The countdown to Brexit is on, and off again, and on again. Nigel Stirling answers 10 questions about what it means for sheep farmers here.
1. What is at stake?
Right now New Zealand exporters have quota to sell up to 228,000 tonnes of sheep meat to the European Union without incurring a single cent in tariffs. No other country has as much and it underpins the EU as NZ’s single most valuable sheep meat market. China buys more but the EU pays more. Last year China bought 167,244 tonnes of NZ sheep meat, paying $993 million. The EU bought 116,696t but paid $1.5 billion.
2. How would Brexit affect that access?
The EU and the UK plan to split the quota down the middle. NZ would be able to export up to 114,000 tonnes to the UK and the same to the remaining 27 EU countries before tariffs of up to 50% kick in. The split is based on sheep meat exports to the EU between 2015 and 2017.
3. That sounds fair?
Not really. A big part of the value of the quota is that NZ can export up to 228,000 tonnes to the UK or the same
to the remaining 27 national markets in the EU tariff-free. If either the UK or the continental markets are down NZ exporters can divert exports to the other better-performing market. In past trade negotiations NZ sacrificed access to the EU market for dairy and other important exports so that it could maintain flexibility for sheep meat.
4. What impact could this have on what I get paid for my lambs?
That’s difficult to say and will depend on how other markets such as China perform but it could be significant – even more so if the EU and the UK can’t reach agreement on what terms they will trade with each other after Brexit. The so-called no-deal Brexit would see British lamb shut out of the EU overnight by sky-high tariffs. Given the UK sends half its lamb to the EU the UK would be left swimming in surplus meat which threatens to crash prices there while creating shortages on the continent. Under current quota arrangements meat companies here would have been able to divert NZ lamb unwanted in the UK to the EU to take advantage of a likely firming in prices there. But the post-Brexit arrangement struck between the EU and the UK means they will only be able to do that for up to 114,000 tonnes before facing the EU’s 50% tariff on sheep meat. Furthermore NZ exporters will be stuck with 114,000 tonnes of quota for the British market they wouldn’t really want or need.
5. How soon could this happen?
Under the deal between the European Commission and former British Prime Minister Theresa May a two-year transition allowed current trade arrangements to continue once the UK left the EU. This was to give the two sides time to complete a new trade agreement. It would also have kept quota for exports from third countries like NZ intact. Unfortunately the UK parliament failed to pass the so-called Withdrawal Agreement. While a deal is possible before the latest Brexit date of the end of October, the chances appear to have diminished further with the election
of Boris Johnson who seems even more willing to accept a no-deal Brexit than his predecessor.
6. What impact could it have on the important Christmas chilled market?
Between 25% and 30% of chilled lamb exports leave NZ between the start of October and the end of December. Most heads for the EU and the UK. There is the possibility of chaos at UK and EU ports as border authorities cope with new documentation. Chilled lamb has a limited shelf-life and delays would reduce the time the supermarkets have to sell it before chucking it in the bargain bin.
7. What can NZ do to stop this?
The UK has agreed passage for NZ exports through British ports using existing EU documentation for now but that’s no guarantee chilled meat won’t be delayed by the wider melee. As for splitting the quota, NZ is adamant it’s illegal and open to challenge at the World Trade Organisation. The meat industry says the Government shouldn’t accept anything less than retaining existing arrangements.
8. Would a win at the WTO actually help?
Not in the short term. WTO cases can take years. Even if NZ did win it would almost certainly be appealed. US President Donald Trump has refused to appoint judges to the WTO appeal court and it could cease to function from December. NZ’s quota could be in legal limbo until the court comes back on-line, if it ever does.
9. Could new free trade deals be the answer?
Perhaps. Talks with the EU are already under way and the UK has said NZ would be among the first countries it will do a deal with after Brexit. The risk is the NZ meat industry could lose ground if negotiations don’t go well or the
Government decides to give up some sheep meat quota for increases in access for dairy or other products.
10. Could it leave the door open for rivals?
Almost certainly. British sheep farmers have stepped up their campaign against NZ lamb, which they say encroaches on their peak production period in a way that was not envisaged when the quota was negotiated. Cutting back NZ lamb would also give UK trade negotiators more leverage in talks with Australia, which is eager to increase its quota from 19,186 tonnes.
