It is unclear what impact Brexit will have on the free-range egg industry, but as 29 March 2019 looms closer and a deal is yet to be struck, possible implications are starting to arise in the event of a ‘no-deal’ situation.
The Government insists that a ‘no-deal’ scenario is unlikely, however it has drafted together a number of papers that are meant to detail how things will operate should the situation arise.
In the free-range sector Brexit has few implications on farm payments and government funding, but trade, labour, regulation and feed costs could all be directly or indirectly affected.
As far as life after Brexit goes, the good news is that the egg industry is likely to be least affected of all agricultural sectors, whether a deal is reached or not.
“Free-range and organic producers are not going to be as badly hit by Brexit as the other agricultural sectors,” explains Robert Gooch at BFREPA.
“This is mainly because they have very little trade with the EU as a proportion of total output and the sector is not really affected by subsidies – so it’s relatively immune.”
However, Robert feels that Brexit will be bad overall, with a ‘no-deal’ the worst case scenario. “This is mainly because of the effect it will have on the economy - the Brexit deal that takes us furthest away from the EU will hit the UK economy most.”
Pundits have so far estimated that the economy will lose 5% of its GDP growth as a result of Brexit, he explains. “So premium, free-range and organic eggs - which are more expensive for consumers – will see less potential on the market as customers will want to buy lower value eggs.”
Tom Keen at the NFU anticipates that the EU is likely to act tough; and as our biggest trading partner, this is going to change things.
Trade and egg prices
Working with the British Egg Industry Council, the NFU estimates that 55% of eggs sold are shell egg for retail, 23% shell eggs for wholesale and 23% are egg products, such as powder and liquid eggs.
“There are a lot of retailing commitments on this, particularly for free-range,” says Tom.
Although the UK imports some shell eggs from the Netherlands and Belgium, this is in relatively small amounts. Producers selling retail shell eggs - particularly free-range - are therefore quite insulated from changes in trade and tariffs. “Retailers want UK shell eggs,” says Tom.
However, it’s a little bit different for wholesale eggs – as more of them are imported. Realistically, the only place that shell eggs can come from is the EU, because any further and it is a bit tricky when it comes to transport and meeting UK standards.
Processed eggs can be sourced from anywhere in the world and powder is already imported. If tariffs are dropped there would be price drops in those imported products. “So there are winners and losers depending on what situation we end up in,” explains Tom.
But every outcome of Brexit is likely to make trade more expensive with the EU, he adds.
A ‘no-deal’ Brexit could mean that WTO tariffs are implemented on all imports, which would raise the price of all egg products coming into the UK, explains Robert. “Therefore, everything could be leveraged up a level as it would be more expensive to bring anything in.”
However, a ‘no-deal’ would also mean the Government could choose any level of tariffs it wants, he says. “If high tariffs were introduced on imported food, then food prices would go up, which would be good for egg prices – but production costs would also go up.” This also seems unlikely given the Government’s policy for cheap food.
The impact will depend on what market you are producing for, says Tom. “Free-range egg producers are the least exposed of all producers and changes in the value of Sterling are likely to have more impact than tariffs. What is really important is retail and processor commitments.”
Labour
According to Tom, labour is the most impactful aspect of Brexit, affecting the cost and availability of staff.
A lot of labourers working in agriculture are not from the UK. “The value of the Pound and immigration policies are likely to impact this; producers may well have already seen changes and have had difficulty recruiting.”
Around 35-40% of staff working on integrated egg farms are from the EU27 countries, he says. “That’s quite a significant number of staff. There is a reliance on these people – if they were told to leave, there would be a problem, so we need to think about that.”
However, though it’s already clear that Brexit has affected labour coming in from the EU, it’s not clear if a ‘no-deal’ situation would make things worse or not than a Chequers deal, says Robert.
Immigrant labour is very important for packers and this could have a knock-on effect on the whole industry, he adds. “A lot of farms also employ migrant labour, but the packers and processors will be most affected.”
One of the biggest things for producers to think about is the cost that drawing in labour could incur, explains Tom. “Across all agricultural sectors, if we started paying the same as construction and manufacturing to attract people, we would have to increase wages by about 52%,” he highlights.
“But you have to pay more to be able to attract people.” This could be the main driver that affects a farmer’s income in the years ahead.
“So the labour issue is absolutely crucial. Even if you have positive effects on your income because trade tariffs are up, you will be paying more for your labour,” he says.
“Labour is really one of the deciding factors in the fortunes of egg producers going forward and is something for everyone to be thinking about.”
Domestic policy and farm payments
UK agricultural policy will change, and we have more details about that now the Agriculture Bill has been published. However, while this will have an impact, it’s likely to have the smallest ramifications for poultry producers, compared to the rest of the sectors.
According to the Farm Business Survey, poultry producers and specialist poultry farms don’t get too much from public payments.
On average poultry producers derive around 14% of their income from from BPS and 2% from agri-environment schemes – however, producers should treat these figures with caution as the Farm Business Survey lumps poultry meat and eggs together and the sample size is small, warns Tom.
Producers may also have another part of the business that draws in a subsidy payment.
“On the whole poultry producers will be less reliant on public support,” he adds. “The reality is, at the minute it matters how much land you have, but direct payments are being phased out – so any payments will be reduced.”
Rather than seeing this as a negative, he suggests that it could provide opportunities to invest. “What can you do with your land or business as a result of this?”
Though producers are seeing minimal effects from changes to agricultural policy in terms of their current financial gain, it doesn’t mean that changing environmental and welfare standards won’t have an impact.
Regulation and standards
Regulation has a cost. Whether Brexit ends in a deal or not, questions are likely to be asked about whether standards can or should be improved and if doing so is worth it, says Tom. “Will we see this reflected in the price we get for our eggs?”
The other issue of a ‘no-deal’ situation is that there would be no agreement in place with an equivalence of standards, explains Robert. No framework on what is deemed as free-range or organic could affect how and where products can be sold.
“Even though there is no vast inter-trade with the EU currently, this would be bad news for trade or even the potential to trade.
“We would have to create new rules, and these may not be the same as EU rules or even the rest of the world,” he adds.
Feed
Trade will also affect input costs – but by how much? According to Tom, the industry’s average feed use comprises 72% wheat, 11% barley and 17% soymeal. “Now this is why trade matters. The UK has a small import requirement of wheat, so higher trade tariffs could increase feed costs,” he says.
However, the UK exports barley, so the price of this might fall if tariffs were introduced. “We import soymeal and there are no tariffs on it anyway - unless the UK decides to put a tariff on it, but again this is unlikely,” he explains.
Overall, NFU analyses found that feed prices would only change by a few percentage points because of tariffs and the costs of trade.
Most cereals are traded on world markets with no tariffs and there are maximum tariffs that can be applied, giving an indication of the worst case scenario – WTO tariffs, says Tom.
“So feed prices are probably not going to change too much because of trade. What really matters is exchange rates and this will arguably change the cost of feed more.”
Import tariffs
Tariffs could also impact on housing and equipment that is sourced from EU countries, explains Robert. “A lot of these inputs are imported from the EU. There is uncertainty about how these would be treated in the instance of a ‘no-deal’. If we had a Chequers-type deal with no tariffs on these products, then we would know where we stand.
“But if there’s no deal, we could have higher WTO taxes on imports.” Though this will most certainly have implications for the industry, the full extent and cost of it is not known.
The only appropriate response from producers is to get the business into the best place possible, suggests Robert. “We just don’t know what the outcome will be. It’s very hard to predict and therefore very hard to plan, as we export so little of our free-range egg products.
“But the strength of the Lion scheme and the small amount of imports means that the market – to a certain extent – is protected, unlike other sectors,” he adds.
The most important thing will be the public backing British farming, Tom points out. “It’s probably more important than ever that consumers are buying British food and that politicians know everything that farming is doing for its local areas and the countryside and the economy. As a sector, poultry is fairly well placed as it is already pretty self-reliant and forward thinking.”
