The real impact of new UK trade deals on agriculture

The last few months has seen the upending of decades of trading relationships as the United States imposed tariffs across the world. In this article, we unpick the intricacies of global agrifood trade, examine the recently agreed UK-US trade deal, and assess the potential impacts on domestic producers.

When we look at agricultural trade, two key elements need to be considered: access to markets and the freedom to trade. For the optimum use of resource, agricultural traders would be free to exchange without being hindered by trade barriers, whether these be regulatory or non-regulatory.

Of course, trading nations retain the right to introduce minimum standards, such as animal welfare, environmental and food safety, to protect domestic consumers and producers as permitted under the World Trade Organisation (WTO) Agreement on Agriculture. Free trade agreements (FTAs) set out the frameworks in which trade can be conducted, aimed at easing the trading process. Within these FTAs there will often be safeguards for both parties that include welfare, environmental and food safety standards that respect trading practices and production processes.

But, if there are barriers to trade, there are additional costs because of friction within trade flows. These can apply to both exports and imports. Friction costs could be made up of additional regulatory requirements such as health certification, customs agent fees, and costs relating to logistical delays. As a result of the UK’s exit from the European Union (EU), it is estimated that friction costs for UK exporters to the EU now range between 5% to 7.5%.

When we look at agrifood trade, we need to consider a number of direct and indirect factors such as domestic economic policy, and geopolitical and geoeconomic events.

Looking at domestic economic policy, recent budgetary changes have had indirect impacts on agricultural trade. The changes to agricultural and business property reliefs (APR and BPR) announced in the October budget have severely impacted agricultural business confidence. In addition, the larger than expected cuts to basic payments and the abrupt halt of the Sustainable Farming Incentive (SFI) have increased economic fragility with pressure growing on the agriculture sector. This impacts trade as a lack of confidence can reduce productive capacity and available export volumes.

When the UK was a member of the EU, it was part of the single market, allowing for the free movement of trade and of labour. This meant that UK agricultural products could be traded without restriction or hinderance. However, following Brexit in 2020, it left the single market meaning that agricultural trade has been impacted by several non-trade barriers which has seriously impeded UK agrifood exporters. EU-imposed sanitary and phytosanitary (SPS) regulations have meant that UK exporters experience additional checks at the border and as a result, additional costs. In the period 2020-2023, we have seen a fall in export value from £28.9bn in 2019 to £24.4bn in 2023, a decrease of 16%.

The situation has been exacerbated by the delays in import controls by the UK on EU agrifood exports. It is only now that such controls are being applied through the Border Operating Model. This has led to a number of traditional EU exporters to forgo the UK market due to higher costs which reduces consumer choice. But the series of delays that have taken place has meant that EU exporters have enjoyed a competitive advantage with minimum friction costs in the UK market.

The terms of the 2020 Trade and Co-operation Agreement (TCA) between the UK and the EU state the agreement is to be reviewed in 2025 with an initial summit on 19 May 2025. The UK Government has already indicated that it will be seeking a closer relationship with the EU that will include negotiations on a SPS agreement that would promote greater convergence of UK and EU SPS regulations. The aim is to ease current trade friction and reduce costs for UK exporters.

Since the 1970s, there has been a push to reduce distortions in trade (e.g. national subsidies and tariffs) and for business to rely on the principle of free trade. The WTO has standardised global agrifood trade.

Tariffs can be used to protect a country’s domestic production in limited circumstances under the WTO (e.g. to prevent dumping). Tariffs can apply at different rates for different sectors and are not applied equally.

But, it has been the fundamental change in US trade policy and the global imposition of tariffs that has upended traditional relationships and traditional thinking. This has led to a rush to the White House to conclude trade deals. And, of course, last week saw the US President and the UK Prime Minister announce a bilateral trade deal. So, what’s in this deal and what could it mean for UK agriculture?

There are two major elements that relate to agriculture:

• There is to be a reciprocal tariff rate quota of 13,000 tonnes for beef meaning that the US can export this volume to the UK, and vice versa from the UK to the US, with a zero percent tariff
• A preferential tariff rate quota (tariff free) for 1.4bn litres of US exports of ethanol to the UK

If we look at the issue of beef quotas, the UK government was very quick to stress that the domestic regulatory conditions that apply to production, such as animal welfare, environmental and food safety standards, remain in force for any export of US beef. This means that beef produced using hormones will be excluded. However, the big question remains, how can we be sure that US production methods meet our own high SPS standards?

In the detail on the principles of the trade deal, it states that both the US and the UK must adhere to agreed certification and labelling procedures. All US beef export facilities will therefore need to be inspected and passed by UK Food Standards Agency officials and official veterinarians before any exports can begin. There needs to be agreements on the right mechanisms between the UK and the US Department of Agriculture and the US Food and Drug administration. In addition, control mechanisms will need to be in place at the UK border. This is a continuation of current practice for other agrifood exports to the UK. As importantly, and for complete transparency, these mechanisms need to be agreed by the industry.

What else could this mean for UK beef producers? It’s important to note that UK beef exports to the US are minimal, mainly as a result of the ban on UK beef because of bovine spongiform encephalopathy (BSE). So, it is possible that a UK tariff rate quota for 13,000 tonnes to the US could be seen as an opportunity for introducing American consumers to a high quality, niche product.

What is a concern is that, after a period of time, the US tariff rate quota will be removed, meaning that all US beef exports would become tariff free with the possibility that they could flood the UK market. Such an instance would place unbearable pressures on domestic beef producers.

The UK-US trade deal is not a fully-fledged trade agreement. It still must go through the UK Parliament and the US Congress. This will take time. The CLA has raised its concerns with the Business Secretary and will continue to press the UK Government for full engagement and complete transparency so that UK regulatory standards remain clear red lines for all agrifood trade negotiations.

Find out more in our short discussion below, where CLA experts talk about beef markets, bioethanol exports and the latest trade deal regulations impacting agricultural and rural businesses.