domestic producers.”
The UK Government has offered reassurance that deals will “include protections for the agriculture industry and will not undercut UK farmers or compromise our high standards”.
However, farmers unions from across the UK have voiced their concerns about the impact of such an agreement on agricultural sectors. The National Farmers Union for Scotland, alongside others, called for adherence to a number of key principles in negotiating trade agreements. These are:
“Upholding our high standards of production and positioning the UK as a global leader in sustainable farming and in tackling climate change
“Recognising the specific sensitivities of some UK farming sectors, such as beef and sheep, in the current negotiations
“Balancing improved access and lower tariffs for agricultural imports with quotas and other safeguards to avoid irreversible damage to UK farming
“Ensuring any trade deal is genuinely reciprocal and that the benefits properly reflect how valuable UK market access is for foreign exporters
“Acknowledging that these deals will establish precedents that will be reflected in all our trade deals.”
What about the environment?
Some are also worried from an environmental perspective. Some groups have raised concerns that food standards on the environment, animal welfare, or antibiotic use, for example would be lowered to accommodate trade deals more generally. In relation to the UK-Australia negotiations specifically, a group of environmental organisations wrote to the Prime Minister to urge protection of UK standards.
There have also been concerns that the UK would “export” its environmental impact, if consumption of products with a higher footprint imported from abroad increased, and consumption of lower-impact products produced at home decreased.
The UK Government’s scoping assessment highlights that the UK’s environmental performance with regards to agricultural production is higher relative to Australia’s. The scoping report uses a methodology produced by Yale University called the Environmental Performance Index. According to this measure, out of a maximum score of 100, UK agriculture scores 57.34 (with an OECD country average of 47.92), compared to Australian agriculture which scores 37.39.
While acknowledging that it is difficult to assess the impact of trade deals, the assessment notes that:
“In the UK, under scenario 1, there is an expected increase in agricultural production. Under scenario 2, there is an estimated decrease in agricultural production. Decreased agricultural production could reduce the intensive use of chemical inputs and reduce threats to biodiversity.”
However, while a reduction in agricultural activity could reduce local environmental impacts, the scoping report does not explore the likelihood of an overall increase in the environmental impact of agriculture given Australia’s relatively lower environmental performance. If UK consumption of agricultural products remains the same but with consumers eating more imported produce with a higher carbon footprint, for example, an increase in consumption emissions would be logical, despite a domestic decrease in production emissions. This is known as “offshoring” emissions.
What has the Scottish Government said?
Trade negotiations are reserved to the UK Government, and therefore the Scottish Government has no formal role in negotiating trade agreements.
However, the Cabinet Secretary for Rural Affairs and Islands has voiced strong concerns about the impact of the trade deal on Scottish agriculture. In a letter to UK Government Secretaries of State, she wrote:
“…an FTA with Australia must not undercut Scotland’s world leading food standards or lead to a zero tariff / quota agreement…A trade deal that liberalises tariffs for Australian farmers, to put it bluntly, will put UK farmers out of business”
Moreover, the Cabinet Secretary noted the relative difference in environmental performance between Australian and UK agriculture. In relation to climate change and the environment, she said:
“Increasing imports of red meat from Australia, often produced on massive feed lots, is unsustainable, and runs contrary to the Scottish Government policy position that trade should support progress to achieve net zero. Moreover, increasing imports from Australia, will merely offshore UK emissions to the southern hemisphere, whilst increasing global emissions from transport.”
Since the EU referendum, the Scottish Government has lobbied for a formal role in trade negotiations for the devolved administrations, due to the impact of new trade deals on devolved policy areas, such as agriculture and food standards.
What about the Trade and Agriculture Commission?
In response to concerns from farmers, environmental organisations and the public, the UK Government set up a non-statutory Trade and Agriculture Commission in July 2020. It was set up to advise the government on trade policies to ensure that UK agriculture remains competitive, and that environment and animal welfare standards are not undermined. The Commission was initially launched for a six-month period to report on trade and agriculture issues.
However, the Commission was put on a stronger footing in November 2020 in the final stages of passing the Agriculture Act 2020 and the Trade Act 2021. The Agriculture Bill was amended to require the Secretary of State to report to the UK Parliament on “whether, or to what extent” future free trade agreements
“are consistent with the maintenance of UK levels of statutory protection in relation to—
(a) human, animal or plant life or health,
(b) animal welfare, and
(c) the environment.”
At the same time, the Trade and Agriculture Commission was given a statutory role in providing advice on free trade agreements to the Secretary of State in the Trade Act. The Secretary of State must seek the advice of the Commission before producing such a report for Parliament under the Agriculture Act.
A concern and criticism of the UK-Australia trade negotiations has been that it is being negotiated and potentially concluded prior to a statutory Commission being operational. The initial non-statutory commission published a final report in March 2021, but twelve members of the new statutory Commission are to be appointed; a call for expressions of interest closes on 23 June 2021. However, it has been reported that the UK and Australia aim to conclude negotiations in mid-June, and that a Commission may not be able to view the text until much later.
The UK-Australia trade deal has brought concerns from the agricultural sector to the fore. There may be benefits for other sectors: for example, the UK Government’s scoping document suggests that most sectors analysed are expected to benefit under a deeper liberalisation scenario. For example, the UK Government highlights potential benefits for UK services businesses. The UK Government has also highlighted that UK processed food manufacturers for products like biscuits, cheese, and whisky would face reduced tariffs when exporting, and it is also possible that some food producers may find opportunities in a new market, though total UK exports are only expected to increase by 7.3% with imports increasing by 83.2%. However, challenges remain for many parts of the agricultural community, with knock on risks for the UK and Scotland’s environmental commitments. Overall, the potential positive and negative impacts will not be fully known until more detail is available on the outcome of the negotiations.
Anna Brand, Senior Researcher, Agriculture, Fisheries and Rrural