Australia trade deal may pose threat to farmers, report warns

The recently sealed free trade deal with Australia could have ‘harmful consequences’ on the UK agricultural marketplace further down the line, according to an AHDB report.

The levy board’s latest Horizon report quantifies the potential economic impact of the Australia trade deal on UK agriculture for the first time.

It offers an in-depth analysis of Australian agricultural production and trade, assessing its potential competitiveness in the UK marketplace.

The opportunities for UK agri-food products in the Australian market is also explored, and how the two countries stack up against each other in terms of size and scale.

The Australia trade agreement, announced in the summer, is the first the UK government has negotiated from scratch, setting the template for a line of new deals currently underway.

AHDB researchers found that the size and scale of Australian agricultural production means the scope for UK producers to compete at a commodity level is limited.

In the short term, where market factors are unchanged, Australian exports to the UK may be subdued due to more lucrative and rapidly expanding markets closer to home.

However, when the commercial realities of global agricultural supply and demand are factored in, as well as domestic policy at a sector level, the report warns that the risks to the UK agricultural supply chain increase.

For lamb, the model assumes Australia keeps its preferential trading arrangements with China. However, if Australia were to lose these arrangements, then Australian product would emerge onto the world stage and may undercut the UK market due to lower costs of production.

With the UK a high-income, developed market, it will only increase its attractiveness as a destination for Australian lamb, the report says.

For beef, the model finds the impact of the trade deal 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, the report warns.

While Australian agriculture is at the mercy of extreme weather variations, an oversupplied Australian market would see far more imports to the UK than the report modelled.

And for dairy, as Australia is a net-importer of cheese, the trade deal offers an opportunity for UK exporters when prices are favourable and away from traditional European markets.

However, the levy board says the cyclical nature of Australian production due to weather means this will not be a consistent market as domestic supply and demand changes.

David Swales, AHDB head of strategic insight, said that changes to trade partners’ markets had the potential for ‘harmful consequences’ on the UK agricultural marketplace.

“Australia has built up a diverse portfolio of markets for its agricultural products and is able to meet the requirements of our food safety laws, bringing increased competition to the UK marketplace 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.”

In compiling the report, AHDB worked with Harper Adams University to develop a new trade network model to quantify the impact of the deal.