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Brexit and the agriculture sector

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With the end of the Brexit consultation period and the agreement finalised on 31st December 2020, our Agriculture Finance team explore some of the possible impacts of the agreement across the sector. 

Dairy

Europe is one of the world’s largest diary markets and most of the UK’s dairy products are currently exported here. The agreement has been described as some as “the least disruptive outcome”. Trade for dairy farmers will still be able to take place without too many hurdles but there is new paperwork. 

However, it is expected that the agreement will enable the industry to move forward and start to create relationships with countries outside of the EU, where demand for milk is growing. 

Ian Smith, Business Development Manager in Paragon’s Agriculture Finance team, commented: “There are opportunities across countries such as China and across the Middle East, where there is a growing appetite for UK dairy products so it’s essential that the sector has the freedom to export where the best opportunities are. 

“We hope that this might encourage more innovation across the dairy sector too. There is currently a heavy reliance on liquid milk, which delivers small margins for farmers and processers but this change will hopefully encourage a focus on other dairy products.” 

Arable

Russ Nicholls, Business Development Manager in Paragon’s Agriculture Finance team, said: “The UK has some of the highest crop yields in the world and British barley equates for a large proportion of all UK food and drink exports.”

There is a lack of tariffs and quotas in the deal, which is good news for the arable sector, but increased checks and paperwork are likely to add costs into the supply chain. 

Russ added: “There is however the concern of rules of origin regarding the export of flour. UK millers can currently produce flour using a mixture of British and non-British wheat and export it across the EY with no tariff or quota. The new agreement outlines that millers must not go over a 15 per cent weight cap for non-British wheat and have the unlimited access to the EU market for finished flour.”

In preparation for a no-deal Brexit, many UK farmers are likely to have made changes to their cropping, significantly reducing the acreage of cereals because of the risk of tariffs.  

Livestock

For the livestock industry, it was essential that the UK avoided a no-deal Brexit and left the EU smoothly. If there was a no-deal Brexit, access to the EU, the UK’s biggest export market, was likely to change hugely. 

Ian commented: “Relief has come for those exporting sheep meat to the EU, as they will not be subject to any tariffs or quotas. However, some disruption to trade is likely as exporters and processors will face additional paperwork and increased controls. Increased costs of around 5% are expected.  

There has also been some noise around the export of pork to the EU. European sellers can no longer make products, such as sausages, with meat from numerous countries (including the UK) and label them a ‘product of the EU’. This labelling problem could mean there is resistance from the EU to take UK product.”

Potatoes

The trade of seed potatoes is one of the sectors most impacted by Brexit. Around 20,000 tonnes were exported annually from the UK to the EU as of last year but UK seed potato imports have now been banned from 1 January 2021.  

Russ commented: “The EU rules this a ‘sensitive product’ which is seen as a plant disease risk. This means that GB exporters cannot export seed potatoes to the UK or Northern Ireland, which also remains under EU regulations.” 

The Scottish Government has predicted that this ban will have a huge impact on the sector, at around £15m and with wider effects on the supply chain. 

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