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Brexit: a matter of economics

2020-01-21 08:26:08

Interestingly, The Times has weighed in on the "chlorinated chicken" controversy, arguing that a ban on produce from the United States for that reason would be "unwise and unscientific".

Whether a ban would be "unscientific" is actually arguable, but the differences in production regimes as between the US and the UK (under EU law) certainly reflect differences in regulatory philosophies which cannot be easily dismissed.

Another factor which must be taken into account is the effect accepting US produce would have on UK enterprises which export processed foods containing chicken to EU Member States. Post Brexit, those companies have to produce documentary evidence certifying that the chickens are reared and processed in accordance with EU law, which will add costs to the export process.

Additionally, they might also have to give specific assurances that their goods are US produce-free, even to the extent of having to run dedicated production lines where raw material sources are restricted and controlled. That, in turn, will add to costs and make our products that much more uncompetitive.

But, when it comes to costs, one wonders whether The Times, with its new-found enthusiasm for American chicken, has actually looked at current prices on each side of the Atlantic. Average retail prices for whole chicken in US cities (converted to sterling) stands at £2.45/kilo. On the other hand, a visit to Tesco over here will procure the same goods for £2.11/kilo while Sainsbury's will set you back £2.05.

For the US produce to reach the UK, there will be the small matter of shipping costs, which means that – on current price levels – there is no competitive advantage for American poultry.

It might be argued, however, that the US will mainly service the processing industry, but that has the problems I've already identified. And, for goods such as chicken soup and pies, the industry tends to use spent hens (laying birds which no longer produce eggs). Prices in the last few years have been low, down to 15p per bird, although I have known them as low as 5p. The United States could not possibly compete in this sector, especially as The Times tells us we also process spent hens from Ireland.

If we then turn to eggs, a dozen in the US will on average set you back £1.23 while the same dozen in Tesco (if you can get them – the standard pack size is 15) will cost a mere 96p. Moreover, US prices have been higher, peaking at £2.12/dozen in 2015.

The retail price for ground beef (minced over here) will set you back £3.52/kilo in the US, while your local Tesco wants a mere £3.30 for the hormone-free product. And for eggs and meat products both, there will be shipping costs to find.

From the look of it – if the retail pieces for these products are any guide – there is no great gain for the US in securing a trade deal with the UK. To judge from some prices, the UK might even find itself exporting food to the United States.

There, however, UK meat producers might find that they have a different set of problems to deal with. Here, much has been said (wrongly) about US food safety standards being lower than their EU equivalents, and with minced beef this is certainly not the case.

In 1994, the US Federal Food Safety and Inspection Service (FSIS) began testing samples of raw ground beef for E. coli O157:H7 and declared that any such product found with this pathogen would be considered adulterated. This was the first time a foodborne pathogen on raw product was declared an adulterant under the meat inspection law, a provision which also applies to imported meats.

In the absence of the post-slaughter bactericidal carcass washing (practised widely in the United States but prohibited by law in EU Member States), it is unlikely that such a "zero tolerance" standard could be achieved by British producers.

Where the volume warranted it, producers could of course set up dedicated plants to service the US market, but they could well confront the same issues experienced by Canadian producers servicing both the US and European markets.

Typically, there were finding that there were different markets for the different cuts but, to service one market required whole-carcass treatment which ruled out splitting carcasses to service the different markets. And without that flexibility, the trade is scarcely (if at all) profitable.

On top of that, in line with European practices, where the EU's Food and Veterinary Office (FVO) carry out audits of third country establishments, the FSIS conducts overseas evaluations to determine that meat imports from foreign countries are processed under "equivalent" inspection systems.

Agency officials also verify equivalency by visiting various foreign slaughtering and processing operations, and a plant seeking to export meat or poultry to the United States must first receive FSIS certification.

For UK producers, who will also have to undergo FVO inspections by EU officials, as well as having their operations certified as conforming to EU law, the imposition of US inspectors, could be the last straw. This will be further complicated when those inspectors ask for their own standards to be applied in order to certify "equivalence".

While the US actually imports about 20 percent of its domestic meat consumption, its main suppliers are Australia followed by New Zealand and Canada. Australia, New Zealand, Canada & Mexico accounted for 87 percent of US beef imports in 2015.

Currently, Brazil is seeking to resume exports to the United States, after the trade was suspended in June last year, which would add cut-price competition to an already crowded market.

And on that basis, it is really difficult to see the UK securing any significant volume of sale to the US in the meat and poultry sectors. And, if there is no price advantage in the US selling to the EU, one has to ask what all the fuss is about, when it comes to negotiating a US-UK trade deal that includes such agricultural produce.

Nevertheless, it is still the case that trade discussions could be on the stocks before we get down to brass tacks with the EU. That the EU is not rushing into the field was confirmed yesterday when the Commission stated that it would not be ready to start talks on a trade deal with the UK until at least the end of February.

The Commission's chief spokesman, Eric Mamer, told journalists that the Commission could adopt its proposal for the negotiation directives only once the UK had actually withdrawn from the EU, whence there was still "an institutional process" for these to be adopted by the European Council.

This, inevitably, takes time, which has the Commission saying that it will start negotiations "as quickly as we can", but it will certainly not be before the end of February, beginning of March.

But, even if the US-UK talks do get under way before the first formal session of EU talks, it should not take long for the reality of the situation to take hold. In many respects, there is little trade in certain goods between the UK and US because there is no commercial advantage from such trade, or because the practical and/or regulatory barriers are too high.

Undoubtedly, there must be some sectors which will benefit from a trade deal but, one suspects, the overall benefits might be less than expected.

And yet, with the current stance of HMG, we are rather boxing ourselves into a corner. From the man who famously told us that: "The free trade agreement that we will have to do with the European Union should be one of the easiest in human history", we now get from Liam Fox the warning that any automatic alignment to EU regulations as they change over time would be "completely incompatible" with the concept of Brexit.

He thus stresses that frictionless trade between the two sides is "simply not possible" under Downing Street's vision of the future relationship.

With the EU "busted" and a US deal potentially amounting to not very much, it does begin to look as if Johnson's heady optimism about getting Brexit "done" is a tad misplaced. The term "between a rock and a hard place" springs to mind, although that is far too laboured a cliché to use just now. We'll have to save it for later.