How will the Australia trade deal affect UK farmers?

Fears that trade deals could result in cheap, low-quality imports flooding the UK market have dominated the headlines over the past year. During a recent online press conference, AHDB’s head of strategic insight David Swales said the new Horizon report aims to “cut through some of the noise” on trade deals and look at the details in an impartial and evidence-based way.

The report is the first to be published quantifying the potential economic impact of the Australia deal on UK agriculture. The trade agreement with Australia is the first the UK has negotiated from scratch; previous deals have been rollovers of those the UK had access to as part of the EU.

Working with Harper Adams University, AHDB developed a trade network model to help farming businesses with their future planning.

Overall, the report found that the scope for UK producers to compete with Australia at a commodity level is limited, due to the size and scale of Australian production. However, in the short term, if market factors remain the same, Australian exports to the UK could be subdued owing to more lucrative and rapidly expanding markets closer to home.

But when factoring in potential market changes, the risks to the UK’s agricultural supply chain increased.

Risks and opportunities by sector

For example, for lamb, the model assumes that Australia will keep its preferential trading arrangements with China – but Mr Swales noted that should tensions between the two countries result in the loss of these arrangements, the Australian product would emerge onto the world stage and could undercut the UK’s domestic market, due to lower costs of production.

Similarly, for beef, the model found the impact of the trade deal would be muted if the world remains constant. Australian beef imports are likely to be in the form of higher value cuts, into the foodservice sector. This is likely to impact the demand for, and price of, domestic high value cuts, and will mean the overall value of domestic carcases will be reduced.

However, the forecast expansion of the Australian cattle herd represents a real risk to the UK market, AHDB said. Although Australian agriculture is at the mercy of extreme weather variations, an oversupplied Australian market would see far more imports to the UK than AHDB has modelled.

For dairy, as Australia is a net-importer of cheese, the deal offers an opportunity for UK exporters when prices are favourable and away from traditional European markets. However, the cyclical nature of Australian production due to weather means this will not be a consistent market as domestic supply and demand changes.

Preparing for change

Mr Swales noted that Australia has built up a diverse portfolio of markets for its agricultural products and has shown that it can compete with the UK’s food safety requirements. This will bring increased competition into the UK marketplace in the longer term.

“Farmers and producers need to prepare for this period of change, which is occurring against the backdrop of our own structural change in farm policy, to enable the UK to compete in a more global setting. Australia might be the first new trade deal the UK negotiated but it certainly won’t be the last.”

It takes months for trade deals to be negotiated, and then many more months and years for the full impact to be felt. However, the Australia deal, and subsequent New Zealand deal announced recently, set a precedent for a more open, globalised UK agricultural market, AHDB noted.

Mr Swales added: “We may not see an immediate impact today or tomorrow from the doors of trade being flung open; yet further down the line changes to trade partners markets have the potential for harmful consequences to our agricultural marketplace.”

However, while Australia has much lower costs of production, when responding to an audience question Mr Swales pointed out that environmental, health and welfare standards are also key issues and UK farmers have a range of positive stories to tell.

AHDB is now planning to create a similar model to assess the impact of the New Zealand deal on UK agriculture.