Brexit & the UK FTA: Finding opportunity in disruption

Published 28 May 2021 | Katie McRobert & Teresa Fox

Australian agriculture is a sector heavily reliant on trade, with more than 70% of all agricultural production (by value) exported.[1] Due to the very low levels of government assistance received by Australian farmers compared to many global agriculture sectors[2], free trade agreements (FTAs) play a crucial role in navigating export pathways. FTAs, like all trading arrangements, are reliant on the relationships built between countries. Disruption to these relationships is usually experienced as a negative impact; however, as noted by Schumpeter in 1942 the dismantling of long-standing practices to make way for innovation (‘creative destruction’) is an important positive force in capitalist economies.

As if COVID-19 had not proven enough of a disruption to global economies in the past 18 months, ongoing geopolitical tensions have further agitated many of the trading relationships on which Australian farming depends. In some cases this has caused great harm to particular sub-sectors, while in other instances unexpected opportunity has emerged. One FTA which has been receiving a great deal of attention recently is the UK FTA.

The decision of the UK to leave the European Union, commonly referred to as Brexit, partly stemmed from the UK’s desire to expand market opportunities. Brexit has been incredibly disruptive, but has also created opportunities for countries such as Australia in negotiating new agreements for trade. Negotiations between Australia and the UK regarding the trade agreement are still underway. However, the aim is to have an in-principal agreement by June 2021 with the phasing out of tariffs and other trade restrictions over the next 15 years.[3]

However, UK farmers have raised concerns about what this ‘disruption’ to current business will mean for their future. UK beef and sheep producers fear that free trade with Australia will be detrimental to their industry. They claim Australian products do not adhere to the same strict environmental or animal welfare credentials as UK meat, and have the possibility to flood the UK market, pushing local producers out of business. UK farmers want both the FTA with Australia and the market opportunities Brexit will bring them, but with safeguards in place.[4][5]

Disruption is alarming, but markets are never static. Following the Second World War, a significant proportion of Australia’s agricultural exports were destined for the UK. However, once the UK joined the European Economic Community (EEC) in 1973, this drastically declined. Due to the imposition of tariffs and quotas – as well as subsidies provided by the Common Agricultural Policy which made exporting farm goods to the UK financially unviable for Australia – by 1980 just 2% of Australia’s agricultural production was destined for the UK market. In 2015, the UK accounted for 1.4% of Australia’s agricultural exports.[6]

The UK now accounts for a very small portion of Australian beef exports, only 0.15% in 2020 – just 1,567 tonnes of the 314,000 tonnes of beef the UK imported that year. In the same year, 14% of the 67,500 tonnes of sheep meat imported into the UK was Australian.[7] Australia’s primary export markets now are in Asia, including China, Japan, Indonesia & Korea.[8]

Although the decrease in UK export market in the 1970s & 1980s was a major disruption for the Australian agricultural sector at the time, it forced the industry to innovate and seek new markets, the result of which was continued growth and an industry which has a gross value of production of $66 billion in 2020-21.[9] 

The concerns raised by our UK counterparts about the FTA highlight another disrupting force, i.e. differences in the assessment of the environmental credentials of Australian farmers. The Australian Beef Sustainability Framework, which includes metrics on animal welfare and environmental stewardship, along with the red meat sector’s target to be carbon neutral by 2030, should provide reassurance to concerns raised by UK farmers. At a higher level, the Australian Agricultural Sustainability Framework (AASF) now in development[10] should also help to build an evidence-based farm sustainability ‘brand’ for our producers.

Research undertaken for the AASF project highlights that more disruption to ag trade via sustainability reporting requirements is imminent. New or proposed market access rules on sustainability standards and carbon footprints are likely to impact most – if not all – Australian farmers. The Product Environmental Footprint (PEF)[11] is just one example of a system designed to help consumers recognise how environmentally friendly a product, a service or a company is. In addition to increasing private market segmentation (more of an opportunity than a risk), there are strong indications that achievement of sustainability standards may become a requirement for access into large agri-food markets in the near future; e.g. the European Commission’s ‘Farm to Fork’ strategy[12].

Trade disruptions always benefit some and disadvantage others.

In the 1970s we experienced substantial loss of export market share in the UK and EU, then found opportunity elsewhere in the Asian region. Although we may gain further opportunities from Brexit, we remain vulnerable to other geopolitical tensions in other key markets. What these recent (and not so recent) tensions highlight is the importance of diversification in market opportunities.[13]

Likewise, the perceived burden of increased regulatory reporting on sustainability could become a significant market opportunity for Australian farmers to demonstrate stewardship credentials and enhance social licence.

The crucial component of leveraging ‘creative destruction’ is finding the opportunities in the disruption.


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