A Brexit with a deal strengthens the Spanish agri-food sector in 2020

 

  • All export sectors will recover from the uncertainty of the last few years, according to the estimates of the INSTITUT AGRÍCOLA     

  • The current situation doesn’t take into account forecasts of a 5.4% drop in agri-food exports in a no deal Brexit scenario, which would have led to the loss of thousands of jobs     

  • Catalonia is consolidating all its sectors that expect increases of up to 8%     

  • Apart from drinks, fruits, vegetables and legumes, Spanish exports to the United Kingdom will experience substantial improvements

  • The meat sector is positioned as a leader in agri-food exports from Catalonia     

 

The agri-food sector will improve its position after Brexit with a deal, based on the results of recent years. Taking into account that the uncertainty of the last few years had a negative impact on Spanish products with a decrease in exports - and a worsening of their conditions such as prices and payment times - which has also been shown in the first nine months of 2019 , a projection for 2020 allows us to predict the improvement of the sector in general.

Taking the base data as the export increase in the last period, a Brexit with a deal will substantially improve exports of meat products, dairy products and eggs; fishery products; sugar, coffee and cocoa; and fats and oils, while sectors such as drinks and fruits, vegetables and legumes register some decline. However, the year 2020 will lead to a 1.02% increase in exports in the sector, which will consolidate its growth and recover from the uncertainties of the past.

It should be remembered that the possibility of a no deal Brexit led to a worrying situation for Spanish agri-food exports that could fall by 5.4% that implied the loss of thousands of jobs and that would directly affect territorial economic environments.

 

 

Summary table of impacts Agriculture Spain

EXPORTS

BASE DATA

BREXIT WITH A DEAL

MEAT PRODUCTS

3.52%

16.96%

DAIRY AND EGGS

-15.50%

17.43%

FISHING PRODUCTS

-11.06%

9.71%

FRUIT, VEGETABLES AND LEGUMES

-0.70%

-2.06%

SUGAR, COFFEE AND COCOA

-8.10%

5.99%

DRINKS

-2.41%

-7.19%

FATS AND OILS

-6.55%

23.49%

TOTAL

-0.88%

1.02%

Source: self made.

 

 

The Catalan agri-food sector will strengthen in the meat and processed food sector in 2020

 

Catalan agriculture has a slightly different structure from the rest of Spain, with two strong areas: the first is the meat industry, which exports to the United Kingdom with a value of 123 million euros and the second, processed food with an export value in the first 9 months of 2019 of 66.7 million euros. The sale of fruit and vegetables is also present, although in a smaller proportion than in the total of Spain.

 

All of them have grown in the last two decades at annual average double-digit rates, between 11% and 14%. From being practically non-existent businesses , they have evolved to forge a growing export industry with pigs and cattle as strong points, which also poses a risk to trade restriction measures, especially if environmental, phytosanitary or animal health regulations are changed that in practice behave as non-tariff barriers.

 

As can be seen in the following table, all sectors recover positions in the British market, including the sectors of beverages and fruit, vegetables and legumes, which do not show increases in the rest of Spain .

 

Table Summary Impacts Agriculture Catalonia

EXPORTS

Base data

With a deal

FOOD, DRINKS AND TOBACCO

-5.43%

4.53%

MEAT PRODUCTS

1.01%

5.23%

PROCESSED FOOD

5.65%

8.35%

FRUIT, VEGETABLES AND LEGUMES

1.66%

4.00%

DRINKS

-15.08%

1.59%

Source: self made

 

 

Challenges for the agri-food sector after Brexit

 

After the electoral result of December 13 in the United Kingdom, the scenario of “Brexit with a deal” will be a reality , although negotiations are still arduous. However, the exit that will materialize on January 31, 2020, leaves several challenges for the agri-food sector. Based on the scenarios we designed in the “Consequences for Spanish and Catalan Brexit Agriculture” report of February 2019, and the latest data published by the Ministry of Commerce, corresponding to the first nine months of 2019, we believe that there are these points for discussion:

 

Will the United Kingdom continue to be a preferential partner in agrifood matters?         

It is the fifth largest destination country for Spanish agri-food exports with a share of 8% of the total and 6% of total imports.

 

What role does Spain have to play in British food security?         

It has a high degree of dependence on Spanish products. In this regard, the British authorities have prioritized the control of the supply of basic food from Spain because it currently produces only 60% of its agrifood consumption. However, British agri-food products are barely consumed in the interior, since it exports 70% of its production to the European Union. Thus, its degree of dependence on Spanish and other European countries imports is even greater, especially given the concern that the inflation rate will rise more.

 

Redefine the commitment of Spanish agri-food companies in the United Kingdom.

The UK is a market where the preferences of its citizens have evolved towards higher quality products at competitive prices. In the period 1995-2017, the size of the British market for Spanish agriculture has grown at an average annual rate of 6.5%, exceeding 4,000 million euros. Spain has gone from being an importer of agrifood products from the United Kingdom (especially processed food and beverages), to being a net exporter thanks to the fruit and vegetable, fat and oil sector and the fishing sector (and to a lesser extent also tobacco production), and reducing the trade deficit in beverages, meat and processed food.         

 

Measures to stimulate the strength of the agri-food trade between Spain and the United Kingdom in fat, oils and fruits and vegetables .         

In this sense, between 1995 and 2017, exports of fats and oils have grown at an annual average of 11.12%, while exports of fruit and vegetables have grown at an average annual cumulative rate of 5.47%.

 

In global terms:       

A “Brexit with a deal” dampens the negative effects on the Spanish agri-food sector, reducing the growth of exports to around 1% year-on-year (results similar to those of 2017 with respect to 2016, the first year of uncertainty after the vote on June 23, 2016).

 

Should the contribution of the United Kingdom to the CAP be replaced by more contribution from the member states or should a budget cut be undertaken?         

Being the second largest net taxpayer (11,566 million euros at the current exchange rate), it is necessary to establish a position on whether to contribute a higher percentage of Gross National Product (GNP) to the common budget or to cut the agricultural share. However, given the weight of agricultural policy in the Community budget (around 38% of the total non-financial expenditure of the EU) and the spending priorities established in the negotiations of recent years, it will be necessary to cut spending of other items to cover this 11,566 million or to cut the share destined for the CAP, especially of the direct payments.

 

Self-financing of countries must be ruled out:         

It would be in practice the break-up of the common market given that countries that have greater financial capacity could subsidize their farmers more and better (in the case of the largest net contributors to the budget such as Germany, France and the United Kingdom) while countries with greater financial constraints would have more difficulty helping their national agricultural sector. This point will be clarified soon because the single market and the "national treatment" clauses are part of the backbone of the Customs Union.

 

Non-tariff policies :         

The exit by the United Kingdom also does not clarify some of the commitments that Europe has yet to fulfill in terms of non-tariff barriers (sanitary, environmental and fiscal regulations, among others) and in terms of control and surveillance of the distortion of origin prices caused by Agricultural subsidies. At this point, there is a common position between the European Union and the United Kingdom that shares the vision that the CAP must evolve from the first pillar (direct payments) to the second pillar (conditioned rural development), even considering a mechanism for transferring funds from the first to the second pillar.

 

January 2020