Agricultural food and drink sector - impact of future UK Free Trade Agreement scenarios: research

4. Output and Trade Overview

This Chapter examines agricultural output and trade for the UK as a whole, Scotland, and each non-EU partner. UK agricultural output is firstly segmented in terms of trade with EU and non-EU regions with details also provided on the proportion of domestic output that is produced and consumed domestically. This information is used to illustrate the importance of trade at both a general (UK-EU) level but also the importance of exports and imports to production and consumption across the UK as well as in Scotland specifically. From there, section 4.3 gives an overview of agricultural trade is provided for each non-EU partner.

This Chapter forms a prelude to assessing the current impact of trade barriers on UK trade with both the EU27 and selected non-EU partners (see Chapter 5) and the assessment of the impact of the selected FTAs on UK agricultural output and trade (Chapter 7).

4.1 Overview of UK Agricultural Output and Trade

Table 4‑1 summarises UK annual output and trade for the selected commodities for the 2018-20 period. UK-level data is provided because this is how most data on overseas trade is presented by official sources (e.g. the HMRC and UN Comtrade). The MAGNET modelling undertaken in this study has also been undertaken on a UK basis.

Table 4-2 and Table 4-3 provide estimated breakdowns of UK production by geographic market and UK consumption by geographic source respectively. They show that for the products under examination in this study, the majority of UK production is consumed domestically. Whilst exports account for a relatively small proportion of sales, they are still significant, especially for sheepmeat but also for barley and beef. Unsurprisingly, exports to the EU dwarf non-EU exports. Table 4-3 also shows that domestically produced sources account for the majority of consumption in most cases.

Table 4‑1: Overview of UK Agricultural Production, Trade and Usage (2018-20)

Sector	Value (£m)	UK Production (Kt)	Imports – EU (Kt)	Imports – Non-EU (Kt)	Exports – EU (Kt)	Exports – Non-EU (Kt)	Total New Supply (Kt)
Cereals1	3,210	21,690	1,450	603	1,789	337	21,617
Of which:
Wheat	2,032	13,146	1,335	602	559	99	14,425
Barley	1,047	7,558	87	1	1,168	236	6,243
Other (Oats)	132	986	28	0	62	2	949
Beef	2,900	918	319	14	132	26	1,092
Sheepmeat	1,279	308	21	64	97	6	290
Liquid Milk	4,445	15,165	123	-	923	170	14,366
Potatoes	753	5,293	2,332	80	513	128	7,064

Sources: Defra (2021), HMRC and Andersons

1. Cereals includes wheat, barley and oats only. Volume of liquid milk production at farm-gate provided in million litres' terms. Denotes "Total New Supply" in Defra's Agriculture in the UK report. In other words, it means the tonnage available for UK to Consume and it includes both domestic usage and stocks.

Table 4‑2: Estimated Breakdown of UK Production by Geographic Market

Sector	UK Production (Kt)	% Consumed in the UK	% Exported to EU	% Exported to Non-EU
Cereals1	21,690	90.2%	8.2%	1.6%
Of which:
Wheat	13,146	95.0%	4.3%	0.8%
Barley	7,558	81.4%	15.4%	3.1%
Other	986	93.5%	6.3%	0.2%
Beef	918	82.8%	14.4%	2.8%
Sheepmeat	308	66.4%	31.5%	2.1%
Liquid Milk	15,165	93.9%	6.1%	0.0%
Potatoes	5,293	87.9%	9.2%	2.4%

Sources: Defra (2021) and Andersons

1. Cereals includes wheat, barley and oats only. Volume of liquid milk production is in million litres' terms.

Table 4‑3: Estimated Breakdown of UK Consumption by Geographic Source

Sector	Estimated UK Consumption (Kt)	% Produced Domestically	% Imported from EU	% Imported from Non-EU
Cereals1	21,617	90.5%	6.7%	2.8%
Wheat	14,425	86.6%	9.3%	4.2%
Barley	6,243	98.6%	1.4%	0.0%
Other	949	97.1%	2.9%	0.0%
Beef	1,092	69.5%	29.2%	1.3%
Sheepmeat	290	70.5%	7.3%	22.2%
Liquid Milk	14,366	99.1%	0.9%	0.0%
Potatoes	7,064	65.9%	33.0%	1.1%

Sources: Defra (2021) and Andersons

1. Based on the "Available for UK to Consume (Kt)" data from Table 4‑2. Cereals includes wheat, barley and oats only. Volume of liquid milk production provided in million litres' terms.

4.2 Scottish Agricultural Output and Trade

As previous studies have stated, there is relatively little Scotland-specific data on sales of agri-food produce by geographic market, because most data are aggregated at the UK level. In its 2020 Brexit study for the Scottish Government^[18], Andersons compiled estimated breakdowns of Scottish output by geographic region for 2017-19. To take account of industry input received during this study, Table 4‑4 updates these estimates for 2018-20. These estimates need to be treated with caution given the lack of official data. That said, Table 4‑4 still helps to inform what the key markets are for Scottish produce.

In comparison with 2017-19, output has not changed markedly since 2018-20 and industry feedback suggests that the geographic breakdown of sales has remained broadly similar. However, there are notable changes in beef and sheepmeat due to the effects of the pandemic. Previously, sales of sheepmeat to the EU accounted for nearly 30% of Scottish output. In 2020, these declined sharply due to the loss of the food services sector. Accordingly, sales of sheepmeat to the EU account for an estimated 21% of output (based on 2019 and 2020 only). Domestic sales within Scotland and in England and Wales made up for this shortfall, buoyed by increased home consumption and takeaway sales.

A similar effect has also occurred with beef but to a much lesser extent as sales to the EU account for a small share of Scottish output. Therefore, the decline versus 2017-19 (8% to 7%) is relatively minor.

Seed potato sales to the EU27 account for a greater share of output (7%) versus 2017-19 (5% share). A key reason for this is that there was a marked increase in trade in late 2020 as the Transition Period was about to end. Since January 2021, sales of Scottish seed potatoes to the EU have been cut-off, which has created a major challenge for the industry. The non-EU (including the Canary Islands) is a crucial outlet for Scottish seed potatoes with Egypt becoming particularly important.

It is apparent that, for most sectors, the internal UK market is by far the most important. Whilst the data presented below focus on direct sales only, England & Wales account for the majority of sales for meat and potatoes. Indirectly, England & Wales is also the main market for processed dairy produce. Furthermore, a substantial proportion of the feed grains used by Scottish farmers is used to produce meat destined for south of the border. The only exception is malting barley where most Scottish produce is used to make whisky which is sold worldwide.

Table 4‑4: Estimated Breakdown of Scottish Agricultural Sales by Geographic Market (2018-20)

Sector	Scottish Production (Kt)	% Sold in Scotland	% to England & Wales	% to NI	% to EU27	% to Non-EU
Wheat	852	~95%	<5%	<1%	Neg.	Neg.
Malting barley	944	~90%1	<10%	Neg.	Neg.	Neg.
Other Barley	854	~90%	<5%	3%	3%	Neg.
Beef2	166	25%	~66%	≤2%	7%	<1%
Sheepmeat2	63	20%	58%	Neg.	21%	Neg.
Liquid Milk3	1,312	~83%	~17%	Neg.	Neg.	Neg.
Seed Potatoes	282	~21%	~47%	~1%	7%	24%
Other Potatoes	807	10-11%	86-88%	~1%	1-2%	Neg.

Sources: Scottish Government, Defra, QMS and Andersons

1. Assumes that the Scottish barley used to produce malt in Berwick is mostly sold back to Scotland

2. Breakdown based on 2019 and 2020 values. Excludes fifth quarter. Some product will be sold to companies situated in England/Wales, further processed, and sold back as finished goods to Scotland.

3. Volume of liquid milk production is in million litres' terms. Estimated breakdowns based on 2019/20 AHDB data^[19] which only focus on where the liquid milk is processed. They do not consider where processed dairy products (e.g. cheese) are sold to. Here, it is only possible to get reliable data at a UK level. Potatoes' estimates have been derived from primary research input. "Neg" denotes negligible volumes.

4.3 Agricultural Output and Trade for Each Non-EU Partner

This section summarises the agricultural output and trade for each non-EU partner within scope. A brief overview of agricultural production and trade (exports and imports) is provided in tonnage terms during 2018 to 2020. The UK's trade with each non-EU partner is also outlined as this depicts the current level of trade taking place. In so doing, an overview of the exportable surplus and estimated imports for each partner provides insights into the scale of the potential threat or opportunity from a UK and Scottish perspective.

4.3.1 Australia

Table 4‑5 shows Australian production and trade for the selected commodities during 2018-2020. For most commodities, Australia exports substantial quantities, particularly for beef, sheepmeat and wheat. In contrast, imports of these commodities are relatively small owing to Australia's strong domestic production and relatively isolated location.

Whilst Australian exports of dairy products are also significant in relative terms, with the exception of cheese, its exports are markedly lower than those of New Zealand (see Table 4‑7). That said, around 40% of Australian milk production is exported in some form which implies that there is potential for significant volumes to be exported to the UK in the future if such exports are competitive. As Table 4‑5 also depicts, there are sizeable volumes of cheese and butter imported into Australia. It is likely that New Zealand is a major contributor to this but the data also suggests some opportunities for British speciality cheeses in the future.

As regards potatoes, just over 40Kt are exported from Australia, but that is only a small percentage (3%) of its production, whilst minimal imports take place.

Table 4‑5: Australia – Output and Trade Overview – 2018 to 2020

Sector	Production (Kt)	Exports (Kt)	% Exported	Imports (Kt)	Total New Supply^	Imports % of New Supply
Wheat	21,793	13,996	64%	531	8,328	6%
Barley	10,682	5,118	48%	0	5,564	0%
Beef	2,289	1,598	70%	15	706	2%
Sheepmeat	693	459	66%	2	236	1%
Butter	79	17	21%	42	104	40%
Cheese	368	162	44%	98	304	32%
WMP	49	45	91%	36	40	89%
SMP	168	137	82%	15	46	32%
Overall Milk (Mn L)*	8,863	3,539	40%	1,825	7,149	26%
Potatoes	1,386	41	3%	0	1,345	0%

Sources: USDA, UN FAO, Hort Innovation, Australian Bureau of Statistics and Andersons

Notes: ^ Derived consumption estimate, based on production minus exports plus imports.

* Converts major categories of dairy products into milk equivalent, including liquid milk.

Table 4‑6 shows average annual UK-Australia trade during 2018 to 2020. Sheepmeat (£42.2m) is the most imported product category, followed by beef (£12.3m). In the cases of sheepmeat and beef, this import trade is primarily predicated on TRQs, although some, highly niche, out-of-quota trade occurs in the high-end food services sector. Whilst a small amount of wheat (£2m) is imported, imports of other commodities are minimal.

As regards UK exports to Australia, dairy exports (£15.5m) are significant, accounting for over 90% of total exports for the commodities listed. Cheese (£8.7m) is of most significance within the dairy category, although butter (£2.1m) and whey (£1.8m) are also notable. A small amount of malt exports (£0.8m) also occurs but other exports are minimal.

Table 4‑6: UK-Australia Trade – Selected Products – 2018 to 2020

Sector	UK Exports (£M)	UK Exports (Kt)	UK Imports (£M)	UK Imports (Kt)
Wheat	0.1	0.0	2.0	5.7
Wheat products	0.0	0.0	0.0	0.0
Barley	0.0	0.0	0.0	0.0
Malt products	0.8	1.4	0.0	0.0
Beef	0.1	0.0	12.3	1.7
Sheepmeat	0.0	0.0	42.2	8.4
Dairy	15.5	4.1	0.4	0.1
Potatoes	0.0	0.0	0.0	0.0
Total	16.6	5.6	56.8	15.9

Sources: HMRC and Andersons

Note: Sector amounts may not equal to totals due to rounding.

Australia has the potential to export significant volumes of beef and sheepmeat to the UK. It also has the potential to exert some competitive pressure on dairy products and wheat. Export opportunities for Scotland appear to be limited to higher-end niches in the dairying and malt product categories.

4.3.2 New Zealand

Table 4‑7 shows that with the exception of wheat and barley, NZ is heavily reliant on agri-food exports with nearly 90% of beef, sheepmeat and milk output exported. For specific dairy products, exports are even more important. Virtually all NZ milk powder is exported; 94% of butter and 91% of cheese production are also sold internationally. A notable proportion (18%) of NZ potatoes are exported.

Imports of wheat into NZ account for more than half of annual consumption. It does not feature strongly on barley trade with imports estimated at 26Kt per annum. Some imports of potatoes, beef and cheese also take place and for the latter two categories, these are likely to be high-end niche products.

Table 4‑7: New Zealand – Agricultural Production and Trade Overview – 2018 to 2020

Sector	Production (Kt)	Exports (Kt)	% Exported	Imports (Kt)	Total New Supply^	Imports % of New Supply
Wheat	408	20	5%	528	916	58%
Barley	367	-	0%	26	393	7%
Beef	704	621	88%	13	96	13%
Sheepmeat	452	391	86%	6	67	9%
Butter	525	494	94%	1	32	3%
Cheese	362	328	91%	12	45	26%
WMP	1,503	1,479	98%	3	27	10%
SMP	382	362	95%	5	25	20%
Overall Milk (Mn L)*	21,327	18,676	88%	673	3,324	20%
Potatoes	519	95	18%	20	445	4%

Sources: USDA, UN FAO, UN Comtrade, Beef & Lamb NZ, Potatoes New Zealand and Andersons.

Notes: ^ Derived consumption estimate, based on production minus exports plus imports.

* Converts major categories of dairy products into milk equivalent, including liquid milk.

In terms of the UK's trade with NZ, Table 4‑8 shows the sheepmeat (£228m) dominates, with beef (£3.1m) and dairy (£1.6m) being relatively modest. This is primarily a reflection of the TRQs in place for each commodity during the base period. Again, some out-of-quota trade in beef and lamb takes place in high-end food service niches. All other import trade is minimal.

Whilst exports to NZ total just £6.3m for the commodities selected, dairy exports (£5.2m) are notable. These primarily consist of whey products (£4.6m) and cheese exports averaged just over £0.5m. As with Australia, some exports of malt (£0.4m) are taking place, but such a small and distant market is unlikely to be of much interest to Scottish maltsters.

Table 4‑8: UK- NZ Trade – Selected Products – 2018 to 2020

Sector	UK Exports (£M)	UK Exports (Kt)	UK Imports (£M)	UK Imports (Kt)
Wheat	0.0	0.3	0.0	0.0
Barley	0.0	0.0	0.0	0.0
Malt products	0.4	0.6	0.0	0.0
Beef	0.0	0.0	3.1	0.7
Sheepmeat	0.7	0.3	228.0	42.4
Dairy	5.2	3.4	1.6	0.4
Potatoes	0.0	0.0	0.0	0.0
Total	6.3	4.8	232.7	43.5

Sources: HMRC and Andersons

Note: Sector amounts may not equal to totals due to rounding.

As with Australia, NZ has the potential to be a strong competitor in terms of dairy products, sheepmeat and beef with minimal competitive threat elsewhere in terms of the commodities within scope. Export opportunities again appear to be limited, arguably even more so than Australia.

4.3.3 Canada

Table 4‑9 provides an overview of Canadian production and trade for each commodity during 2018 to 2020. Here, wheat exports are particularly important, equating to 75% of production whilst a sizeable proportion (27%) of barley is also exported.

Exports also feature prominently in beef and equate to 39% of output. However, exports of sheepmeat and dairy products are largely minimal, aside from SMP (52% of production is exported). Potato exports (11% of output) are also of some significance although much of this is associated with the US.

Regarding imports, sheepmeat is most prevalent with circa 71% of supply purchased from abroad. This implies a potential opportunity for the UK and Scotland. Imports also account for a sizeable share of beef (22%) and butter (17%) consumption, although the US is again highly influential.

Table 4‑9: Canada – Agricultural Production and Trade Overview – 2018 to 2020

Sector	Production (Kt)	Exports (Kt)	% Exported	Imports (Kt)	Total New Supply^	Imports % of New Supply
Wheat	33,402	24,992	75%	569	8,979	6%
Barley	9,835	2,691	27%	133	7,277	2%
Beef	1,307	505	39%	230	1,032	22%
Sheepmeat	16.6	0.3	2%	39.3	56	71%
Butter	115	3	3%	24	136	17%
Cheese	516	11	2%	36	541	7%
SMP	98	51	52%	3	51	7%
Overall Milk (Mn L)*	9,672	661	7%	373	9,385	4%
Potatoes	5,202	578	11%	14	4,638	0%

Sources: USDA, UN FAO, UN Comtrade, Statistics Canada and Andersons

Notes: ^ Derived consumption estimate, based on production minus exports plus imports.

* Converts major categories of dairy products into milk equivalent, including liquid milk.

Table 4-10 shows that UK imports of wheat from Canada (£92.5m) are significant and much of this is linked to the milling sector. However, for other commodities, imports from Canada are quite small. On the exports' side, dairy products (£13.6m) and beef (£10.6m) are the most significant. For the former, cheese exports (£12.4m) are dominant. Malt exports (£2.7m) are also of some significance. However, sheepmeat exports (£0.8m) are low, particularly in comparison with beef exports and considering the amount of sheepmeat that Canada imports, often from sources much further afield than the UK.

Table 4‑10: UK-Canada Trade – Selected Products – 2018 to 2020

Sector	UK Exports (£M)	UK Exports (Kt)	UK Imports (£M)	UK Imports (Kt)
Wheat	0.0	0.0	92.5	415.9
Wheat products	0.1	0.1	0.0	0.1
Barley	0.1	0.2	0.0	0.0
Malt products	2.7	4.6	0.0	0.0
Beef	10.6	3.2	0.0	0.0
Sheepmeat	0.8	0.2	0.1	0.0
Dairy	13.6	1.9	0.3	0.0
Potatoes	0.0	0.0	0.0	0.0
Total	27.8	10.2	92.9	416.1

Sources: HMRC and Andersons

Note: Sector amounts may not equal to totals due to rounding.

Overall, the data suggest that whilst Canada poses some competitive threats in terms of wheat and beef, there are also export opportunities, particularly for cheese, beef exports and sheepmeat.

4.3.4 Gulf Cooperation Council (GCC)

Table 4‑11 shows the agricultural output and trade for the GCC countries combined. As the data aggregates six countries and given the scarcity of data on dairy products' production in particular, there is not as much detail as for the other countries. However, what is evident is that the GCC is heavily reliant on imports, particularly for wheat and barley, but across other commodities as well.

Table 4‑11: GCC – Agricultural Production and Trade Overview – 2018 to 2020

Sector	Production (Kt)	Exports (Kt)	% Exported	Imports (Kt)	Total New Supply^	Imports % of New Supply
Wheat	206	213	104%	5,983	5,976	100%
Barley	14	-	0%	8,080	8,094	100%
Beef	61	9	15%	249	301	83%
Sheepmeat	215	53	24%	511	674	76%
Butter		3		24
Cheese		11		36
SMP		51		3
Overall Milk (Mn L)*	2,531	1,224#	48%	2,339#	3,646	64%
Potatoes	543	50	9%	1,060	1,553	68%

Sources: USDA, UN FAO, UN Comtrade, and Andersons

Notes: ^ Derived consumption estimate, based on production minus exports plus imports.

* Converts major categories of dairy products into milk equivalent, including liquid milk.

# Based on UN Comtrade data only, domestic production data unavailable.

As Table 4-12 illustrates, some export trade is already taking place especially in dairy (£38.2m). Cheese exports account for approximately half of this amount. Exports are also notable for barley (£6.1m) and sheepmeat (£4.8m). It is estimated that UK potato exports to the GCC are approximately £2m, seed potatoes (£1.7m) account for the majority of this trade, which is particularly notable for Scotland.

As regards imports, given that the GCC is a net-importer for most commodities, trade with the UK is negligible.

Table 4‑12: UK- GCC Trade – Selected Products – 2018 to 2020

Sector	UK Exports (£M)	UK Exports (Kt)	UK Imports (£M)	UK Imports (Kt)
Wheat	0.1	0.0	0.1	0.2
Wheat products	1.0	1.4	0.0	0.0
Barley	6.1	42.9	0.0	0.0
Malt products	0.6	0.4	0.0	0.0
Beef	1.0	0.2	0.1	0.0
Sheepmeat	4.8	0.7	0.0	0.0
Dairy	38.2	10.8	0.0	0.0
Potatoes	2.0	3.8	0.0	0.0
Total	53.8	60.2	0.1	0.2

Sources: HMRC and Andersons

Note: Sector amounts may not equal to totals due to rounding.

The data presented for the GCC implies that there are potentially significant export opportunities for the UK and Scotland in the GCC region. Dairy products already have had some success and industry input suggests that this could be built upon further, especially of high-end products such as speciality cheeses but also for premium yoghurts (which are likely to be shipped via airfreight). Here, high-end retail and food services sectors are considered important. For cheese, one can sometimes see European cheeses being sold in 10-slice portions which is often cling-film wrapped at deli counters. Food services also presents opportunities for butter as it is often sold to this segment in 5kg blocks.

Purchasing activities in some GCC countries is dominated by a few key players (e.g., Saudi Arabia) which are important to focus on. However, export opportunities do vary across the region. Oman is less affluent and considered more challenging whilst Qatar has recently brought in some stringent labelling and shelf-life requirements which greatly inhibits the ability of UK exporters. Minimum and maximum shelf-life labelling information is now required on dairy products in Qatar. This is seen by some as an attempt by the Qatari authorities to shut-out imports and protect its domestic sector.

Therefore, if Scottish companies are targeting the GCC region, it would be best to focus on select high-end niches where price is not as much of a concern. According to some industry experts, affluent consumers account for around 30% of the population in the UAE for instance. This consists of affluent locals and Western ex-pats. The latter should be a prime target segment for Scottish dairy exporters and some experts believe that the distinct nature of Scottish produce would be a competitive advantage for affluent consumers seeking something 'different'.

For beef and sheepmeat, it is arguable that greater export trade could be taking place; however, Halal requirements are viewed by most industry participants as being the major hurdle, especially for beef. This is particularly so in Scotland where major processors have taken the decision not to slaughter Halal to meet the requirements of UK retail customers. Efforts are underway via the Demonstration of Life Protocol^[20] to meet key animal welfare requirements for humane slaughter of sheep and lambs whilst also adhering to the interpretation of Halal specified by GCC countries. However, most interviewees are sceptical about whether any significant opportunities will emerge for Scottish farmers.

Feed grain is another potential opportunity although the extent to which any trade occurs will always be contingent upon what exportable surplus is available from the Black Sea region. Whilst sanctions on Russia might have ceased trade with the West, such restrictions do not necessarily apply to other regions. Therefore, whilst more exports to the GCC are possible, it may be that the UK might be more competitive when trading with other regions i.e., Europe and North Africa.

Although some potato exports take place between the UK and GGC countries, market opportunities are deemed limited, particularly in the seed potatoes sector as crops struggle to grow in temperatures above 30 degrees Celsius. Industry input also suggests that new phytosanitary certification requirements in Saudi Arabia are creating further difficulties for exporters from Western Europe.

4.4 Concluding Remarks

The data presented shows that for UK and Scottish agriculture, the UK market is the most important outlet for produce. However, exports are important in several sectors, with the EU playing a dominant role. Although UK has now left the EU Single Market, given the EU's geographic proximity and size, its importance as a trading partner remains crucial. This is despite the trade barriers which have now been placed on trade.

Trade with non-EU countries is growing and there are some notable opportunities, but these are very much seen as a 'bonus' for the Scottish agri-food sector. Of greater concern in the view of many industry participants is to safeguard Scotland's competitive position within the UK market and the EU.