Red meat exports: potential administrative costs of trade under WTO rules
This research investigated what the costs will be incurred by Scotland’s red meat export sector when dealing with the EU under World Trade Organisation regulations.
5. Processor and Supply Chain Feedback
5.1 Processor Feedback
Five companies were interviewed by telephone, comprising both large and small processors of beef and lamb. The companies interviewed were assured that their individual responses would remain confidential and that their feedback would be amalgamated (Questions can be found in Appendix 2).
The percentage of turnover relating to exports in the processing businesses ranged from 4 - 20%. One respondent noted that they do very little export business as they focus solely on the UK.
The main export markets for Scottish processors within Europe are: Italy, France, Spain, Germany, Belgium, Holland, Portugal, Czech Rep, Poland, Ireland, Sweden and Denmark. Outside Europe, current export markets include Switzerland, Norway, Canada, South Africa, the Philippines and Hong Kong. 5th quarter products are being sold to EU agents (Irish Casings, being the main agent) for onward sale into Canada and Japan.
Some of the larger processors export the full range of beef and lamb cuts, lamb carcasses, and 5th quarter products along with hides and skins. Others do a range of cuts, such as bone-in loins, ribs, steaks. Seasonality can affect what customers order as can local supply of premium beef. In some instances, exporters let their customers know what they have available for ordering and they can then order what suits their needs.
When asked how products were transported to export markets, Scottish processers primarily use road transport for EU markets – full roll-on roll-off trailers, their own lorries, third party hauliers or consolidators – with products travelling via the Channel Tunnel or ferry to EU ports. Products for non-EU markets are shipped by sea container, if frozen, or by air for samples and small volumes.
The processors interviewed mentioned that post-Brexit disruption will have the greatest impact on Scottish lamb sales, as they are more heavily dependent on export markets than beef. Irish beef is seen as a potential threat to the Scottish red meat industry, as it will continue to operate without import tariffs. One business reported that it had already lost an export customer due to the uncertainty surrounding Brexit and others said that some of their EU customers have intimated they are now looking for alternative suppliers within the EU. The ongoing uncertainty makes planning challenging and no one is making any long-term commitments.
One of the biggest challenges reported was staff recruitment. It is already considered difficult and is likely to become significantly harder when the UK leaves the EU. There is a concern that the £30k salary threshold post-Brexit for immigrant workers will disadvantage the meat industry, as it will be difficult to recruit skilled workers. A further challenge is that tariffs and the additional costs may make exporting too expensive and uncompetitive, in which case there is likely to be more focus on the UK market. This, in turn, could lead to red meat over-supply in the UK, as home demand, particularly for lamb, may not match the lost export sales.
The added bureaucracy will add time and delay the processing of orders and the continuing uncertainty surrounding Brexit is seen as a major factor hampering planning and growth.
All the businesses interviewed are trying to explore new markets beyond the EU including Canada, USA, Singapore, Japan, Hong Kong, & Macau.
In terms of support and assistance, businesses indicated that they need clear guidance on what’s happening and how, as soon as the information is available, as there are still so many unknowns, it makes it very difficult for them to plan.
Vet costs are expensive and can cost more than the profit made on small orders. There needs to be collaboration across the food industry to reduce these costs. The Government can also help by ensuring that new markets are opened for trade from the UK.
5.2 Stakeholder Feedback Risks, Solutions and Market Opportunities
This feedback was collected from interviews with those operating in the Scottish red meat supply chain (see consultee list in Appendix 1) and identifies both the risks and opportunities arising from Brexit. The findings are summarised in table 4 overleaf.
Scotland exports significantly less red meat-related products, both in terms of value and volume, to the EU than to England and Wales, but it is still an important market and change to the current UK/EU trading relationship will have a direct and indirect impact on the industry post-Brexit. The European market allows processors to have an alternative to the UK multiples, which have strong negotiating positions due to the amount they purchase. Without the option to export product, the processors would be in a weaker negotiating position with their UK customers. Post-Brexit, doing business with other EU operators will be easier, quicker and less expensive than doing business with UK operators.
The potential for low-cost imported meat to be sold in the UK from both the EU and outwith the EU adds further pressures to the market as well as uncertainty for Scotland’s red meat industry. Post-Brexit, the Scottish industry will not have the same protection through tariffs as it currently has as part of the EU. Potential low tariff imports could allow red meat to enter the UK market and push down market prices.
Farmers are also finding it very difficult to plan for the future. Cattle numbers have been declining and feedback suggests that some farmers are unwilling to invest in this climate of uncertainty.
| Table 4 Risk |
Industry Feedback | Suggested Solutions |
|---|---|---|
| Continued Access to EU Markets | There are two clear views from industry on future access to EU markets: Optimistic stakeholders think that existing EU customers will still want to purchase Scotch Beef and Lamb because of good customer/exporter relationships and their appreciation of the product quality. However, there is a perception that these customers will not want to pay more for the product. Others are worried that the new processes and associated timelines will make trade more difficult and expensive and this will deter both existing and new buyers from buying Scotch beef and Lamb. |
Provide more in-market support, in both UK and EU markets, that can be readily accessed by Scottish exporters. This should be put in place now, rather than waiting for the impact of Brexit. |
| Impact on Lamb Sales and Supply Chain | The lamb supply chain is more reliant on the EU marketplace than beef and those involved in the export of lambs to the EU are worried that the export tariffs and new administration costs will make Scotch Lamb too expensive for some customers, putting existing sales at risk. Feedback indicates that some customers are already looking for alternative supply options from other countries within the EU, e.g. Spain. They are unsure how Brexit will impact their deliveries and future business from the UK. There is a general concern that there is not enough potential new demand for Scotch Lamb in the UK to replace trade lost to EU countries if that decreases significantly post-Brexit. |
Government should prioritise opening up new markets to trade from the UK. In-market support teams could help identify opportunities for lamb products in new markets. Also find opportunities for frozen products, to help with shelf-life issues and longer transit times. We understand that subsidising export tariffs is illegal under WTO rules; nevertheless, other compliant methods to support companies exporting to new countries should be sought. |
| Increased Costs to Export | The industry knows that it will cost more to export to the EU post-Brexit, although the extent of the extra costs cannot yet be determined. Higher costs will impact on profitability. As well as the additional administrative costs, tariffs will need to be integrated into trading arrangements, with a general expectation that it will be the exporter who will need to absorb these costs, rather than the customer. Exporters dealing with smaller consignments are concerned that the extra costs may make the product too expensive for some EU customers and orders might be lost – this will have a negative impact on their business income and running costs if this volume cannot be replaced. |
Government can help to minimise the additional administrative cost burden by simplifying processes and ensuring procedures and costs are standardised across the country. Currently, this is not the case with Export Health Certificates for example. Government should explore ways to utilise technology to reduce costs – e.g. for remote veterinary inspections via on-site cameras. This would also reduce the burden on an overstretched veterinary service. |
| Increased time to deliver EU customer orders | One of the biggest concerns voiced by industry is the time that it will take for lorries to clear Border Inspection Post’s (BIPs). The additional waiting time lengthens the journey, impacting on product quality and shelf-life. A further concern is that the order may be rejected by the customer if it is late due to delays at a BIP. The product would then either need to be disposed of (at a cost) or quickly sold to another customer at a much lower, potentially loss-making price. Late arrivals will also impact the customer/exporter relationship. |
Government should ensure there are sufficient staff available at BIPs to handle all the extra processing and forms that will be required to minimise delays. |
| Administration | There is uncertainty around the tariffs that will be applied to EU export orders following Brexit, the new processes that will need to be followed and the new paperwork that will need to be completed. New markets out with the EU also present a similar challenge. Businesses will also need to know about packaging, labelling, retail, foodservice and consumer market insight, as well as customer information. |
Government should ensure that businesses (and all staff handling export-related forms) have clear guidance on what the new requirements and processes are for each market; what forms require to be completed; when these should be completed and who they should be sent to; clear timescales on how the completed forms will be handled; clear and standardised costs. Transparency and consistency are vital. Sector support organisations and public sector agencies should then work together with QMS to provide support to businesses in the short and longer terms to ensure that they understand what is required. |
| EU/Non-EU Red Meat Imports | There is a concern that Irish imports, which will not attract a tariff, could undercut Scotch Beef pricing, thereby damaging sales in the UK. Some perceive an additional risk that imports from countries such as Poland may increase, also impacting on Scotch Beef sales (Polish beef is competitively priced). |
Additional marketing support is needed to promote the benefits of “buying local” in the UK marketplace and the USPs and quality of Scotch Beef and Lamb in export markets. In-market specialists would be helpful in supporting businesses to find new customers and added value opportunities. |
| Vets – cost, lack of availability and delays | There is a concern that post-Brexit, an Export Health Certificate will be required for each EU customer order and that this will require a vet to be on-site to approve the certificate. This may impact in two ways: firstly, more certificate approval will add cost; secondly, a shortage of vets may disrupt the operational availability of correctly certified finished product and delay subsequent transport. Key transport and customer delivery schedules may be disrupted. Industry is not aware of the new Certification Support Officers, nor their role in being able to assist vets and approve Export Health Certificates. |
Do vets need to be on-site? Is there an opportunity to look at new technology to enable remote veterinary inspections? Will the EU accept the use of Certification Support Officers? Short term communication is necessary to inform the industry about the role of the new Certification Support Officers and their role in assisting vets. This may help to allay some of the concerns around the availability of vets. |
| Lack of Workers | Businesses expressed fears that post-Brexit, less EU workers will want to work in the UK/Scotland. The red meat industry already finds it difficult to recruit indigenous workers and there is a risk that processors will not be able to fill important operational jobs with EU nationals. A shortage of staff will have a significant impact on meat processing operations. | Government should make it as easy and welcoming as possible for EU workers to stay working in the UK and Scotland. |
| Displacement of Current EU Sales by EU Competitors | Scotch Beef and Lamb sales may be displaced by product from other EU countries, as it will be easier for the customer to do business with exporters based in EU countries – no risks involved with late deliveries or increased costs. | See above re in-market support. |
| UK Storage Facilities | Feedback from stakeholders within the industry consistently highlights the lack of cold storage and meat warehousing capacity in the UK. This information is in line with that from other food sectors, such as vegetables, where there is a similar challenge in obtaining freezer storage capacity. In the initial period following Brexit, it is expected that storage facilities close to the ports will be operating at full capacity. |
Investigate investment support for an expansion in chilled and frozen warehousing storage capacity. A scheme such as the FPMC grant scheme would be ideal for such a development. |
| Impact on 5th Quarter Exports | Fifth Quarter and Animal By-Products play an important role in carcass balance and revenue generation for the Scottish meat processing sector. If these sources of revenue are closed off, or reduced, the supply chain will be less competitive and additional costs may be incurred for disposal. Whilst tariffs do not currently apply to these products, there are several issues of concern. They include:
|
SAMW could convene a 5th Quarter Sub-Group to ensure relevant issues are convened. |
| Rendered Products | Industry is concerned about market access and additional costs for rendered protein meal, currently sold via agents into Asia, but groupaged via Rotterdam to manage transport costs. Access to Rotterdam may be disrupted, as any imports from Scotland/UK will now need to pass through the BIP. | Need to build in additional lead times for sending orders to customers. |
| Transport | Like the processors, the transport operators are concerned that there will be long waiting times at the BIP in Calais. Deliveries will take longer and will be more expensive (longer driver time). The transport companies are unsure how the process will be managed. If exports of Scottish red meat to the EU fall, this will affect the Scottish road haulage industry. Due to the specialist and complex nature of red meat transport, operators will have to re-evaluate their business models, as even a short disruption in a just-in-time supply chain is likely to cause significant challenges. In the longer term, and if the loss of business is permanent, the only option will be to find new customers or undertake radical restructuring. A further issue for transport is the impact on backhauling, as most of the trucks that go into Europe with red meat deliveries come back laden with other goods for delivery in Great Britain. This provides another income stream for the hauliers and helps to keep the outward movement of goods cost-efficient. Like export tariffs, any import tariffs might also disrupt the backhauling business. |
To help save time at the BIPs, loads could be inspected and then sealed before departure to make the BIP process quicker, with supporting paperwork to endorse this. This would require agreement with the EU, which if implemented, could help reduce the anticipated lengthy waiting times that are causing the industry concerns. Consider establishing a red meat transport working liaison group with industry. |
Market Opportunities |
Industry Feedback | |
| UK Market Development | Whilst most Scotch Beef and Lamb sales are sold in the UK rather than in export markets, there is still an opportunity to increase the market share of both brands. Industry is keen to develop more outlets for UK sales, as it remains the easiest market to access and the most cost-effective to do business in. UK marketing activity, led by QMS, has been successful in the past in raising awareness and helping to drive sales. There is an opportunity to upweight the marketing support for both brands following Brexit, as well as working with customers to seek out new opportunities on behalf of the industry. There is also an opportunity within Scotland to develop more outlets for Scotch Beef and Lamb. The NFUS Beef Watch survey carried out in Scottish stores during March 2019, identified that 61% of the beef in-store was either labelled as Scottish or Scotch Beef PGI. AHDB Beef and Lamb Watch in January 2019 also highlights that there are still opportunities for home-grown beef and lamb facings on shelves to increase. |
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| Opening New Markets | Exporters are already exploring new markets, stimulated both by QMS/Defra activities and their own market development strategies. As a member of the EU, the UK can utilise ~40 trade agreements which the EU has negotiated with more than 70 countries. To date, 10 continuity trading agreements have been agreed. Whilst this is a reserved matter, and there is limited scope for either the Scottish Government or QMS to influence these activities, there is an opportunity for the industry to collaborate and work together to identify priority markets and market opportunities. This will maximise the chances that supply chains to these markets can operate efficiently and that barriers to trade are minimised, to help drive new export sales. The work should build on existing efforts that are being developed in Canada (for lamb and beef) and in Hong Kong and Singapore (for lamb). Emerging opportunities are being considered in new markets such as Asia, including China and India. |
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| Halal Lamb | Locating new lamb markets will be key post-Brexit and there is a growing market opportunity for Halal lamb, which needs to be explored further. Not only are there significant opportunities around UK domestic consumption, but the Muslim population in Europe is set to grow from 6% in 2010 to 8% in 2030 (15.4 million consumers). France has one of the biggest Muslim populations in Europe and is already the UK’s biggest lamb export market. | |
| Domestic Consumption of Lamb | There is a real concern by exporters that sales of lamb will be most affected following Brexit, and a new home will need to be found for lost EU export sales. There is room to increase the penetration of lamb in the UK market. Currently, just over 50% of the population eats lamb at least once a year, versus 86% for beef. In Scotland, consumption of lamb is half that of the UK, with YouGov research carried out by QMS revealing that over a third of Scottish adults (38%) never eat lamb for dinner mid-week. A concerted and long-term UK-wide marketing campaign is needed to encourage more British and Scottish consumers to eat lamb. This needs to be executed in conjunction with retailers and those involved in the foodservice sectors to ensure that demand is pulled through the supply chain. |
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| QMS Market Support | The effort undertaken by QMS in Europe will continue post-Brexit, with additional consumer and trade activities to support existing and new opportunities. These activities will be re-evaluated once there is a clearer understanding of when and how Brexit will be implemented. Industry recommends that work in European markets should be increased now to help protect existing business. | |
| 5th Quarter | Feedback from processors suggests that demand for 5th quarter products is growing, with export sales worth £1.9m, mainly to markets in the EU, Africa and Asia. There are some in the industry who also believe that Brexit will allow the Scottish trade to maximise new opportunities in this specific sector, as EU regulations will no longer apply. This will provide more flexibility to trade, particularly in the Far East or Africa. | |
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