The victory of the Conservative Party under Alexander “Boris” de Pfeffel Johnson in the Dec. 12 British election has brought an element of increased certainty, at least in the short term, to trading conditions for the grains sector in Britain and Northern Ireland. Enormous difficulties remain before longer-term clarity can be achieved.
Thanks to Britain’s “first past the post” electoral system, 43.6% of the votes were enough to give the Johnson government 365 of the 650 seats in the country’s lower house, the House of Commons. The newly empowered prime minister promptly moved to get his Withdrawal Agreement with the E.U. ratified, which means that the U.K. will now, almost definitely, leave the E.U. on Jan. 31. That date will then be followed by a transition period, which will last until the end of 2020. Johnson moved, as part of the process of getting the Withdrawal Agreement passed by MPs, to rule out any extension to the transition in U.K. law
Alex Waugh, director general of the National Association of British and Irish Millers (nabim), welcomed the short-term predictability.
“That’s good news,” he told World Grain. “Obviously there’s lots that we all hope will be done in the next year for both sides of the discussion to work out what the future relationship is going to be. At the moment, I wouldn’t say that expectations and ambitions on both sides are aligned. There is a bit of work to be done there.”
Waugh explained that the U.K. has focused on fears of a “no deal” Brexit, in which the country would leave the European bloc with no trade deals, except for basic WTO membership, in place. A possible future relationship with the E.U. has been the subject of limited consideration.
“There is actually quite a lot of work to be done to get up to speed,” Waugh said. “Furthermore, the real-time for negotiation is pretty limited, especially if the prime minister means what he says in terms of everything has to be done by Dec. 31 (2020).”
Johnson’s attempt to fix the end of the transition might have limited effect.
“It depends on exactly what that means,” Waugh said. “There are some ways you could negotiate around that blockage.”
That could be something like announcing that a basic arrangement has been reached, that progress has been made, or that parts of a deal have been put on hold pending further negotiation. Johnson’s deadline, he suggested, is aimed at a domestic audience.
Trade deal with U.S. looming?
Sarah Baker, strategic insight manager at the Agriculture and Horticulture Development Board (AHDB), explained that the specter of a no-deal Brexit will come back as the end of 2020 approaches and will weigh on the market.
“You can expect some sort of preventive action taking place as we head toward December,” she told World Grain.
During the transition period, “essentially there is no change. There is no change in our regulations. There are no tariffs. There is no friction,” she explained. “The agricultural policy itself doesn’t change this year.”
Baker sees Johnson’s move to set the end of the transition in law as an attempt to focus minds to get the final trade deal done.
“What that means is what is physically possible within 12 months to achieve,” Baker said, suggesting that it would take compromise. “You will almost certainly find that services will come out of the agreement. You might find that agriculture does because agriculture is always a difficult one to negotiate.
“The worry, I suppose, for us is that if you are going for a very straightforward trade deal, which they will have to within the time period allowed, we might get dropped off.”
The U.K. can only execute a deal involving a close trading relationship with the E.U. if it is willing to work to the same regulatory framework and standards.
“But you have the U.S. in the wings, really keen to do a trade deal with us,” she said. “In order to trade with them, there is heavy pressure to relax some of our standards. The more we move away from the regulatory framework of the E.U., the more trade friction and the harder that trade will be. Agriculture is not at the top of this government’s priority list. It is going to be going for the big wins with America, which are services, manufacturing and aerospace.
“The biggest concern over cereal farmers, if I’m honest, is the reduction of direct payments, even more so than trade. With trade, it’s an international commodity and trade will continue in grain, but the loss of direct payments means that there will be a huge loss of profit for the cereal industry. They are going to have to work really hard to make up that difference through the new environmental land management schemes or efficiency savings or however else they do it.”
Baker said AHDB is working hard on what characterizes the top 25% of performance and making sure that it affords the opportunity to everybody within the cereal industry to have an opportunity to reach that standard.
Impact on producers
Sheila Ritchie, a member of the European Parliament, representing Scotland, and a member of the parliament’s agriculture committee, was concerned that U.K. farmers were not yet seeing the implications of Brexit.
“I am very clear that if U.K. farming wants to continue its trade relationship with the E.U.-27, then it has to align with the CAP (the E.U. Common Agricultural Policy),” she told World Grain. “The fact that the NFU has not even bothered to look at the proposed CAP reform until recently I find completely (astonishing).”
Ritchie, as a U.K. Liberal Democrat and a member of the Renew Europe Group of MEPs, expected much of the work done by the E.U. on reform to be superseded under the new priorities of the new European Commission, led by its German President Ursula von der Leyen.
“If British agriculture, including the wheat sector, wants to continue exporting to the E.U., and I think I’m right in saying that was about 80% of wheat exports last year, then it absolutely must be aligned with what’s going on in CAP reform,” she said.
The Withdrawal Agreement, which passed the U.K. Parliament on Dec. 20, was likely to be approved by the European Parliament, “so that we come out on Jan. 31.”
“That does not get us a trade deal,” she said. “A no-deal Brexit remains a possibility, particularly as Johnson plays with this ‘it’ll all be done by the end of December’ stuff.
“President von der Leyen said this week that she thought it was bonkers — my words not hers — to be aiming for December 2020 because there was simply too much to do. I hasten to add that she did that in full plenary at the parliament with the Brexiteers in full attendance, which is an unusual occurrence, heckling and barracking from their seats.”
Ritchie added: “We need to have a deal that works. We need to have it very quickly. We need to be looking for other markets.”
She said the grains industry will have to become more competitive.
“Its productivity, in the contexts of standards and quality, is going to have to improve consistency, and it will probably have to look at niche markets in order to be able to ensure that it has places to go with what is produced in the United Kingdom,” she said. “The other completely human thing to put into the equation there is that the new trade commissioner is Phil Hogan, a man of not insubstantial stature. He punches well above his weight in any negotiation.”
She understood that Irish Commissioner Hogan, who formerly held the agriculture portfolio in the E.U. executive, got trade because Taoiseach (the Republic of Ireland’s equivalent of a Prime Minister) Leo Varadkar wanted him to be in charge of negotiations with Britain on trade.
“If we think we are going to get a soft deal out of Phil Hogan, we have to be absolutely kidding ourselves,” she said. “We have the toughest, toughest road ahead of us. It is going to be shockingly difficult.”
She pointed out that the grains sector also is affected by the rising cost of labor.
“It was struggling with labor costs because so much of farming has been dependent on Eastern European labor for the last 10 or 15 years,” she said. “That has already disappeared, and it will disappear even further with the loss of freedom of movement.
“There is nothing good in this.”