Does Brexit signal a harder free-trade road
GroundCover™ Issue: 126 | 16 Jan 2017 | Author: Rebecca Jennings
Trade analysts are raising the prospect that the sentiment behind the UK’s impending exit from the European Union – and similar protectionist and isolationist sentiments emerging in the US – might be a signal that trade liberalisation has reached its limit.
Southern grain growers were given an insight into what might lie ahead when Australian Farm Institute executive director Mick Keogh addressed the most recent GRDC Farm Business Update in Adelaide. Mr Keogh said there were three main areas that could create flow-on effects for Australian agriculture. These were:
- agricultural trade between EU nations and the UK will no longer be tariff free;
- the movement of workers between the UK and the EU will face increased restrictions; and
- the large subsidy that UK farmers receive from the EU will cease (but might be replaced with UK Government subsidies).
Mr Keogh noted that the UK has long been a net importer of agricultural products, mostly from EU nations. The UK accounted for only 1.5 per cent of Australia’s total agricultural and food exports in 2015, mostly wine, lamb and beef.
On the other hand, he said Australia had significant two-way agricultural trade with the EU. In 2015, Australia’s exports to the EU were worth about A$2.3 billion – principally canola, wine, fruit, nuts, wool and beef. The value of Australian imports from the EU are about A$3.8 billion.
Against this agricultural trade background, Mr Keogh suggested the following could occur:
- agricultural exports from the UK to the EU could face the same tariff rates that Australian agricultural imports currently face (12 per cent), reducing the value of UK agricultural exports to the EU and diverting these exports to other markets; and
- the UK could increase tariffs on agricultural imports from the EU, which would increase the price of EU products, potentially opening the door for non-EU sources such as Australia.
Mr Keogh was doubtful about the latter scenario, especially for grains, owing to freight costs. He also pointed out that Australia had already initiated preliminary discussions with the EU about an Australia-EU free trade agreement. If this eventuated, the EU represented a much larger market for Australia than the UK. A more challenging issue facing UK farmers was the loss of EU agricultural subsidies: “Under the Common Agricultural Policy (CAP) the average farmer in England and Wales receives £235 and £179 per hectare (A$389 and A$296) each year.
“There are also payments available under agri-environmental and other schemes, with the total EU payments to UK farmers exceeding £2.8 billion (A$4.6 billion) in 2015,” he said. These payments provide an estimated 55 per cent of farm income in the UK.
He said the one definite in all the uncertainty was the clear protectionist and isolationist sentiments that are building, particularly in the US. This signalled that further progress in reducing global agricultural trade barriers might be difficult to achieve.
“The trend over the past decade of reducing international barriers for agricultural trade may have reached its limits,” he said.
More information:Mick Keogh,
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