Red meat exports: potential administrative costs of trade under WTO rules

1. Introduction

1.1 Background

As a member state of the EU, the UK benefits from free trade with other EU members. This means that businesses can sell food and drink goods to other EU members without tariffs, intra-area administration, or fiscal trade barriers, such as time and charges for customs checks.

Should the UK leave the EU Customs Union and not agree a Free Trade Agreement (FTA), then, under World Trade Organisation (WTO) rules, goods from the UK will face the EU’s full common external tariffs, custom checks and other non-tariff and regulatory barriers. These barriers could include the cost of:

• vets’ time for certification
• development of new document and invoicing procedures
• changes to Quality Assurance/Quality Control procedures
• changes to labelling, packaging and new plant approval regulations

While some research has been done to assess the potential impact of tariff barriers on UK trade in open markets (e.g. Food and Agricultural Policy Research Institute analysis), to date, no research has been carried out to investigate the impact of non-tariff and regulatory barriers on Scotland’s red meat sector.

Any new trading arrangements will put supply chains under new pressures. The time taken to get product from processor to customer is likely to increase as new processes and procedures are developed, implemented and adhered to. These are also likely to add costs in terms of time and resource in addition to the product tariffs.

The Scottish red meat sector, comprising beef, lamb and pork, contributed over £891 million in 2017 towards the Scottish economy. It is a key part of the Scottish food and drink industry, supporting 50,000 direct and indirect jobs and making a significant contribution towards the achievement of Ambition 2030 growth targets.

The contribution of cattle and sheep to total agricultural output is larger in Scotland compared to England (see Table 1 in Appendix 4). The difference is even greater when compared to the EU. A hard Brexit that jeopardises the market access of Scotland’s beef and sheep industry to European markets will have a greater impact in Scotland when compared to the rest of the UK.

Scotland’s exports of red meat (beef, lamb, pig meat and offal) are around £84m (9% of total red meat sales), with the EU market accounting for ~90% of those sales. France, Benelux, Italy and the Nordics are Scotland’s biggest red meat customers^[1].

In proportional terms, Scottish lamb is more dependent on export markets than Scottish beef:

• Beef exports = £39m or 6% of total beef sales
• Lamb exports = £36m or 26% of total lamb sales

Scotch Beef Protected Geographical Indication (PGI) and Scotch Lamb PGI have helped the sector establish strong markets and consumer demand in Europe. In a competitive market, it is important that Scotland’s red meat sector remains accessible and affordable to consumers in the EU. A significant reduction in red meat export sales, will affect not only the red meat industry, but will have a wider impact on the Scottish food and drink sector and the achievement of the Ambition 2030 growth targets.

Given the significance of the EU market to this sector, the Scottish Government has commissioned research to understand the implications for the sector should UK trade move from an EU Customs Union arrangement to a WTO arrangement. The research findings should assist the Scottish Government to engage more effectively with the UK Government on these issues, as well as inform future policy development and engagement with the industry.

1.2 The Study

The main objectives for the research review are to:

• Identify and outline current non-tariff and regulatory barriers faced by Scotland’s red meat sector when exporting to the EU
• Highlight how these differ from the barriers faced by non-EU red meat trade
• Compare and contrast the current non-tariff and regulatory barriers faced by Scotland’s red meat sector with those that could be faced if trade were subject to WTO trade arrangements
• Establish key stakeholders’ concerns and investigate the measures they are putting in place to mitigate potential additional administrative costs
• Provide recommendations for Scottish Government and the industry to help them prepare for, mitigate, or minimise these potential barriers and costs

In a time of rapid change and uncertainty around Brexit, it was sometimes difficult for stakeholders to say what they felt the impact on their businesses was likely to be and what they were doing to mitigate it. Many said they were continuing on a “business as usual” basis, until the situation becomes clearer. A variety of methods were used, however, to capture relevant information, practice and opinion, to collect useful insight.

• desk research covering a variety of online resources and reports
• a review of international competitors: New Zealand (selected because they have existing trade arrangements and quota with the EU) and the USA (as they currently access EU trade through the Hilton Quota, which means they compete with other importers for a share of this quota). A structured questionnaire was used to collect feedback (Appendix 2).
• an initial focus group was convened in December 2018 in Edinburgh with key stakeholders in the Scottish red meat industry to map out the existing red meat supply chain. This included representatives from Scottish Government, QMS and SAMW, along with members of the SAOS team, all of whom were felt to have experience and knowledge of both the Scottish red meat supply chain and red meat exports. The purpose was to map existing knowledge, identify any knowledge gaps and identify where those knowledge gaps could be filled. Smaller group discussions with practitioners who could fill those gaps were held after the initial focus group meeting and throughout the duration of the project.
• wide consultation was then undertaken (face to face and telephone interviews) with key stakeholders and business owners to understand the potential impact of Brexit on the Scottish red meat supply chain and what measures might be helpful in mitigating this impact. Interviews with processors were undertaken using a structured questionnaire. (see Appendix 1 for list of organisations consulted and Appendix 2 for the questionnaire used for meat processors)