The polls have just closed and counting is getting underway. There are now just a few hours left before the announcement of results from the momentous British referendum deciding whether the UK stays within the European Union (EU) or not and for the New Zealand meat industry to get some inkling of how its $2 billion trade with the region will be affected.
Emotionally charged campaigns have resulted in polls showing it’s too close to call at this stage, but it seems there has been a high turnout at the polls. We are also in largely uncharted territory as to how a potential ‘Brexit’ – British exit from the EU – will be implemented. At early signs of a Brexit, EU banks were said to have been making contingency arrangements in case of global market uncertainty and volatility. How exports to the UK and other EU markets from countries like New Zealand will be affected will be, no doubt, lower down the priority list than more pressing domestic matters and, at this stage, the New Zealand meat industry can only watch and wait.
Beef + Lamb New Zealand (B+LNZ) says it’s not only the UK to worry about in the event of a Brexit. Those who think Brexit won’t have an impact on trade because the United Kingdom (UK) only takes two percent of New Zealand’s exports, are missing the point, it’s the whole of the European trade we should be looking at.
The EU remains an important export destination for New Zealand’s exports, with sheepmeat, edible offal and venison the main meat products exported to the region. Beef is of less significance as access for that product is constrained under the current World Trade Organisation arrangements.
“Access for New Zealand’s biggest exports to the UK are tied to quotas to the EU. Unpicking the quotas if the UK were to vote to leave, would also disrupt trade with the EU and cause major uncertainty,” says Beef + Lamb New Zealand general manager trade policy, Ben O’Brien.
“It will be Beef + Lamb New Zealand’s top priority to look after New Zealand sheep and beef farmer interests should the UK vote tomorrow to leave the EU,” O’Brien said. He thanked the New Zealand Government for their engagement on the issue to date.
“Over $2 billion of red meat and wool exports were sent to the EU last year. That’s almost four times the next largest contributor, horticulture, and seven times that of the dairy exports.”
The UK and Europe are, in particular, New Zealand’s biggest sheepmeat markets and Brexit could have a substantial negative impact on that sector.
The New Zealand sheepmeat quota to the EU of around 228,000 tonnes represents over half of New Zealand’s sheepmeat export production and the UK takes half of that.
“The EU and UK markets have affluent and sophisticated consumers with Western tastes, and they see lamb as a high quality protein worthy of a premium price. Brexit could cause a significant disruption to supplying that market and if they can’t get the product they’ll go elsewhere,” O’Brien says.
“Under Brexit the trade would face two years of uncertainty, if not longer, while the EU and UK negotiate between themselves as to who is going to take what part of the existing quotas.”
O’Brien said it would be impossible for the industry to plan when it didn’t know what quantity of access it would have to the two markets.
“With a single quota covering all of the EU including the UK, we currently have the flexibility to meet the demand anywhere within the EU, whereas under Brexit we are unlikely to have the same flexibility, depending on how the European quota is distributed.
“Disruption of this trade could have widespread consequences, particularly for regional New Zealand where the red meat industry is a significant employer.” Meat processing companies alone employ 25,000 workers.
O’Brien said given the dairy downturn, New Zealand could not afford for its second largest export industry to have to deal with uncertain times in the UK and European markets.
Meat Industry Association figures show that at the year ending December 2015 152,539 tonnes of sheepmeat and edible offal worth around $1.4 billion were exported to EU markets. Export volumes to the UK and other EU markets were roughly evenly split at around 76,000 tonnes each, but New Zealand earns more from the other EU markets than from the UK – $828.5 million versus $619.5 million.
According to the Ministry for Primary Industries’ recently released Situation & Outlook for Primary Industries (SOPI) report, at the year-end March 2016, the UK was New Zealand’s top value market for lamb, taking 21 percent of our total returns for export of the meat, it was the second most important market for mutton (nine percent) and ranked at number six for venison (seven percent of exports). Other significant EU markets for sheepmeat sales were Germany, the Netherlands, France and Belgium. The top market for venison was Germany, which took 30 percent of exports of the meat, followed by the Netherlands, Belgium and France.
The UK and ‘Continental Europe’ both have their own market characteristics and New Zealand exporters tend to deal with importers in the different markets. Should the decision be made to Brexit, it is likely that the EU sheepmeat quota for New Zealand will be accordingly adjusted downwards to reflect the UK’s exit from the deal, as it has been adjusted upwards to accommodate new member states’ entry to the regional club. Sorting out the paperwork will take some time. But how long it will take will be anybody’s guess, with commentators suggestions ranging from ‘immediately’ to two years plus.
Another area where New Zealand might lose out, if the Brexit goes ahead, is that New Zealand could lose its best ally in its struggle against European agricultural protectionism. It could leave New Zealand at the mercy of self-interested lobby groups in the EU, suggests Lincoln University professor of agricultural economics Alan Renwick, who left Ireland in 2015 to come to join the university.
“The UK has been a strong force for moderating the excesses of the Common Agricultural Policy (CAP), one of the banes of New Zealand agricultural life,” Professor Renwick explains, adding the CAP provides subsidies for EU farmers to maintain food security. “With the UK away from the table what sort of protectionist policies will emerge from the French and others?” he asks.
NZ-EU free trade agreement talks are now underway, he notes. “But will a British exit shift this down the agenda whilst they deal with the fall out?”
The global market uncertainty will affect New Zealand also. “How long will it take to resolve what it would look like and how volatile markets will be? “We are all likely to lose from such volatility,” Professor Renwick says.
Britain is no longer a major export market itself, he adds, so if it pulls out of the EU it does not mean New Zealand will have to change its focus. Only a small percentage of New Zealand’s exported goods go to the UK. China, Japan, Australia and the United States have all become more significant.
The EU as a whole is still an important export destination for New Zealand even though its overall share in exports has been declining, he says.