The withdrawal agreement that the UK left the EU with on 31st January 2020 (Brexit day) had a primary purpose of setting out a process to allow the UK to leave the EU with minimal disruption. The agreement resulted in a decision on an 11-month transition period (commenced 1st February 2020) and covered
negotiating a new trade relationship – including a potential trade deal.
As the end of the transition period fast approaches (31st December 2020), uncertainty regarding a trade deal continues to exist between the EU and UK. The deadline for extending the transition period has now passed, and with less than seven weeks to negotiate, a no-deal scenario remains a real possibility. Accordingly, market participants have become increasingly anxious regarding the potential impact of a no-deal situation on commodity markets. In the absence of a trade deal, the two territories will have to trade under World Trade Organization (WTO) rules from the 1st January 2021, meaning both the UK and EU would pay tariffs on
As expected, there are concerns across the food industry that tariffs will result in firmer prices, particularly at a time when consumers face severe financial hardship in the wake of the coronavirus pandemic. However, the price effects of Brexit vary across commodity markets and are reflective of numerous factors, many of which are country and market-specific. For example, the potato market, where the UK significantly imports and exports to the European market, the price effect is dependent on the specific variety. The rapeseed market, where the price effect of Brexit correlates with UK supply fundamentals, rather than tariffs, which remain untouched under the WTO Most Favoured Nation (MFN) tariffs scheme. The differing price effects show that whilst Brexit remains a crucial catalyst for price change; the impact is likely to be exacerbated or alleviated depending on the prevalent market fundamentals. Furthermore, to be exported to the EU, commodities such as UK barley could face tariffs of €93/tonne under the CET agreement. Accordingly, both countries will likely use Brexit as a catalyst to forge new trade relations with countries such as China.
Lastly, a no-deal scenario would impact the UK meat and dairy markets significantly since the UK exports 82% of its beef production and 83% of its cheese production to the European market.
In this report, Mintec starts by showcasing how the Mintec Brexit food price index has fared since the EU referendum in June 2016, emphasising index movements since the beginning of the transition period. It goes on to analyse the likely impact of no-deal and deal scenarios on specific commodities in various food categories. The potential price impacts are mostly based on a no-deal scenario, using average prices available on the Mintec Analytics platform. They are for illustrative purposes and may not necessarily account for changes in additional costs, including freight and marketing.