Posted on April, 14, 2023 at 10:07 am
The effect on the wider British economy may be devastating, but the grains sector largely is weathering the storm of Brexit, adapting well to changed circumstances and increased bureaucratic requirements for trade that were ushered in two years ago. If it is put into practice successfully, a new EU-UK deal on trade arrangements for Northern Ireland may help sort some of the challenges facing the sector.
Alex Waugh, director general of industry organization UK Flour Millers, which covers the sector in the United Kingdom and Ireland, stressed to World Grain that “as far as the wheat buyer is concerned there is no problem. It’s all fine. Doesn’t really make that much difference.”
However, there had been problems with movement of products to both parts of Ireland, forcing many businesses to hold bigger stocks.
The EU side was being “more persnickety about the paperwork,” he said. There was “no doubt” that the UK food industry had lost trade to the EU. It did affect milling “a bit, but perhaps more our customers.”
“Trade from Northern Ireland to the South has remained steady,” he noted.
With trade from Britain to Northern Ireland, there had been issues over rules of origin. He pointed out that what Irish bakers are looking for is strong flour, which generally includes Canadian wheat. Britain was “probably still the cheapest non-Irish source of flour,” he added, also noting a level of “cultural understanding.”
“The types of bakery products produced in Ireland are much more familiar to UK millers,” he explained.
The UK’s exit from the EU is only one of the factors that is having an adverse effect on the sector. The COVID pandemic and the war in Ukraine also have had a significant impact.
“Is it all to do with Brexit? The Brexit thing is a catalyst — to encourage people to look around,” Waugh said. “Certainly, it hasn’t been helpful in our sector. It has complicated exports of processed foods, things like pies and chicken nuggets.”
He noted that SPS (sanitary and phytosanitary) checks were needed for meat, eggs and milk.
“Rules of origin also apply to a lesser extent to foods coming into the UK,” he said.
Latest deal
The latest move in negotiations between the British government and the European Commission may help the sector. On Feb. 27, the two sides announced a deal that the EU negotiators said would deal with “practical challenges,” faced by Northern Ireland. The Windsor Framework, which modifies, or, according to London, replaces the Northern Ireland Protocol in the UK’s Withdrawal Agreement with the EU, was finalized on the day Commission President Ursula von der Leyen visited King Charles at Windsor Castle, to the west of London.
The Commission described it as “a comprehensive set of joint solutions aimed at addressing, in a definitive way, the practical challenges faced by citizens and businesses in Northern Ireland, thereby providing them with lasting certainty and predictability.”
Von der Leyen stressed that “supporting and protecting the hard-earned gains of the Good Friday (Belfast) Agreement was the prerequisite of our endeavor.” Pressure from US President Joe Biden, a staunch believer in the need to protect and preserve the agreement, under which peace was achieved in Northern Ireland, is widely understood to have played a role in forcing the UK to come to a deal. There is speculation that the American leader may signal his approval shortly by visiting the UK.
One effect of the deal is the removal of a British threat to tear up the protocol, by giving itself the supposed legal power to make unilateral changes to the international agreement. The UK’s attitude had done much to damage its credibility with other international partners.
For food, the deal is based on separating products destined for consumption in Northern Ireland from those set to be exported to the Republic, and, therefore, into the EU’s Single Market. Foods for Northern Irish consumers can be moved with “minimal certification requirements and controls,” the Commission said. “UK public health standards will apply for those agrifood retail goods for end consumption in Northern Ireland, whilst EU plant and animal health rules remain applicable for the protection of the EU Single Market.”
There also will be a “trusted trader” scheme for goods not at risk of entering the Single Market, making possible “dramatically simplified procedures and drastically simplified declarations with reduced data requirements.”
The deal also proposes a mechanism called the “Stormont Brake,” a reference to the building in which Northern Ireland’s assembly meets. The legislature, in which the largest party is the pro-Irish unification Sinn Féin, currently doesn’t meet because of a veto by the far-right Democratic Unionist Party. Under the Brake, the assembly could stop the working of the Framework, something the Commission stresses would only be “under the most exceptional circumstances.”
The major potential stumbling block on ratification of the Windsor Framework is the attitude of the DUP, which has a reputation for saying no to most things and is said to be mulling the measure. On Feb. 28, its leader, Sir Jeffrey Donaldson, said the party would “want to be sure that what is on the table does what it says and that it is good for Northern Ireland.”
Also considering his attitude is former Prime Minister Boris Johnson, who sold the Withdrawal Agreement as an “oven ready deal” in 2019 to achieve reelection. The spectacle of anti-EU Prime Minister Rishi Sunak extolling the virtues of being in the Single Market to the politicians of Northern Ireland has created some bemusement, with Scottish parliamentarians and the Mayor of London, Sadiq Khan, wondering publicly if their constituents could have the same privileges.
According to the European Commission, “Substantial facilitations were found for freight and the movement of all types of parcels, i.e., business-to-business, business-to-consumer, and consumer-to-consumer, with consumer-to-consumer parcels being entirely exempt from the main customs requirements.”
“These new solutions are made possible especially by new data-sharing arrangements allowing for risk assessments, which would constitute the principal basis for controls,” it said. “Robust authorization and monitoring of the trusted trader scheme, and increased market surveillance and enforcement by UK authorities also act as safeguards. Full customs procedures will apply to goods at risk of entering the EU’s Single Market.”
The agreement was welcomed by the head of Ireland’s government, Taoiseach Leo Varadkar.
“There is no doubt that Brexit has been disruptive to life on this island, especially in Northern Ireland,” he said. “While the Protocol exists to minimize that disruption, to prevent a hard border and ensure free movement and free trade between North and South, its operation has resulted in some problems for businesses and citizens in Northern Ireland.”
He also recognized that “it has made trade between Britain and Northern Ireland more complicated.”
“Today’s agreement provides solutions to those problems,” he said. “Solutions that are agreed, workable and durable.”
Grains sector less impacted
David Swales, the Agriculture and Horticulture Development Board’s head of Strategic Insight, told World Grain “we have come across lots and lots of issues with trade, with Brexit, and none of those have been specific to the grains sector. I would put it in those terms. Particularly for livestock products (there is) lots and lots of extra border friction because of those SPS checks going into the EU.”
He pointed out that in the early days of Brexit, there had been reports of drivers not being able to take their ham sandwiches into the EU, with “lots of issues with animal health certificates, in particular getting paperwork in the right form.”
“In terms of grain specifically, I don’t think there has been anywhere near those same levels of issue,” he said. “It’s obviously far less sensitive a product.”
However, he also stressed that there are other types of issues that result from the break with the EU, citing labor availability and cost, agricultural policy issues and regulation as subject areas affected.
“The bigger issues are in horticulture and also in the meat processing side (in labor),” he said.
The rates of pay were affected by the wider economy but represent a lower proportion of cereal producer’s costs.
“But they are impacted…, and the food processing sector and all those onward industries will be experiencing higher costs,” he said. “It’s hard to isolate the Brexit effect from things like COVID and the war in Ukraine. Currently, private sector wage inflation is about 6% or 7%. Brexit, I think, will have contributed to that.”
On agricultural policy, Swales explained that “the government in England is moving away from the single farm payments system toward public money for public goods, and that will have a very big impact on cereals growers.”
“The single farm payment is almost like a bit of a buffer sometimes against volatility in the market and gives them a guaranteed level of income each year,” he said. “When that is gone, I think 2027 is the last year of single farm payment money.”
Farmers will be paid for operating environmental schemes, but it is unlikely that they will be able to replace the lost income from direct payments.
“They will have to diversify or become more efficient in their operations and do other things to bridge the income gap,” he said. “We are at an early stage in terms of the regulatory change. We are still operating largely to the same rule book as the EU.”
Source: World Grain