Brexit, Covid-19 and trade negotiations: what can sheep tell us?
FT Trade Secrets editor Alice Ross visits a Welsh sheep farm in the Brecon Beacons to see what the UK's exit from the EU will mean for farming, trade and tariffs - and asks how coronavirus could influence negotiations
Produced filmed and edited by Joe Sinclair; additional filming by Finn Beales
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This Welsh sheep farm may look beautiful but it's under threat. Not just from the impact of Brexit, but now also from coronavirus. Sheep farming is big business in Wales, which has a flock of 9.5m. Sheep here outnumber people three to one. But coronavirus shut down the service sector overnight. A third of the lamb market gone.
So what can sheep tell us about trade, Brexit, and British farming? Is there a risk that the UK farming industry as we know it won't survive in its current form?
I think it's really, really important that we take these challenges one at a time. You know, we absolutely must deal with the coronavirus. That's our first priority now. That's got a massive impact on all agricultural markets at the present time.
Next, we need to make sure that we get a deal with the EU. So we need to work from that and ensure that is right. And then obviously, we have the agricultural bill. That will set the standards and the way we trade.
Some farmers, like Garry, we're worried about leaving the European Union long before the coronavirus hit. The domestic market is split between the service sector and retail. But the remaining third of all the UK lamb is exported. And, until now, more than 90 per cent of exports have gone to the EU.
So what's the issue? Well, when it comes to trade getting on with your neighbours is very important. Countries that trade a lot with each other can form a customs union like the EU, which doesn't impose tariffs on members but does impose tariffs on non-members. And when trade ties are tight breaking up is hard to do. Which is why Brexit is hard to do.
The UK needs to work out how to move from being inside the tariff-free EU customs union to being outside that union. And it needs to negotiate which tariffs are likely to apply. It also needs to find the time to negotiate all this in the middle of a pandemic without face-to-face meetings.
EU tariffs on agricultural products are already higher than average. That means UK sheep are at particular risk. We visited Garry's farm in the Brecon Beacons before the outbreak.
Garry, can you tell me which way you voted in the Brexit vote?
Yes, I voted Remain, actually. Important part of our income is the support for food production and environmental management, which was paid directly from the EU. We need a trade deal. And we need, we need a trade deal to be completed effectively. It is absolutely vital for farming within Wales and, indeed, the UK.
So Garry, tell me, this sheep right now, how much would you get for it if you sent it to the EU?
Oh, this lamb is worth about £80.
£80 at present, yeah.
Unless the UK signs a preferential trade deal with the EU, its exports could be hit with the standard tariffs the EU charges all members of the World Trade Organisation.
For lamb, that ranges from 40 per cent to 80 per cent. 40 per cent of £80 is £32, which would bring the price of the sheep up to £112. Passing that extra cost onto the consumer would hit demand. But if farmers were forced to pay they could end up operating at a loss.
I mean, would you actually go out of business if that happened?
Well, I mean, we'd be in serious trouble. Yeah, you know, we'd be in very serious trouble. We'd be... and, you know, you may be able to cope with it for six, nine, 12 months, but not moving forward, you know, not over any sort of sustainable time period.
Before coronavirus the National Farmers Union warned that a no-deal Brexit would be catastrophic for British farming. UK politicians are insisting they will not extend the current transition period beyond the end of the year. That means leaving without a deal is still a real risk.
You can only take so many hits at a time. So let's take a sensible, pragmatic view to this year. Great - if we can get a deal like it's been promised and with no tariffs and a good trading relationship, that's absolutely great. But let's be realistic on what can be achieved here.
I don't know... you know, there's been a lot of really great things to be learned from using the internet for meeting purposes, this, that, and the other. But when it really comes down to the nuts and bolts of it, when we really getting to those final stages, I think you need to be sat across the table looking eye-to-eye and picking up all of the body language, and understanding all of those messages coming across.
The lack of a trade deal with the EU could result in a serious blow to the export of UK animal products. The UK government could cut tariffs to stop a rise in food prices, actually increasing imports from overseas. And trade barriers between the UK and the EU could make it harder for farmers to get medicines, fertilisers, or immigrant labour.
Of course, it's not just agriculture. The EU is the UK's largest trading partner. In 2018, UK exports to the EU were $291bn. That's 45 per cent of all UK exports. UK imports from the EU were $357bn, or 53 per cent of all UK imports. If these exports and imports get hit with tariffs that could be difficult for various industries, not just farming.
If farmers don't get a good deal in these trade negotiations with the EU, how would it affect the local communities here?
You know, we are the backbone of the communities. And, as the farmer, if the farmer numbers decrease, then, you know, where does this leave the local schools, the local businesses that are reliant on the farming custom?
Are we just going to be a retirement haven for, you know, people have enough money to move here and live here, bearing in mind that a lot of these farms are... some of them are fourth, fifth generation. You know, their families have been living here for hundreds of years. The Welsh language is based around the farming communities. Our culture... it's not only business, you know?
Through Brexit, Britain voted to go it alone. Some saw clouds overhead, others saw a light shining through. But few predicted a global pandemic could also be on the horizon. Now farmers must struggle with this new challenge.
The political and economic landscape has changed. New trade deals will change the landscape once more.