26 November 2020
The COVID-19 pandemic has hit the global economy hard, and trade will be critical to getting economies back onto a healthy trajectory.
Trade has always been an engine for growth, supporting communities and living standards. New Zealand’s red meat processing and export sector provides jobs for 92,000 Kiwis and plays a big role in regional prosperity, and in our rapidly developing Māori economy.
It is therefore beyond belief that the European Union (EU) and United Kingdom (UK) remain committed to splitting up tariff quota access for beef and sheepmeat into their markets, leaving New Zealand worse off. This is an issue with real-world implications for our exports and cannot be allowed to happen.
Those markets were together worth around NZD$1.5 billion last year for New Zealand red meat and co-products.
We are now five weeks out from when the proposed split would kick in. New Zealand has constantly raised concerns about this for close to four years. And yet the issue remains unresolved. There is an urgent need for the UK and EU to sit down with New Zealand and agree a fair and practical solution to ensure we are not worse off.
How did we get here?
If you’ve been following the Brexit process, you will know that the EU and UK have struggled to find common ground in their ‘divorce proceedings’ – but one thing that they have been able to agree on is to divide up the quotas once the UK leaves. Those quotas were part of the balanced package of negotiated outcomes agreed by the EU (including, of course, the UK), New Zealand and others at the World Trade Organisation in 1995. They are therefore legally binding – and form part of our deep, close, trusted and longstanding relationship.
These quotas provide a window through the otherwise prohibitively high tariff wall that surrounds Europe. In some cases, the window is only open a crack. For our high-quality beef, a mere 1,300 tonnes is allowed in under lower tariffs, which could in effect be polished off in a matter of hours, or to put it another way, a European consumer gets to eat a New Zealand steak once every ten years.
For sheepmeat, the window is further open, enabling us to complement British and European production to help keep lamb on the table year-round.
Real-world commercial impacts
But splitting the tariff quotas would have significant negative commercial impacts.
For beef, the split-up quantities would be so small they would threaten the very viability of the trade. The beef quota into the UK would be around 450 tonnes a year, which is what one New Zealand company could produce in a matter of weeks. That quantity would then be divided up further among New Zealand exporters. Companies will struggle to build meaningful commercial relationships at that scale – effectively rendering their small share unusable.
Nor does the split make sense for British consumers, who will undoubtedly end up paying more for beef given that the UK does not produce sufficient for its needs and must import around one-quarter of its total consumption.
Sheepmeat, on the other hand, has a bigger starting point in terms of volumes, but the split takes away one of the key components of that negotiated bargain that was struck twenty-five years ago in the WTO: the flexibility to respond to the market.
Presently, New Zealand companies can send product to either the UK or the EU, depending on prices, customer preferences or business strategy. In fact, looking at how trade volumes have fluctuated in recent years – a period of relatively lower trade followed by an increase in sheepmeat exports to the EU and UK in the last twelve months – perfectly illustrates how those forces play out. But under the split, we lose that flexibility.
Our export success is grounded in giving our customers what they want. It is clear that the UK faces a period of potentially severe churn. Currently with access to the full quota we can redirect product away from a disrupted British market and into Europe instead. But we have far less scope to do that once the quota is split. The fact is that markets are dynamic and imposing artificial constraints on them is nonsensical.
Looking at the bigger picture, as an exporter to over 120 countries globally, our ability to keep supply chains diversified is a crucial way that we help sustain our farming communities back home. If our options into well-established markets are curtailed, that potentially has ripple effect far beyond one market – an argument that will no doubt resonate with our British counterparts as they contemplate the possibility of losing access to their traditional export markets in Europe themselves.
What makes the current situation all the more perplexing from the point of view of New Zealand farmers and meat companies is that New Zealand’s values – our exemplary food safety standards, our focus on animal welfare and our core concerns of good environmental stewardship – match or exceed those of the UK and EU.
Beyond shared values, New Zealand is a trusted and responsible long-term trader, acutely aware of managing trade in a way that benefits producers and consumers on both sides. Our interest is in creating durable value in all our markets – not, as we are sometimes accused of planning to do, in flooding the UK or Europe with product.
What’s needed now
New Zealand is certainly not after windfall gains, but nor can we accept being left worse off as a result of Brexit, for access that we have effectively already bought and paid for.
New Zealand has put its best foot forward to come up with creative solutions to address the trade impacts. We are now looking to the UK and EU officials to sit down and work constructively, seriously and above all urgently together with New Zealand to agree a solution that meets our needs in a practical way. Not only is this doable but it is the minimum obligation that the EU and UK governments have, especially as they claim to be leaders in values-based global trade.