Just before Christmas we got a present a sizzling hot Brexit deal (Or 2 if you count the Welsh Agricultural Policy (WAP) white paper). After weeks of rising stress or increased weariness for most of us (sometimes both) we could finally look forward to a unique Christmas period. One that would end bringing with it many changes.

From the USA department of commerce the 19/01/2021

A Free Trade Agreement (FTA) is a way for 2 countries to remove barriers and obstacles, converging to increase their level of partnership and their trade, but for the first time ever a FTA was about divergence. Divergence from the EU single market, the most comprehensive FTA. Under which good and services can be exchanged seamlessly smoothly erasing trade borders. It certainly helped the UK – EU trade deal to get a deal done swiftly under within the timeline set by Boris Johnson (UK PM). Though it is not a done deal as many issues linked to UK future standard divergence are not solved at all but are left to future negotiations or conflicts. 

It is certainly one of the greatest and most comprehensive FTA ever concluded but as we mentioned from a libertarian point of view it is a big step backwards (M. Thatcher the inspiration of the last 40 years UK economic policy would certainly be disappointed). Another premiere was certainly that the UK is now split under different trade and custom agreements. The border in the Irish sea was the only way to abide by the good Friday agreement but it remains an unsatisfactory solution.

This many first really summarize the challenges ahead for British trade.

Great! A FTA has been agreed between the UK and the EU, or shall we say the Great-Britain and the EU. But a great deal of things have been agreed and it will take months to unravel the unsavoury easter eggs contained in the deal. For both sides.

On the plus side there are no tariffs on goods traded between the UK and the EU, our valuable agricultural products are safe to cross the Channel to be sold on the French stalls.

But if the UK has decided to leave a 6 month grace period to goods entering its border the EU implemented the Free Trade Deal immediately and started to run checks on goods entering its territories at the start of 2021. The Sanitary and Phytosanitary checks are necessary as in GB there might be some differences on health and safety standards – you need to prove that what you send to the EU has standards similar to the EU -. A bigger amount of paperwork is necessary.

For imported goods (into the UK) thanks to the grace period, it will not be a problem (for now) but for exported goods it is already a reality. Both the importer and the exporter need to fill some paperwork. In the end it is as complicated as your cargo is perishable or diversified. Send in bulks and send lasting items would be a sensible motto for the 2021 british exporter to EU. Lot less worrying than being in the situation of DPD or DHL with countless different items per truck or of Scottish fishmongers exporting loads of fresh fish.

Before the deal UK businesses stockpiled heavily to whether any possible no-deal situation. Therefore, the amount of lorries crossing at ports between the Single Market and the UK was significantly lower than usual in the first weeks of january (20-30% - maybe an effect of the lockdown we are in) but 25% of lorries were still being turned away at Holyhead (according to a British Chamber of Commerce webinar).

The Johnson’s government was so determined not to budge from the end of 2020 deadline to please hard-line Brexiters that they did not ask for an extension. Therefore, with a Christmas deal it is incredible that civil servants managed to unveil the necessary guidance and tools to support GB-EU trade before the end of 2020.

In the coming weeks, the magnitude of changes will begin to appear. The first noticeable thing will be a reorganisation of the logistics between the UK and the EU. Fluxes will change, routes for some goods will change, some goods will be grouped to have an easy crossing, others will certainly be blacklisted.

For example, ferry companies have already started to adapt to the new context. Hauliers going to Ireland are trying to avoid the Land-bridge through the UK and are trying to relocate on the booming direct EU-Ireland ferry crossings (All 3 companies that were operating between the continent and Ireland have increased their services, added routes. DFDS added a route – CLdN has rearranged its Spain/GB/Ireland service and split it in 2). A “Longbridge” to Ireland while Northern Ireland (NI) is suffering fresh produces shortages in supermarkets due to the new custom arrangements.

Though the capacity going on the direct route from France to Ireland is increasing most of traffic still goes through the land-bridge albeit with lower volumes than before. Stena Line in a serie of tweet was stating that they still have 50% of the 2020 freight going through holyhead.

But there is a little custom problem, an Irish sea loophole. Who is trusted with checking the customs declaration in Holyhead or Belfast? Her royal majesty custom officers on both sides. While as long as the UK and EU are aligned it is fine but when it won’t be the case (and it will) it will cause a massive sovereignty issue for the EU. Even more if retaliations tariffs are introduced.

As a result of it or not the trade to Northern Ireland from the UK is peaking up again while the Dublin route from the land-brige is 60% in terms of carried freight year on year for now.

Nota: You may also have realised that the certification of standards is weighing on the shoulders of numerous specialists’ workers; including vets, fertilizer and phytosanitary sellers…

Nota: There has been much talk about the rule of origin, as of now anything that enters GB and is only lightly reprocessed is now liable to tariffs applicable to third party countries products (i-e without a FTA with the EU). And this even if it comes from the EU single market.

Oceanic trawler in St Malo

This deal is fluid, it is only valid if there is a "level playing fields", if standards in the GB and in the EU are (more or less) aligned. If not rebalancing with bans, tariffs and quotas could be introduced unilaterally until further bi partisan talks statute on the issue and a longer-term solution. SPS checks would likely increase as well.

The fact that there is no dynamic alignment planned on an unprecedented FTA is a worry, a multitude of sectors to keep track of for incremental, continuous alignment. Brexiternity - negotiating all the time.

We must not forget that the UK moved its red lines during the negotiations, the EU not so much, 445 million inhabitants weighing against 65 million. The world biggest regulatory power against a third-party country. It will be an unbalanced an acrimonious relationship either way.

Different courses of actions are still possible under this deal, maybe it is what the conservatives wanted.

The UK government as of mid-January has already stated that it wanted some evolution on the GMO (Genetically Modified Organism) use in farming, that it wanted to slacken even more the labour market regulations (already deemed one of the most loosely regulated of the OECD). We all see trouble coming, the question is whether this government is trying to test the limits of the FTA or they are thinking that the EU will let this pass. If the test fails, there is still a possibility for GB to go back in line with the EU standards, maybe one could see it as a safety net.

On the flipside what will the devolved nations do? In the white paper, the Welsh Agricultural Policy has pledged itself to hold to high standards. Scotland is very much willing to get back into the EU. The 4 nations might end up with very different standards making the UK more of a disunion than a union.

To summarize it in one sentence: Great Britain got itself an evolutionary relation that offers as the most libertarian option 0 tariffs but some additional friction if standards are in line in the EU.

We can export lambs; beef; dairy produces with couple more veterinary and sanitary checks (inc. a certificate of origin). But for now, imports will flow in (nearly) as easily as before and this might become a bigger problem in the future.

Indeed, we need to delve a moment on the EU CAP (Common Agricultural Policy) 1^st Pillar direct payments will still provide a form of income support to farmers within the EU block. The subsidies from the CAP will be budgeted on a 7-year basis giving a long-term vision for their support.

Nota: Scotland is likely to keep some sort of direct subsidy payment as they did in the past.

Agricultural prices in the UK have been aligned for a long time to the EU average prices, particularly on milk (we must not forget that major EU transformation players have some activity in the UK). The picture is not that clear on beef and sheep productions, the prices paid to UK producers tend to be lower than French producers for example. This trend is likely to continue even more with all the red tape/frictions around exportations and free flowing importations. Margins in farming are already low for agricultural productions and the oligopoly of the transformation/distribution sector means that farmers tend to bear the brunt of agricultural crises. The transformation transmits price variations to farmers.

The additional red tape for importations particularly for fresh produces could lead to some imports substitution within the UK. If work related issues can be solved there is an opportunity to develop locally grown vegetables and horticulture. For now there are worries that agricultural imports could come in at a slower pace (maybe due to the fact that lorry drivers are trying to avoid the UK for it's extra paperwork and COVID restrictions when coming back on the EU side)(as voiced in farming weekly).

Nota: Note that even with the problem related to Covid it seems that Brittany's farmers were able to send cauliflowers (and other vegetables) via Ireland over Christmas. This determination makes us think that there might be a tough battle ahead to develop import replacements in the UK.

The EU based agricultural workers will not be able to come as easily into GB to help with the harvests and with work on numerous livestock farms. Maybe it won’t come as a problem but we must remember that before the pandemic unemployment was at record lows in the UK. Are we on the eve of another jump in work productivity triggered by additional worker scarcity (relative value of work) combined to a new output price squeeze ?

Finally, an annoying thing in this FTA will be the lack of immediate and global EU recognition of geographic indications to protect UK locally linked foods. Under the FTA it is necessary to register the UK geographic indication in each of the EU member states. When ones wants to promote quality and added value food it is too bad that this is not the priority.

The outlook ahead is still blurry but things are changing really fast, players are re-arranging their supply chains tirelessly. No need to panic but we need to be aware that the road ahead is everything but straight, smooth and easy. And this is only the first of the trade deals that can impact farming in the UK. The most important thing to monitor are GB demand and farmgate agricultural markets prices in the coming months. This will give us a first hint of the potential long-term consequences.

Farmgate prices on cattle, lamb or milk hold still so far. Beef and Lamb are much above 2020 farmgate prices.

Don't forget that the conservative government will certainly blame Covid in the coming months and they will be partially right. Covid has an impact on supply chains all the more with nimble variants in the air. Nothing's simple everything will get more complicated that's a certitude.

In the end the deal is not a great deal, for farming it's a good deal but for GB economy it only covers 20% of its economy. 80% of it are services that are not covered.

Théo Lenormand 20/01/2021

Nota: Le Touquet deal between the French President Nicolas Sarkozy and the Prime Minister of the UK David Cameron had already traded to France the management and enforcement of the UK border.

Nota: As the UK is not in the EU anymore duty-free shops will be able to return on cross-channel ferries.

Resources:

- 11/12/2020 -What is the level playing field and why is it such a problem for Brexit? The EU insists on preventing “unfair competition” as a condition for unfettered trade https://www.economist.com/the-economist-explains/2020/12/11/what-is-the-level-playing-field-and-why-is-it-such-a-problem-for-brexit

- Sadiq Khan: Financial services have been badly let down by Brexit https://www.ft.com/content/96070a44-192a-4607-a6d1-ea5053b53aa2

- Irish freight industry warns of Brexit threat to supply chains https://www.ft.com/content/b0d5a12e-9600-4daa-abff-837caf9025c9

- Stena line reorganisation of ferry services with increases on Northern Ireland services: https://www.niferry.co.uk/stena-to-boost-belfast-capacity-in-response-to-freight-demand/

- Twitter feed of Stena Line: https://twitter.com/StenaLine/status/1353313312818262018

- UK workers’ rights at risk in plans to rip up EU labour market ruleshttps://www.ft.com/content/55588f86-a4f8-4cf3-aecb-38723b787569

- Consultation launched over gene edited food in England 7/01/21 https://www.bbc.com/news/science-environment-55576187

- Farmers weekly and friction at the UK/EU border https://www.fwi.co.uk/news/eu-referendum/border-friction-hampers-trade-despite-brexit-deal

Brexit analysis: AHDB forecasts rise in farm labour costs 12/08/19 https://www.fwi.co.uk/news/eu-referendum/brexit-analysis-ahdb-forecasts-rise-in-farm-labour-costs

- Articles from le telegramme focusing on the impact of Brexit: https://www.letelegramme.fr/france/brexit-ce-qui-change-pour-le-trafic-transmanche-28-12-2020-12681262.php