Agriculture, Animal Health, and Food and Drink ...
36
1 Agriculture, Animal Health, and Food and Drink Manufacturing (including Catering, Retail and Wholesale) Sector Report This report covers Agriculture animal health and food and drink manufacturing, as well as Catering: retail and wholesale. 1. This is a report for the House of Commons Committee on Exiting the European Union following the motion passed at the Opposition Day debate on 1 November, which called on the Government to provide the Committee with impact assessments arising from the sectoral analysis it has conducted with regards to the list of 58 sectors referred to in the answer of 26 June 2017 to Question 239. 2. As the Government has already made clear, it is not the case that 58 sectoral impact assessments exist. The Government’s sectoral analysis is a wide mix of qualitative and quantitative analysis contained in a range of documents developed at different times since the referendum. This report brings together information about the sector in a way that is accessible and informative. Some reports aggregate some sectors in order to either avoid repetition of information or because of the strong interlinkages between some of these sectors. 3. This report covers: a description of the sector, the current EU regulatory regime, existing frameworks for how trade is facilitated between countries in this sector, and sector views. It does not contain commercially-, market- or negotiation-sensitive information. Description of Sector Sector Coverage 4. This paper covers market access and trade issues around forestry, retail, agricultural, animal and plant health, food and drink manufacturing and related biotech products. This includes: ● Basic agricultural commodities (e.g. grain, milk); ● Food (e.g. dairy, fish, processed products etc.); ● Alcoholic beverages; ● Animal feed; ● Live animals and genetic material;
Transcript of Agriculture, Animal Health, and Food and Drink ...
1
Agriculture, Animal Health, and Food and Drink
Manufacturing (including Catering, Retail and Wholesale) Sector Report
This report covers Agriculture animal health and food and drink manufacturing, as well as
Catering: retail and wholesale.
1. This is a report for the House of Commons Committee on Exiting the European Union
following the motion passed at the Opposition Day debate on 1 November, which called on the Government to provide the Committee with impact assessments arising from the sectoral analysis it has conducted with regards to the list of 58 sectors referred to in the answer of 26 June 2017 to Question 239.
2. As the Government has already made clear, it is not the case that 58 sectoral impact assessments exist. The Government’s sectoral analysis is a wide mix of qualitative and quantitative analysis contained in a range of documents developed at different times since the referendum. This report brings together information about the sector in a way that is accessible and informative. Some reports aggregate some sectors in order to either avoid repetition of information or because of the strong interlinkages between some of these sectors.
3. This report covers: a description of the sector, the current EU regulatory regime, existing frameworks for how trade is facilitated between countries in this sector, and sector views. It does not contain commercially-, market- or negotiation-sensitive information.
Description of Sector Sector Coverage
4. This paper covers market access and trade issues around forestry, retail, agricultural, animal and plant health, food and drink manufacturing and related biotech products. This includes:
● Basic agricultural commodities (e.g. grain, milk); ● Food (e.g. dairy, fish, processed products etc.); ● Alcoholic beverages; ● Animal feed; ● Live animals and genetic material;
2
● Non-food horticultural products (e.g. seeds, ornamentals, trees); ● Non-food animal products (hides and skins, germplasm etc); ● Catering (retail and wholesale); and ● Timber.
5. This paper does not cover the whole range of agriculture policy issues and does not
cover the opportunities provided by new trade deals with the rest of the world. It also does not cover all animal and plant health related issues but includes those that directly affect market access and trade. It does not cover R&D related aspects. We will identify these as related policy areas but not analyse them in detail.
6. We also note the strong links to agri-tech and bio-economy though these are not separately covered in the figures below (apart from the extent to which they are within the scope of agriculture itself). Agri-tech is important to the food chain: the technology sub-sectors were estimated to have contributed around £4 billion in GVA to the UK economy in 2013 and generated exports of around £2.9 billion in 2013.1
7. Separate reports cover the fisheries sector as a whole and cross-cutting environmental services – water and waste - which impact for example on pesticides and timber. However, elements of the fish supply chain (processing) are captured in the overall ‘food manufacturing’ category, and the fish exports area is also captured within the definition used here.
Key messages
● The food chain is wide-ranging, crossing multiple economic sector categories – primary, manufacture, services, and intermediary sectors such as wholesale and distribution.
● Whole food chain GVA was £108 billion in 2014, around 7 per cent of UK GVA.2 ● Food and drink manufacturing, at £26.9 billion in 20143, is the UK’s biggest
manufacturing sector by GVA, representing one-sixth of UK manufacturing GVA.4 UK Agriculture accounts for 0.6 per cent of total GVA.5
● Food and Drink Manufacturing and agriculture makes a larger contribution to the GVA of Scotland and Northern Ireland than the rest of the UK.6
1 Department for Business, Innovation and Skills, Agri-Tech Industrial Strategy: Evaluation Scoping Study and Baseline, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/536388/bis-16-18-agri-tech-industrial-strategy-evaluation-and-baseline.pdf 2 Department for Environment, Food and Rural Affairs, Department of Agriculture, Environment and Rural Affairs (Northern Ireland), Welsh Assembly Government, The Department for Rural Affairs and Heritage, The Scottish Government, Rural and Environment Research and Analysis Directorate, Agriculture in the United Kingdom, 2015, Table 14.1, (Published 2016). 3 Ibid. 4 ONS, UK GDP(O) low level aggregates, https://www.ons.gov.uk/economy/grossdomesticproductgdp/datasets/ukgdpolowlevelaggregates 5 Agriculture in the United Kingdom (2015), Table 3.2.
3
● Agri-food sector employment totalled 3.9m in 2015, representing 14 per cent of all employment.7 Other than agriculture, this is spread evenly across the UK. Agriculture employs around 480,000 workers8 representing 1.4 per cent of total employment.9 However, the agricultural sector is a relatively bigger employer in all of the DAs than England. Agriculture accounts for 70 per cent of land use and helps to underpin the rural economy.10
● The food chain relies on significant levels of imports: £40.3 billion, of which £28.4 billion
is from the EU.11 60 per cent of imports are raw and lightly-processed commodities, which will be subject to onward processing in UK food and drink manufacture.12 On the other hand only 40 per cent of exports are in this category – the UK exports a much higher proportion of finished products.13
● Consumer expenditure was £201 billion in 2015 on food and drink and catering services.14
The Food Chain: An Overview
8. The food chain includes agriculture, food and drink manufacturing and catering/wholesale. It does not include plant health, plant breeding and forestry which are described further below. We elaborate further on this later in the document, with time series trends on several of the indicators. High-level economic indicators include:
● Whole food chain15 GVA was £108 billion in 2014, around 7 per cent of UK GVA.16 ● Agri-food sector employment totalled 3.9 million in 2015, representing 14 per cent of all
employment17. ● Food and drink manufacturing, at £26.9 billion in 201418, is the UK’s biggest
manufacturing sector by GVA, representing one-sixth of UK manufacturing GVA.19 ● Exports in 2015 were £18.6 billion (£11.2 billion EU), imports £40.3 billion (£28.4 billion
EU).20 6 ONS, Regional Gross Value Added (Income Approach) : December 2015, https://www.ons.gov.uk/economy/grossvalueaddedgva/bulletins/regionalgrossvalueaddedincomeapproach/previousReleases 7 Agriculture in the United Kingdom (2015), Table 14.1. 8 Includes farmers and spouses. 9 Agriculture in the United Kingdom (2015), Table 2.5. 10 Agriculture in the United Kingdom (2015), Table 2.1. 11 HMRC (2015), HMRC trade statistics, using HS codes 01-23 excluding 06. 12 Food Statistics Pocketbook 2015, p7. 13 Ibid. 14 Agriculture in the United Kingdom (2015), p.101. 15 The whole food chain ‘farm-to-fork’ includes agriculture, manufacture, wholesale, retail and catering. 16 Agriculture in the United Kingdom (2015), Table 14.1. 17 Ibid., Table 14.1. 18 Ibid., Table 14.1. 19 ONS, UK GDP(O) low level aggregates, https://www.ons.gov.uk/economy/grossdomesticproductgdp/datasets/ukgdpolowlevelaggregates
4
● The stock of Foreign Direct Investment (FDI) in food and drink manufacturing was £57 billion in 201421, representing around 35 per cent of the stock of all UK manufacturing GVA.22
● Food is one of the UK’s (13) critical infrastructure sectors.23 ● The food chain is dispersed:
○ The food chain represents between 11–13 per cent of employment in all areas (with
London being the lowest and South West/Yorkshire & Humber the highest), although the makeup of employment is differentiated: employment in services is higher in London & the South East.24
○ Scotland, the East Midlands and Yorkshire/Humber are the largest areas by manufacture GVA (and food and drink manufacture represents 5 per cent of Northern Ireland’s GVA).25
○ Agriculture represented just 0.6 per cent of UK GVA in 2014, but represented 1 per cent of GVA in Scotland and 1.4 per cent in Northern Ireland.26 It was 1.4 per cent of employment in England as a whole in 2015, 2.7 per cent in the South West and Scotland, and 4.8 per cent in Wales.27
○ Consumer expenditure was £201 billion in 2015 on food and drink and catering services.28
9. The food chain is wide-ranging, crossing multiple economic sector categories – primary,
manufacture, services and intermediary sectors such as wholesale and distribution. We have focused this document primarily on the ‘production’ end of the chain – agriculture and food & drink manufacture – which is more engaged in exporting. However, the service part of the food chain has an interest in market access issues from an importing perspective. Caterers (e.g. cafes, restaurants, canteens) and food and drink retailers accounted for £59.3 billion of GVA in 2014.29
10. There are interdependencies across the food chain. Agriculture and food and drink manufacture (FDM) produces primary and processed foodstuffs, which in turn are
20 HMRC (2015), HMRC trade statistics, using HS codes 02-23 excluding 06. 21 ONS, Foreign direct investment involving UK companies: Inward tables, https://www.ons.gov.uk/businessindustryandtrade/business/businessinnovation/datasets/foreigndirectinvestmentinvolvingukcompanies2013inwardtables 22 Ibid. and Regional Gross Value Added (Income Approach): December 2015, https://www.ons.gov.uk/economy/grossvalueaddedgva/bulletins/regionalgrossvalueaddedincomeapproach/december2015 23 Centre for the Protection of National Infrastructure, https://www.cpni.gov.uk/critical-national-infrastructure-0 24 NOMIS, Business Register and Employment Survey, Based on NUTS 2013 (Level 1) Geography and Defra 45114 Industry codes, https://www.nomisweb.co.uk/query/select/getdatasetbytheme.asp?opt=3&theme=&subgrp= 25 ONS, Regional Gross Value Added (Income Approach) : December 2015. 26 Agriculture in the United Kingdom (2015), Table 3.2. 27 Ibid., Table 3.2. 28 Ibid., p.101. 29 Ibid., Chart 14.2.
5
delivered to final and intermediary consumers through a variety of routes. There are similarities between these sectors, but also differences.
11. The agriculture and food sector contributed £108 billion to UK GVA in 201430 and 3.9 million jobs to the economy in 2015. 31 It provides diverse employment with jobs distributed around the country and is heavily reliant on EU workers. In food manufacturing alone, 25 per cent of employees were born in other EU countries.32
12. The sector is vital for consumers, providing choice and availability of supply of food that is
safe to eat and maintaining high levels of consumer confidence. It also relies on often complex international supply chains. The sector is reliant on imported raw material from EU and non-EU countries. Exports totalled over £18 billion in 2015 with significant opportunities for export growth.33 Imports were £40.3 billion in 2015.34
13. Trade is critical for UK food security, which is built on access to a wide variety of markets
through the EU and a rules-based world trading system. Almost 40 per cent of our food is sourced from overseas.35
14. As explained below, a key consideration is that the cross border trade between Northern
Ireland and Ireland is particularly complex and sensitive. The food and drink industry between the UK and Ireland is fully integrated and treated as a single trading unit by businesses.
15. Food supply is one of the 13 Critical National Infrastructure (CNI) sectors in the UK36 and
Government publishes annually a public summary of the Sector Resilience Plan. The UK food sector has very resilient supply chains owing to the size, geographic diversity and competitiveness of the industry, and the high degree of substitutability of foodstuffs which all ensure significant redundancy.
16. Although there is recognised dependency on other critical services such as fuel, energy,
transportation, and electronic communications the resilience of the sector has been demonstrated in the responses to potentially disruptive challenges in recent years. Like many industries the food sector operates just-in-time supply chains with highly effective
30 Ibid., Table 14.1. 31 Ibid., Table 14.1. 32 Based on 2013-2015 employment. ONS, Annual Population Survey pooled dataset (2013-2015), table 3 https://www.ons.gov.uk/file?uri=/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/adhocs/007098numberofworkersinfoodchainsectorsbynationalityukeuandnoneuincludingfurtherbreakdownsuk2010to2016/defraadhocaps201315updated.xls 33 HMRC (2015), HMRC trade statistics, using HS codes 01-23 excluding 06. 34 Ibid. 35 Agriculture in the United Kingdom (2015), Table 14.1. 36 Centre for the Protection of National Infrastructure.
6
logistics operations and companies have developed strong contingency plans to respond rapidly to potential disruption.
Agriculture
17. UK Agriculture accounts for 0.6 per cent of total GVA and employs around 480,000 workers representing 1.4 per cent of total employment.37 The sector accounts for 70 per cent of land use.38
18. Agriculture consists of eight broad subsectors: cereals, general cropping, horticulture, pigs, poultry, dairy, grazing livestock and mixed farming. Cereals and dairying are the largest subsectors accounting for around 28 per cent of agricultural output.39
19. Agriculture is a primary production sector providing ingredients for the food and drink
sector. Primary agricultural products are also exported. Key inputs in the sector are energy, fertilisers, pesticides, seeds, veterinary care and advice, and specialist machinery.
20. Agriculture is characterised by a large number of small producers. There are over 210,000
farm holdings, 45 per cent of whom are very small businesses.40 Food and Drink Manufacture
21. Food and drink manufacturing GVA was £26.9 billion in 2014.41 The sector was relatively resilient to the recession of 2008-09.
22. FDM is characterised by some very large firms (Nestle, Mondelez, Unilever, Diageo etc.), and a large number of small firms. Sub-sectors (e.g. processing of meat, fish, dairy, bakery, soft drinks, alcoholic drinks) are distinct – there is not one sector in FDM, rather many differentiated ones. In food manufacture (excluding drink), there were approximately 6,100 SMEs in 2014 accounting for 96 per cent of businesses, 30 per cent of employment and 24 per cent of food manufacturing annual turnover.42
23. Key inputs to manufacture include raw food commodities (sourced from UK agriculture
and from imports) and energy.
37 Agriculture in the United Kingdom (2015), Table 3.2, Table 2.5 and Table 14.1. 38 Ibid., Table 2.1. 39 Ibid., Table 4.1. 40 Agriculture in the United Kingdom (2015), Chart 14.2. 41 Agriculture in the UK (2015), Table 14.1. 42 Food Statistics Pocketbook 2015, p12.
7
24. Total employment in the manufacture of food products in the UK has increased by 7 per cent (over 20,000) between 2009 and 2015.43
25. The extent to which the post-farmgate food chain relies upon the agriculture sector varies
across sectors. Some of the major retailers also make use of dedicated supply chains. Equally, many commodities are interchangeable, especially grains.
26. The food chain relies on significant levels of imports: £40.3 billion in 201544, of which
£28.4 billion is from the EU.45 Around 60 per cent of imports are raw and lightly-processed commodities, which will be subject to onward processing in UK food and drink manufacture.46 On the other hand only around 40 per cent of exports are in this category – the UK exports a much higher proportion of finished products.47
Catering, Retail and Wholesale
27. Food retailing and catering are large service sectors, accounting for just over £59 billion GVA in 2014.48 They have a large number of employees and enterprise numbers (especially catering where there are a very large number of very small firms) – nearly 3m employees across both sectors and well over 100,000 enterprises in catering alone.49
28. In general, the products of FDM and agriculture as tradable products are more exposed to international competition than are catering and retail which primarily compete domestically. However, retail and catering are also subject to market access issues through their imports.
Sub-sectors
29. There are a number of sub-sectors that are related to the agri-food sector. The main ones are: agri-tech, plant-breeding, forestry and veterinary medicines; each of these are briefly discussed below.
Agri-tech 43 ONS, Business Register and Employment Survey (BRES), https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/datasets/industry235digitsicbusinessregisterandemploymentsurveybrestable2, Table 2. 44 HMRC (2015), HMRC trade statistics, using HS codes 02-23 excluding 06. 45 Ibid. 46 Food Statistics Pocketbook 2015, p7. 47 Ibid. 48 Agriculture in the United Kingdom, Chart 14.2. 49 Food Statistics Pocketbook, p7.
8
30. Agri-tech comprises those businesses and bodies which develop and commercialise
products and services for use by food producers to increase sustainable agricultural productivity and efficiency. Development is reliant on the UK’s strong science base and innovations are generally a collaboration between industry and UK academic institutes.
Plant-Breeding
31. Plant breeding and production of seed/propagating material are specialist areas. Most of the businesses are EU or global transnationals integrated across the EU, but some are micro-businesses. The long term nature of plant breeding and associated investment means that businesses need access to a wider market than the UK. The direct contribution of plant breeding and seed/propagating material is small but it is an underpinning process for agricultural and horticultural production.
32. Successful plant varieties are marketed as widely as possible across the EU, depending on regional suitability, with significant trade of intellectual property in both directions. Some crops (e.g. vegetables and field crops) import large amounts of seed.50 The main UK seed export is field crops.51
Forestry
33. The forestry sector comprises woodland creation and management, timber production, primary wood processing (sawmilling, panels, pulp and paper), and secondary wood processing businesses.
34. A total of 3,685 forestry businesses, 555 sawmilling businesses, 130 wood-based panel businesses and 230 pulp & paper businesses were registered for VAT and/or PAYE purposes in the UK in 2014.52 The majority of private owners (>90 per cent) have holdings of less than 10 hectares however this component only accounts for less than 30 per cent of the total privately owned forest.53
35. Additional value to the UK economy each year from the forestry sector54:
50 International Seed Federation, Seed Statistics 2015, http://www.worldseed.org/resources/seed-statistics/ 51 Ibid. 52 Forestry Commission, Forestry Statistics 2015, Chapter 7 - Employment, https://www.forestry.gov.uk/pdf/Ch7_Employment_FS2015.xls/$FILE/Ch7_Employment_FS2015.xls, Section 7.5 53 Forest Europe, State of Europe’s Forests 2015, http://www.foresteurope.org/docs/SoeF2015/NR-quantitative/UK.xls, UK data Section 6.1 54 Forestry Commission, Forestry Statistics 2015. Chapter 8 - Finance & Prices, based on ONS Annual Business Survey data: https://www.forestry.gov.uk/pdf/Ch8_Finance_FS2015.xls/$FILE/Ch8_Finance_FS2015.xls, Section 8.3
9
• GVA for the direct contribution to the economy from forestry and sawmilling was estimated at around £1 billion in 2013 (with £0.5 billion from forestry and £0.5 billion from sawmilling).
• A wider coverage of GVA that also covers the processing sector adds a further £0.9 billion (with £0.3 billion from panels and £0.6 billion from pulp and paper).
• The widest coverage of GVA that also covers sectors further into the product supply chain adds a further £4.9 billion (with £1.8 billion from secondary wood products and £3.1 billion from articles of paper and paperboard).
36. The Annual Business Survey reported average employment in 2013 of 14,000 in forestry
and 26,000 in primary wood processing (with a further 92,000 in secondary wood processing).55 Whilst domestic production has been steadily increasing, the UK relies on imports to meet its timber use requirements; in 2014 over 85 per cent of apparent consumption (excluding recovered paper) was imported.56 There is limited ability in the short to medium term to increase domestic production of softwoods57 so there will be a continuing demand for imports.
37. Imports: The total value of wood product imports in 2014 was £7.2 billion, a 7 per cent increase from 2013, of which £4.2 billion was pulp and paper.58
38. Exports: The total value of wood product exports in 2014 was £1.7 billion, a 3 per cent
decrease from 2013, of which £1.5 billion was pulp and paper.59 Veterinary medicines
37. The National Office for Animal Health (NOAH) represents the companies that research, develop, manufacture and market animal medicines in the UK. NOAH employs around 2000 people.60 In the 12 months to June 2016 NOAH members accounted for around £625 million of annual UK sales of authorised veterinary medicines.61 NOAH represents 90 per cent of the UK animal health market (at ex-manufacturers prices, net of all discounts).62 In the 12 months to June 2016 42 per cent of all animal medicine sales related to food producing animals.63
55 Ibid., Forestry Statistics 2015, Chapter 7 - Employment, Section 7.1. 56 Ibid., Chapter 3 - Trade, https://www.forestry.gov.uk/pdf/Ch3_Trade_FS2015.xls/$FILE/Ch3_Trade_FS2015.xls, Table 3.1 57 Forestry Commission, 25-year forecast of softwood timber availability (2016), http://www.forestry.gov.uk/pdf/25-year_forecast_of_softwood_timber_availability_2016.pdf/$FILE/25-year_forecast_of_softwood_timber_availability_2016.pdf 58 Forestry Commission, Forestry Statistics 2015, Chapter 3 -Trade, Table 3.6. 59 Ibid., Table 3.7. 60 National Office of Animal Health (NOAH), Annual Review 2015/16, p6 https://www.noah.co.uk/about/ 61 NOAH factsheet, https://www.noah.co.uk/about/industry-facts-and-figures/ 62 Ibid., based on NOAH estimates. 63 Ibid.
10
38. The Veterinary Medicines Directorate has acted as the lead Rapporteur Member State for
approximately a third of veterinary medicines authorised through the EU Regulatory Network over the last nine years.
Contribution to Gross Value Added (GVA)
39. Chart 1 shows the GVA of the food chain over time in nominal terms, demonstrating steady growth. The food chain as a whole is a significant contributor to GVA. The GVA contributions are dominated by food manufacturing (including drink), retail and catering.
Chart 1: Food Chain GVA in £millions64
40. Geographical data are available for agriculture and FDM (although this data includes tobacco as the data is not disaggregated further). The geographical picture shows:
• FDM is spread across the country, but has GVA over £3 billion in Scotland, the East
Midlands and Yorkshire & Humber.65
64 ONS, Business Register and Employment Survey (BRES), Basis Defra food and drink manufacture definitions Basis Defra food and drink manufacture definitions (available in Food Statistics Pocketbook 2017 Glossary) https://www.ons.gov.uk/businessindustryandtrade/business/businessservices/datasets/annualbusinesssurveyuknonfinancialbusinesseconomy2015provisionalresultssectionsaspayeunitsincluded 65 ONS, Regional Gross Value Added (Income Approach), December 2015. https://www.ons.gov.uk/economy/grossvalueaddedgva/bulletins/regionalgrossvalueaddedincomeapproach/previousReleases
11
• The percentage of geographical GVA for food and drink manufacturing and tobacco is higher in Northern Ireland, East Midlands, Yorks & Humber and Scotland. It is lower in London and the South East (see Table 1 overleaf).
Table 1: Geographical GVA for food and drink manufacturing, and tobacco, £millions66
2000 2005 2010 2015
Per cent of area’s GVA,
2015
North East 743 614 599 579 1 per cent
North West 2,512 2,936 2,521 2,922 2 per cent
Yorkshire & Humber 2,380 2,813 2,532 2,964 3 per cent
East Midlands 2,119 2,432 2,657 3,320 3 per cent
West Midlands 1,782 1,777 1,857 1,586 1 per cent
East of England 2,018 2,031 2,136 2,786 2 per cent
London 1,649 2,041 1,840 2,285 1 per cent
South East 1,877 1,829 1,435 1,758 1 per cent
South West 1,475 1,746 1,557 2,333 2 per cent
Wales 794 1,007 1,018 1,312 2 per cent
Scotland 2,154 2,913 3,133 3,715 3 per cent
Northern Ireland 1,150 1,205 1,249 1,634 5 per cent
41. For agriculture, the share in GVA was 0.6 per cent for the UK in 2014, increasing to 1.0
per cent and 1.4 per cent for Scotland and Northern Ireland respectively (see Table 2 overleaf).67
66 Regional GVA Reference Tables, ONS, Table 1 and 6. https://www.ons.gov.uk/economy/grossvalueaddedgva/datasets/regionalgrossvalueaddedincomeapproach 67 Agriculture in the United Kingdom (2015), Table 3.2.
12
Table 2: GVA for agriculture, by country68 2010 2011 2012 2013 2014 2015 per cent of
area’s (provisional) GVA, 2014
Gross value added at basic prices £ million United Kingdom 6 891 8 671 8 640 9 382 9 869 8 495 0.6 per cent
England 5 478 6 839 7 017 7 443 7 826 6 628 0.6 per cent Wales 177 291 239 331 386 385 0.7 per cent
Scotland 884 1 084 986 1 128 1 184 1 132 1.0 per cent Northern Ireland 352 457 398 480 473 351 1.4 per cent
Employment
Chart 2: Employment in the post-farmgate food chain, 2014, by area69
42. In 2015, total employment in the post-farmgate food chain equaled 3.45 million comprising70:
● catering (1.69 million) ● retail (1.16 million) ● manufacture (0.42 million) ● wholesale (0.23 million)
68 Ibid., Table 3.2. 69 NOMIS, Business Register and Employment Survey, Based on NUTS 2013 (Level 1) Geography and Defra 45114 Industry codes, https://www.nomisweb.co.uk/query/select/getdatasetbytheme.asp?opt=3&theme=&subgrp= 70 Agriculture in the UK (2015), Chart 14.2.
13
43. Although the absolute employment figures vary significantly by region, the percentage of
regional employment in the post-farmgate food chain varies relatively little, from 10.7 per cent in London, to 12.7 per cent in the South West and Yorkshire/Humber.71
Table 3: Employment in agriculture, by area, thousand people72
2011 2012 2013 2014 2015
United Kingdom 476 481 464 476 476
England 303 307 296 302 305
North East 10 10 10 11 11
North West and Merseyside 33 33 32 33 33
Yorkshire and The Humber 33 33 32 32 32
East Midlands 34 35 33 34 34
West Midlands 41 42 41 42 43
Eastern 41 42 40 40 41
South East (incl. London) 47 49 46 46 47
South West 63 63 62 64 64
Wales 58 58 53 60 58
Scotland 68 68 67 66 65
Northern Ireland 47 47 48 48 48 71 ONS, Business Register and Employment Survey. 72 Defra, Structure of the agricultural industry in England and the UK, https://www.gov.uk/government/statistical-data-sets/structure-of-the-agricultural-industry-in-england-and-the-uk-at-june
14
44. As a percentage of overall UK employment, agriculture represents around 1.4 per cent.73
• England: 1.1 per cent • Wales: 4.1 per cent • Scotland: 2.4 per cent • Northern Ireland: 5.7 per cent
Reliance on EU workers
45. In food manufacture, 25 per cent of employees were born in other EU countries.74 The East of England, the South West and the East Midlands employed the highest proportion of EU nationals in food and drink manufacture (over 30% between 2013-2015).75 In food and beverage service activities, the corresponding figure is 10 per cent.76 Again there are regional disparities. London and the South West employed the highest proportion of EU nationals (29 per cent and 12 per cent respectively) whilst the North of England employed the lowest proportion (5 per cent). 77
46. The ONS estimate that 6 per cent of agricultural employees were from the EU in 2015.78 However, this likely ignores many seasonal workers (estimated at 67,000).79 Both a recent NFU report80 and the 2013 Migration Advisory Committee report suggest that the vast majority are EU migrants.81
47. In addition, around 95 per cent of Official Veterinarians in the meat hygiene sector are
from the EU.82 Official Veterinarians are important for domestic animal health and welfare and market access (e.g. for Export Health Certificates for animal products).
73 Agriculture in the United Kingdom (2015), Table 3.2. 74 Based on 2013-2015 employment. ONS, Annual Population Survey pooled dataset (2013-2015), https://www.ons.gov.uk/file?uri=/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/adhocs/007098numberofworkersinfoodchainsectorsbynationalityukeuandnoneuincludingfurtherbreakdownsuk2010to2016/defraadhocaps201315updated.xls, Table 3. 75 Ibid. 76 Ibid. 77 Ibid. 78 ONS, Number of workers in agriculture and associated sectors by nationality, UK 2010, 2013, 2015. 79 Agriculture in the UK (2015), Table 2.5. Based on 2015 employment estimates. 80 NFU, Vision for the future of farming: access to a competent and flexible workforce, p3. https://www.nfuonline.com/assets/97783 81Migration Advisory Committee, The impact on the horticulture and food processing sectors of closing the Seasonal Agricultural Workers Scheme and the Sectors Based Scheme Migrant Seasonal Workers Migration Advisory Committee, May 2013, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/257242/migrant-seasonal-workers.pdf 82 British Veterinary Association (BVA), Brexit & The Veterinary Profession, p.12, https://www.bva.co.uk/uploadedFiles/Content/News,_campaigns_and_policies/Policies/Future_of_the_profession/brexit-and-veterinary-profession-v.1.0.pdf
15
Trade
48. Defra’s primary trade indicator for the food chain is combined into a food, feed and drink (FFD) indicator.
● Imports were roughly double exports in 2015.83 ● Both series are strongly influenced by wider factors such as exchange rates, commodity
prices, demand etc. ● FFD exports represent around 6 per cent of UK total exports.84
Chart 3: Exports and Imports of Food, Feed and Drink, to 2015 £billions85
83 Agriculture in the UK (2015), Table 14.1. 84 Agriculture in the UK (2015), Table 14.1. 85 HMRC (2015), HMRC trade statistics, using HS codes 02-23 excluding 06.
16
Chart 4: Exports of Food, Feed and Drink, in 2015 £billions, by share to EU86
● Around 60 per cent of FFD exports are destined for the EU, worth about £11.2 billion per
annum in 2015.87 ● Exports to outside the EU have risen faster than those to the EU since 2009, although
both series have shown a marked change since 2011.88 ● The global market for Agriculture and Food and Drink manufacturing imports, excluding
the UK, was worth around £844 billion in 2016. Countries besides the 27 other EU Member States accounted for £548 billion, or 65 per cent, of this global market.89
● Although the value of exports fell in 2015, the volume remained steady – the fall was entirely driven by price declines on international markets.
● 70 per cent of imports are sourced from the EU, worth £28.4 billion per annum in 2015.90 ● Contrary to the trend in exports, imports from the EU have grown faster than imports from
outside the EU.91 ● Some UK exports will be made up of re-exports of goods (with various levels of
processing). The most significant re-export is wine: total wine exports are £447m92, compared to total UK production of only £100m93.
86 HMRC (2015), HMRC trade statistics, using HS codes 02-23 excluding 06. 87 HMRC (2015), HMRC trade statistics, using HS codes 02-23 excluding 06. 88 Ibid. 89 Data obtained from ITC, which is based on UN COMTRADE statistics. The value of the global market is defined as the sum of every country’s imports for whom data was available, minus the value of the UK imports. As a rough approximation, the Agriculture and food and drink manufacturing sector has here been taken to comprise HS chapters 1,2, and 4-24. 90 HMRC (2015), HMRC trade statistics, using HS codes 02-23 excluding 06. 91 Ibid. 92 Agriculture in the UK (2015), Table 3.2. 93 Ibid.
17
Chart 5: Imports of Food, Feed and Drink, in 2015£, by share to EU94
49. In terms of the composition of trade, estimates for 2015 are that: ● In general, highly-processed products make up 61 per cent of exports, compared to only
around 40 per cent of imports.95 ● Beverages, in particular spirits drinks represent a third (over £6 billion) of overall FFD
exports.96 Of this, whisky represents around £4 billion.97 A number of other goods are also significant contributors – including cereals, processed products, meat and fish.
● Imports are not as dominated by one product category, although at £9 billion fruit and vegetables (and their preparations) is notably larger than other sectors.98 The UK also imports around £6 billion of meat, and over £5 billion of beverages.99
● Imports come from a range of EU Member States: Table 4 shows information on the percentage share of Member States exports to the UK for 2013, 2014 and 2015; it’s worth noting that the size of the Netherlands exports is so high because of the Rotterdam effect.
94 HMRC (2015), HMRC trade statistics, using HS codes 02-23 excluding 06. 95 Food Statistics Pocketbook, p7. 96 Ibid. 97 Agriculture in the UK (2015), Table 13.2. 98 Ibid., Table 13.1. 99 Ibid.
18
Table 4: Percentage share of Member State (MS) agri-food exports to the UK100 (in order of highest percentage share)
Per cent share of MS exports to the UK (values, £)
Average101 2013 2014 2015
Ireland 43.2 44.0 42.3 43.2
Netherlands102 10.2 10.0 10.2 10.3
Denmark 9.7 9.5 9.7 9.9
France 9.4 9.6 9.2 9.3
Belgium 8.6 8.3 8.5 8.9
Italy 8.6 8.4 8.7 8.8
Spain 8.4 8.3 8.3 8.6
Poland 7.9 7.6 7.6 8.5
Germany 6.7 6.6 6.7 6.9
Sweden 6.4 5.5 6.3 7.4
Chart 6: Composition of exports of Food, Feed and Drink in 2015, £billlion103
100 Trade flow data source: International Trade Centre; www.trademap.org (Sep 2016) 101 Percentages were calculated in house at DEFRA, and represent a 3 year average (2013, 2014 and 2015) 102 The Netherlands share is particularly high due to the Rotterdam effect. This is the theory that trade in goods with the Netherlands is artificially inflated by those goods dispatched from or arriving in Rotterdam despite the ultimate destination or country of origin being located elsewhere. 103 Source: HMRC overseas trade statistics: www.uktradeinfo.com
19
Chart 7: Composition of imports of Food, Feed and Drink in 2015, £billion104
50. Agricultural output is characterised by fluctuations due to weather and other natural events as well as economic. In value, output in real terms has decreased by over 18 per cent since 1990.105
51. The food and drink manufacturing industry has demonstrated a steady economic performance in recent years. The industry’s major export market is the EU – even more so if alcoholic drinks are excluded.
Sector Visibility
52. The food sector is highly visible to the public, featuring prominently across all media outlets 24/7. Public attention is readily drawn to the vast array of interactions between the food sector and society including some of the most high profile concerns of the day – such as obesity, the introduction of novel technologies or food scares such as the horsemeat scandal.
104 Ibid. 105 Defra, Total income from farming in the UK, Table 2 Aggregate Agricultural Accounts : Production and income accounts (at real term prices).
20
53. The picture is quite mixed regarding the international impact of the sector, with some exports establishing a high profile such as whisky. The UK is engaged with a number of nation-branding activities such as the GREAT campaign to build demand for UK produce and promote food and drink exports.
Market Concentration
54. The concentration in a sector can give an indication as to whether there is robust competition or not. Concentration ratios show the market share of a given number of firms. For example a five-firm concentration ratio shows the market share of the top five firms. This gives an indication of whether the industries potentially affected are made up of a few large companies or many small ones.
55. A concentration ratio does not make sense for food and drink manufacture as a whole – the sub-sectors are differentiated so a ratio across the whole industry will not bring much insight. Instead we can consider at a sub-sectoral level (i.e. bakery, meat, processing, dairy processing etc.) At this sub-sectoral level, the top five concentration ratios vary.
56. On the other hand, the top five food retailers command around 75 per cent of the
market.106 Table 5: Retailers’ command of the market107
Retailer
Market Share
Tesco 28.30 per cent Sainsbury's 16.30 per cent Asda 15.50 per cent Morrisons 10.70 per cent The Co-Op 6.40 per cent Aldi 6.20 per cent Waitrose 5.10 per cent Lidl 4.50 per cent Iceland 2.10 per cent Symbols & Independent 1.90 per cent Ocado 1.90 per cent Other Outlets 1.80 per cent
106 Kantar World Panel, Grocery Market Share, Data as at 17/07/2016, https://www.kantarworldpanel.com/global/grocery-market-share/great-britain 107 Ibid.
21
Northern Ireland and Ireland
57. The open land border has a unique practical, economic, social and cultural context for the everyday lives of the people of Northern Ireland and Ireland. In terms of trade, a key consideration is the complex nature of cross border trade between Northern Ireland and Ireland. The food and drink industry between the UK and Ireland is fully integrated and treated as a single trading unit by businesses. Ireland is the UK’s largest food and drink export market - £3.3 billion in 2016 – and the UK imported £4.0 billion from Ireland (second largest source of imports).108
58. There is also considerable food processing and manufacturing located along the border with Northern Ireland. Many workers are employed by factories the other side of the border from where they live. Raw materials are traded freely – for instance pigs bred in Ireland are slaughtered in Northern Ireland and processed to ham and bacon back in Ireland; milk from one country will be processed in the other (and with trade flows changing seasonally) and so on.
59. In August 2017, the UK government published the Northern Ireland and Ireland position
paper outlining the UK’s position on addressing the unique circumstances of Northern Ireland and Ireland in light of the UK’s EU withdrawal. In the nine key principles and criteria for the land border, the paper noted the unique nature of the land border, in particular the integrated nature of the agri-food sector and the aim to avoid physical border infrastructure for any purpose including agri-food checks.
60. The UK and EU have mapped out areas of cooperation under the Belfast (‘Good Friday’)
Agreement that function on a cross-border North-South basis. This detailed work demonstrates a wide range of cooperation across different aspects of the economy, public services, and the environment.
The current EU regulatory regime Key messages
61. For the UK, there is extensive regulation across food and agriculture and virtually all of it is governed by EU legislation, some of which is underpinned by internationally agreed standards.
62. High quality food and strong food safety standards help underpin the good reputation the
UK’s food and drink products enjoy on the world market. 108 Defra analysis based on HMRC data, Chart 13.2 Exports of food, feed and drink by country of destination in 2016; United Kingdom, Chart 13.3 Imports of food, feed and drink by country of despatch in 2016; United Kingdom, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/621458/AUK-chapter13-22jun17.ods
22
Existing EU Regulatory Regime
61. There is extensive regulation in the food and drink sector and virtually all of it is governed by EU legislation, some single market rules and others under the CAP. The single market regulations are designed to do three things:
• Protect public health • Protect animal and plant health • Ensure consumer confidence in the food they eat, through ensuring authenticity and by
giving consumers appropriate information.
62. Many of these are based on internationally agreed standards through, for example, CODEX Alimentarius (a “Food Code” to develop harmonised international food standards), the World Organisation for Animal Health (OIE) and IPPC (International Plant Protection Convention). The UK will maintain protection of public, animal and plant health after leaving the EU. These standards are well recognised and help underpin the good reputation for quality the UK’s food and drink products enjoy on the world market.
Biosecurity
63. As well as rules on food safety, composition and labelling, animal and plant health issues are of significant importance. Maintaining the highest levels of biosecurity is an essential part of exporting or importing animals and plants and plant products. The potential spread of highly contagious animal diseases such as Foot and Mouth Disease or the threat from non-native plant pests such as the Asian Longhorn Beetle is a major risk. There are also public health risks from diseases like BSE, BTB or from bacterial infections such as Salmonella.
64. There are well established EU and international sanitary and phytosanitary standards in place to manage these risks. For animal health, highly technical rules define the health certification conditions appropriate to the product and the country of origin. In plant health technical/ scientific rules set out risk-based phytosanitary import requirements for regulated plants (including trees) and plant based commodities being imported from third countries. The global pest and disease situation constantly changes and our regulatory regimes need the flexibility to react quickly to manage the risks presented by new disease events. Within the EU market, there is a focus on regionalisation (based on areas of established disease freedom), to ensure that the trade restrictions are proportionate and risk based. Third country trading partners can be far slower to accept regionalisation or relax restrictions on UK exports following a disease outbreak.
23
65. The assurance that high animal and plant health standards provide for our trading partners is underpinned by our compliance with detailed EU rules on the official controls needed at the place of production, point of despatch or at the border.
66. An outbreak of an economically damaging disease such as Foot and Mouth Disease,
Avian Flu or Asian Longhorn Beetle can have an immediate and potentially long lasting impact on market access.
67. Since November 2014, there have been seventeen outbreaks of Avian Flu in the UK of
which fifteen were of high pathogenicity, fourteen in England and one in Wales.109 One further low pathogenicity outbreak was in Scotland and one in England.110 There have also been major recent epizootics of Avian Flu and Bluetongue across Europe. EU rules ensure there is a proportionate but immediate cessation of all trade from the infected areas and provide for the swift resumption of trade once appropriate controls are in place.
EU Agencies and Systems
68. There are a number of EU agencies and systems that underpin the agri-food sector in a variety of ways. The systems support the rapid sharing of information to manage public, animal and plant health risks, for instance by helping to stop potentially non-compliant, illegal and fraudulent food being placed on the UK market (e.g. the Rapid Alerts System for Food and Feed). They can also enable Member States to keep up to date with each other’s animal disease incidences and prevalence (e.g. the Animal Disease Notification System). Certain EU systems also facilitate trade by avoiding disruption at the border (e.g. Trade Control and Export System). The agencies provide scientific advice to underpin decision-making and carry out audit, inspection and testing functions on behalf of the EU and internationally.
69. The EU’s Systems that underpin the agri-food sector are:
● Trade Control and Export System (TRACES); ● Animal Disease Notification System (ADNS); ● EUROPHYT; ● European Alien Species Information Network (EASIN-NOTSYS); ● EU Reference Laboratories (EURLs) network; ● EU Vaccine Banks; ● Rapid Alert System for Food and Feed (RASFF); ● Food and Feed Administrative Assistance and Co-operation (AAC); ● Food Fraud Network (FFN); and
109 Defra: Avian Influenza declarations 2014. 110 Defra: Low pathogenic avian influenza declaration 2 February 2015, Revocation of low pathogenic avian influenza declaration 28 February 2015.
24
● Copernicus.
70. The EU’s Agencies that underpin the agri-food sector are:
● Sante F (formerly FVO); ● European Environment Agency (EEA); ● Consumers, Health, Agriculture and Food Executive Agency (CHAFEA); ● Community Plant Variety Office (CPVO); ● European Food Safety Authority (EFSA); ● European Medicine Agency (EMA); ● European Maritime Safety Agency (EMSA); ● European Network for Rural Development (ENRD); ● European Chemicals Agency (ECHA); ● European Fisheries Control Agency (EFCA); ● Standing Committee on Plants, Animals, Food and Feed (PAFF); ● European Research Council Executive Agency (ERC); ● Research Executive Agency (REA); ● European Institute of Innovation and Technology (EIT); and ● European Food safety Authority (EFSA).
71. There are also similar international bodies and systems that provide for international
standards setting and information sharing. For example the International Food Safety Authorities Network (INFOSAN) allows sharing of information on food safety incidents. There are also a number of international bodies that focus on setting international standards and policy, with CODEX Alimentarius for food, the World Organisation for Animal Health (OIE) and the International Plant Protection Convention (IPPC).
The Regulatory Landscape
72. The regulatory landscape is summarised in Annex 1 and described in detail in Annex 2. To help simplify the analysis we have categorised the material into a number of blocks and for each, describe the main rules, the international standards they derive from, how these affect trade with non-EU countries and the extent to which they are devolved (in most cases the full responsibilities for each policy area are devolved). The blocks covered are:
• Food and feed safety and hygiene; • Official controls (including audits); • Animal and fish health (including bees); • Plant health including trees and timber trade; • Common Organisation of Markets in Agricultural Products; • Animal welfare;
25
• Food standards; • Fish and food labelling and nutritional claims; • Country of origin labelling; • Food composition and labelling; • Protected Food Names (PFNs); • Spirit drinks; • Protected wine names; • Protected aromatised wine names; • Fertilisers; • Organics; • GM issues; and • Zootechnics.
73. Food and feed safety and hygiene is regulated by five main “horizontal” Regulations in
respect to which compliance is crucial for intra-EU trade, imports into the EU from non-EU countries and vice versa along with a number of key product / issue-specific “vertical” Regulations and Directives. EU food law is developed taking into account risk assessments from the European Food Safety Authority and international standards and agreements to facilitate global trade in safe food. The EU regulatory system, however, generally goes beyond simple trade and reflects consumer concerns and preferences (such as some labelling) and for issues such as food additives, concepts of technological need and maximum levels of certain substances in specified food, rather than blanket approval of substances considered safe. EU rules can be more detailed or wider in scope than international standards. EU rules, Codex standards, guidelines and recommendations are all based on scientific evidence (e.g. supplied by FAO/WHO scientific committees).
74. The official food and feed controls set out a system for official controls to be carried out by EU Member States to ensure compliance with food and feed law and animal health and welfare rules. Food and feed products from non-EU countries entering the EU must comply with EU law.
75. There is extensive EU regulation governing the biosecurity risks associated with international trade. There are separate EU regimes to manage the risk from international trade in live animals and animal products, aquaculture, plants (including trees), plant produce (fruit and vegetables) and plant based commodities. They work on a broadly similar basis whereby health conditions and import and certification requirements are established by EU technical committees. There are specific rules for importation into the EU from third countries. The highest-risk plant material is prohibited from being imported into the EU and a licensing system provides for the import and movement (e.g. for scientific work) of such material, subject to strict containment measures. Consignments of regulated permitted material must be presented for mandatory identity and documentary checks at a Border Inspection Post. For plant material, a physical check is also required
26
for all consignments of regulated goods, other than wood packaging material and some plant produce which is eligible for reduced frequency checks in cases where it has been demonstrated they represent a low plant health threat. There are detailed rules on how these official controls must be carried out and how cases of non-compliance should be handled.
76. For movements between EU Member States, there are separate rules for providing health certification for some types of trade (for example for live animals). EU plant passports are required to allow for the free movement of high risk plants and plant products between Member States. For some plant health material there are also marketing and certification schemes which need to be complied with.
77. There is no requirement to inspect intra-EU consignments at the border, although Member States may carry out random checks on arrival. Targeted checks of plant material are required in cases where there is evidence of a plant health threat. Responsibility lies with the ‘exporting’ Member State to ensure that official checks and certification requirements are complied with.
78. There is an extensive EU regime for the control of notifiable animal diseases, laying down detailed conditions for the way that a disease eradication campaign must be conducted. They also lay down the conditions that can lead to the removal of restrictions and the eventual resumption of trade. Traceability is also ensured through EU requirements for the identification of animals and for some species the recording of movements. Many of these rules have been developed in direct response to serious threats to public health from zoonotic disease such as BSE.
79. The EU Plant Health Regime requires that action is taken against all damaging plant pests which meet the definition of a ‘harmful organism’ in the legislation, irrespective of whether such organisms are listed in the legislation or not. The control of certain regulated plant pests is specified in a series of Control Directives (for some harmful pests of potatoes) and emergency Decisions (mainly for organisms which have caused damaging outbreaks in the EU, but are not yet listed in the Plant Health Directive). This legislation describes surveillance requirements and lays down detailed conditions for demarcation of outbreak areas and for pest and disease eradication and containment programmes. Movement restrictions are imposed for host material within outbreak areas, with requirements to ensure traceability. The legislation also lays down the conditions which lead to the removal of restrictions following eradication.
80. There are a number of EU directives that set standards for the welfare of animals on farms, during transport and killing. National legislation enforces EU law and goes beyond it with some national laws on slaughter. The UK also has global standards through the OIE (World Organisation for Animal Health). OIE standards are set by consensus amongst
27
all 181 OIE Member Countries. OIE standards provide animal health and welfare benchmarks and reflect existing acceptable requirements, rather than aspirational best practice. Unless Member Countries incorporate OIE standards into their own domestic legislation and regulations, they are not directly enforceable. Instead, OIE standards tend to help inform separate domestic legislation and regulations.
81. Thirteen Directives underpin food standards, setting rules on description, production, composition and marketing of food. This is to set a fair basis for competition and an accurate representation of food products to consumers. EU rules go beyond international standards. Where the UK imposes (EU-permitted) additional standards, the relevant domestic legislation contains a mutual recognition provision so that any product lawfully produced or marketed in a Member State can be sold in the UK without needing to meet the additional UK standards. The EU also sets extensive food labelling rules which imported products to the EU market must meet.
82. Spirit drinks, wine and aromatised wine have their own regulatory regime to define the characteristics of regulated products that need to be met to market those products and makes provision for the protection of geographical indicators. There are also international treaties and agreements on intellectual property and geographical indications which signatory countries need to comply with, e.g. TRIPS. Currently the UK complies with many of these through its EU membership. Once the UK leaves the EU, we will take steps to ensure that appropriate domestic legislation is in place.
83. The position in relation to Protected Food Names is similar, with EU legislation on the creation and protection of designations of origin (PDO), geographical indications (PGIs) and Traditional Specialities Guaranteed (TSGs) relating to certain agricultural products and foodstuffs. The UK has 65 products currently registered under this regulation including products such as Scotch Beef, Welsh Lamb, Stilton Cheese, Cornish Pasties, Wensleydale cheese and Kentish Ale.
84. Registered spirit drinks, wines, aromatised wines and protected food names products are protected across the EU. There is also provision for products from third countries to apply directly to the Commission for protection across the EU. This is in compliance with WTO/TRIPs arrangements.
85. With regard to agriculture, the most significant piece of legislation is the Common Organisation of Markets in Agricultural Products (the ‘CMO’). The aim of this is to achieve stability in prices, ensure a fair standard of living for agricultural communities and encourage farmers to produce food of a given quality, meeting consumers’ expectations and adding value. It has similar measures to those which operate in most developed countries across the world, but applies these in uniform way across the EU. It includes internal price support mechanisms, market access measures including processes for the
28
management of tariffs and quotas, quality controls and marketing standards and collection of statistical information for monitoring purposes to underpin management measures. It regulates the internal market and both EU imports and exports.
86. In addition, EU funding is available to trade organisations for promotional measures that are aimed at increasing the information on, and sales of, certain agricultural products in EU countries and third country markets. A promotion programme can include advertising campaigns in the press, on television, on radio or on the Internet; point-of-sale promotions; public relations campaigns; participation in exhibitions and fairs, and a range of other activities. Programmes can run between one and three years. The Scheme was reformed in 2015 and the new rules came into force in January 2016. €142.5m of funding was available for 2017, increasing in stages up to €200m per annum by 2020.111
87. The UK is usually well represented, with funding schemes being awarded to AHDB, Dairy NI, Quality Meat Scotland, Soil Association, Organic Trade Board, and others. Schemes are managed by the RPA and the Commission directly.
88. Organic products are also regulated to ensure fair competition, consumer confidence and functioning of the internal market. Imports of organics from third countries into the EU need to be certified by a body recognised by the Commission and accompanied by a certificate.
89. Genetically modified (GM) products can only be marketed in the Single Market following a scientific risk assessment by the European Food Safety Authority and consideration of a Commission proposal by the Member States. There are no international standards, third countries act in a similar way to the EU but the EU generally asks for more data.
90. EU law regulates fertilisers including their import and export. They have access to the open market and must be allowed to be traded freely across the EU. Manufacturers from non-EU countries must still comply with EU regulations in order to export to the EU. Importers of fertilisers from outside the EU are subject to an import tariff.
The Common Agricultural Policy (CAP)
91. The Common Agricultural Policy is the agricultural policy of the European Union. It implements a system of agricultural subsidies and other programmes.
92. The key objectives of CAP enshrined in Article 39 of the Treaty (on the Functioning of the European Union) are:
111 European Commission, Promotion of EU farm products, https://ec.europa.eu/info/food-farming/promotion_en
29
● To increase agricultural productivity by promoting technical progress and by ensuring the rational development of agricultural production and the optimum utilisation of the factors of production, in particular labour;
● Thus to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture;
● To stabilise markets; ● To assure the availability of supplies; and ● To ensure that supplies reach consumers at reasonable prices.
93. CAP accounts for around 40% of the EU budget (around €58 billion annually) and
exceeds the agricultural output of any individual EU Member State with the exception of France. It affects consumers as well as farmers; on average prices received by farmers are 5% higher due to CAP and supporting trade policy.112
94. The current CAP consists of three main policy instruments, organised into two Pillars, supported by a horizontal regulation laying down rules on financing and controls. The table overleaf summarises key features of the two pillars.
112 OECD agricultural policy monitoring and evaluation 2016.
30
Table 6: Description of current CAP schemes
CAP Pillar Key features
Pillar I - Direct Payments
A system of direct payments providing income support for farmers
● Area based payments for managing land contingent on meeting national and EU regulatory standards e.g. environment and animal health standards – known as “cross compliance”.
● Mainly granted in the form of basic income support decoupled from production.
● No targeting – largest farms receive largest payments. ● 30% of funding pays for low value greening, including the so
called “three crop rule”.
Pillar I – Single Common Market Organisation (CMO)
Sets out how the single market for EU agriculture operates and includes rules on international trade and mechanisms intended to support the price of agricultural products
● Market support in the form of public and private stocking of agricultural products.
● Crisis measures to deal with severe market disturbance. ● Aid schemes for specific sectors and for the distribution of
agricultural products in schools. ● Standards for the marketing of agricultural products on the
EU single market. ● Rules on cooperation, competition and state aid. ● Provisions on trade in agricultural products, including the
administration of tariff rate quotas.
31
Pillar II – Rural Development
Schemes designed to improve environmental land management, farming productivity and rural economic growth
● Most England Pillar II spend is directed to agri-environment schemes.
● Member States and regions draw up their rural development programmes based on the needs of their territories and addressing at least four of the following six common EU priorities:
○ fostering knowledge transfer and innovation in agriculture, forestry and rural areas;
○ enhancing the viability and competitiveness of all types of agriculture, and promoting innovative farm technologies and sustainable forest management;
○ promoting food chain organisation, animal welfare and risk management in agriculture’
○ restoring, preserving and enhancing ecosystems related to agriculture and forestry; and
○ promoting resource efficiency and supporting the shift toward a low-carbon and climate-resilient economy in the agriculture, food and forestry sectors.
● At least 30% of funding for each RDP must be dedicated to measures relevant for the environment and climate change and at least 5% to LEADER.
EU Funding
95. The table overleaf shows the value of EU funding to the UK agricultural sector under the CAP.
32
Table 7113: EU CAP funding, by area, 2015114
Devolved Administration
Direct Payments allocations115 (€m) 2015
Rural Development Programme allocations116 (€m) 2015
England 2,026 460
Scotland 534 150
Wales 269 49
Northern Ireland 321 50
UK 3,150 709
96. The forestry sector also benefits from EU funding, particularly through the European
Agricultural Fund for Rural Development (EAFRD), an element of CAP. Lower levels of funding are also provided through ERDF and research funds.
Cross-sectoral rules affecting Food, Drink and Agriculture
97. A wide range of international environmental agreements such as the Convention on Biological Diversity (CBD) and the Convention on International Trade in Endangered Species of Wild Fauna (CITES) and the Nagoya, Montreal and Cartagena protocols, as well as Sustainable Development Goal 2 on global food security and sustainable agriculture, can impact on policy and regulatory decisions.
98. Agricultural inputs such as pesticides and fertilisers are also key to this sector.
Gibraltar, other Overseas Territories, and the Crown Dependencies
113 Agriculture in the UK (2015), Table 10.7. 114 Information based on EU financial year 16th October – 15th October. Figures exclude financial corrections/penalties. 115 Based on Pillar 1 Direct Aids payments, figures exclude financial corrections/penalties. 116 European Agricultural Fund for Rural Development payments. Member states are required to co-finance these receipts with a contribution from their exchequer. Figures are based on in-year quarterly returns, rather than the annual account (in order to provide the split between EAFRD and co-financing).
33
99. Gibraltar and the other Overseas Territories are outside of the EU customs union and free
movement of goods rules do not apply. The Crown Dependencies’ relationship with the EU is set out in Protocol 3 of the UK’s Act of Accession. Article 1 of the Protocol brings the Crown Dependencies into the Customs Union, and aligns their tariffs and other import measures for agricultural products with those of the EU.
100. The Channel Islands voluntarily apply all EU animal health legislation relating to imports and EU trade in live animals and animal product. The Crown Dependencies have their own domestic plant health legislation but are able to trade within the Single Market.
Existing frameworks for how trade is facilitated between countries in this sector
101. The arrangements described in this section are examples of existing arrangements between countries. They should not be taken to represent the options being considered by the Government for the future economic relationship between the UK and the EU. The Government has been clear that it is seeking pragmatic and innovative solutions to issues related to the future deep and special partnership that we want with the EU.
102. The EU has previously agreed a range of preferential trading arrangements with its global trading partners, which reduce and simplify the requirements for trading with the EU.
103. Under WTO Most Favoured Nation (MFN) rules, tariffs, duties paid on imported goods,
must be consistent for all countries, except those with a preferential trade agreement. In the absence of any preferential trade agreement, goods imported into the EU from non-EU countries must pay the MFN tariff. EU applied MFN tariff rates vary significantly depending on the particular sector and product. Tariffs and non-tariff measures (NTMs) are used to protect domestic production from losing out to cheaper imports. Higher trade barriers are put on sectors which are more sensitive. The product categories with the EU’s highest simple average applied MFN tariff include dairy products (35.6 per cent), fish and fish products (12.2 per cent) and fruits, vegetables and plants (13 per cent).117,118 Tariffs for certain commodities, including for some meat (including lamb and beef) and sugar products, can be substantially higher. In addition to preferential trade agreements, the EU has agreed a number of tariff rate quotas (TRQs) that allow trading partners to access the
117 Defined by the WTO as “The simple averages of “ad-valorem and ad valorem-equivalent MFN applied HS 6-digit” duties - in calculating the average tariffs, the same weight is given to all products, without taking into account how much the products are traded.” 118 World Trade Organisation, Trade Policy Review, 17 May 2017, https://www.wto.org/english/tratop_e/tpr_e/s357_e.pdf
34
EU market with reduced tariffs on specific products within set quota amounts. Once the quotas are exceeded the tariff rate reverts to the MFN rate.
104. Eligibility for preferential tariff rates is determined by Rules of Origin (RoO). RoO are used to ensure that only goods that originate in an FTA partner country receive the preferential tariff rates specified by that FTA. Evidence of the originating status, or “nationality” of the good is therefore required.
105. Negotiations between the EU and agricultural trading partners often begin from a starting
point of existing tariffs. Removing these tariffs creates both gains and losses. While the gains should outweigh any losses, the social and political importance of groups losing from the change can make it painful for certain sectors.
106. In addition to tariffs, agri-food products must be compliant with EU law. This can be
demonstrated in a number of ways, such as Export Health Certificates or other documents that demonstrate how an importer’s product is compliant. International agreements often provide for more streamlined border checks.
107. The EU’s free trade agreement with Canada (CETA) is an example of a modern
“deepening” or “living” FTA. It is ambitious in scope, covering both “traditional” areas directly related to trade as well as social development, environmental protection and labour standards.
108. CETA provides for the phased elimination of tariffs for the majority of agricultural lines,
as well as of all tariffs in fisheries and other goods. However, the EU retains strict quotas on some products such as beef, pork and poultry. CETA also provides for the protection of 171 of the EU’s Geographical Indications. Although no UK GIs are protected under CETA, Scotch Whisky is registered as a GI independently of the agreement. CETA falls short of eliminating non-tariff barriers between the two parties, as Canadian agricultural imports still require extensive EU-Canada border controls.
109. The EEA agreement excludes trade of most agricultural goods, but bilateral provisions
can be negotiated to cover liberalisation in this area. In practice, the level of tariffs on agricultural goods varies between each of the agreements as countries look to protect their sensitive sectors, but is generally lower than the comparable MFN rate. Norway does not face sanitary and phytosanitary border checks as it implements the EU acquis, but is subject to customs controls and tariffs on some products despite harmonisation through its EEA membership. EEA states voluntarily opt to comply with animal health rules. EU food law, food composition, food labelling rules apply to EEA states, however plant health rules (other than seed marketing rules) are not currently part of the agreement.
35
110. Switzerland is not part of the EEA Agreement, but trades agricultural products with the EU by close bilateral agreement. This allows unhindered Single Market-like trade in most cases (including zero tariffs on some important agricultural products), although in some circumstances products entering the EU are treated as third country products. The EU/Switzerland Veterinary Agreement is based on regulatory equivalence. The EU and Switzerland operate a common veterinary area (with reduced checks and certification); to achieve this Switzerland harmonised with a large amount of EU regulation.
111. Unlike the EEA and EFTA countries which maintain free trade arrangements with the
EU, Turkey is treated as a member of the EU Customs Union. This applies to processed food and drink, but not to agricultural products. Customs Union status enables Turkey to have reduced non tariff measures although some checks remain, but requires Turkish tariffs to align with EU tariffs. As Turkey is not able to access EU-negotiated free trade deals, EU FTA partners can export to Turkey while keeping barriers on Turkish imports. Turkey is also unable to negotiate free trade agreements that improve on EU equivalents.
112. The EU-South Korea free trade agreement takes a progressive, step-by-step approach
towards the reduction of tariffs for agri-food and fish products. It provides for the phased elimination of the majority of tariffs on agricultural goods, but sets out lengthy transition periods (or exemption from tariff liberalisation) for some sensitive agri-food products. While the agreement seeks to reduce barriers to trade, it does not provide for regulatory equivalence or a reduction in sanitary and phytosanitary (SPS) controls and is therefore less effective at reducing non-tariff measures.
113. The EU has a veterinary agreement (covering animal, but not plant health) with New
Zealand that has reduced the frequency of physical border checks on animal products. The agreement is based on outcome-based regulatory equivalence, aiming to provide both parties with flexibility in meeting the sanitary requirements of other trading partners. However, physical border checks are still required for one per cent of imports.119 The agreement however does not remove the need for all imports to enter the EU through a Border Inspection Post with a relevant Export Health Certificate and undergo a documentary and identity check.
114. In 2017, the EU and New Zealand entered into a partnership agreement setting out
measures for economic and trade cooperation. The agreement strengthened cooperation on SPS issues, customs procedures, environmental issues, agriculture and fisheries. Building on the existing agreements, the EU and New Zealand completed preparatory work for potential negotiations on a full Free Trade Agreement in March 2017 and the European Commission has recommended that the EU formally enters negotiations. The
119 European Commission, COMMISSION IMPLEMENTING DECISION (EU) 2015/1084, Annex VIII, http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32015D1084&from=EN
36
Council’s negotiating mandate for the Commission suggest a desire to address agricultural sensitivities and protect vulnerable sectors.
Sector Views [This information was provided by the Government to the Committee, but the Committee has decided not to publish this section]
