Ongoing “generous” farm subsidies in Australia's Brexit firing-line

The inquiry has heard views from a broad range of agricultural groups during its process of examining potential reformed trade relations with the UK and EU, post-Brexit.

The National Farmers’ Federation’s inquiry submission said the UK was Australia’s largest agricultural export market within the EU, accounting for almost a quarter of total agricultural exports to the EU by value with beef, sheep-meat and wine being major Australian exports.

But Australian agricultural exporters are currently “restricted” in trading to the UK by the low EU volume quotas and high out-of-quota tariffs “imposed” on many Australian products including beef, sheep-meat, sugar, rice and wine, the peak farm lobby group said.

“Consequently, Australian agricultural exporters are not able to respond to market signals,” the NFF submission said.

“However, the potential negotiation of an Australian UK free trade agreement once Brexit is complete would present the opportunity to renegotiate these quotas and tariffs, and it presents a substantial opportunity to deepen and strengthen this important trading relationship.”

But the NFF also said Australian farmers were also concerned about the future of farm subsidies in the UK and EU via the Common Agricultural Policy (CAP), in the uncertain post-Brexit trade and economic environment.

“It is suggested that as part of Brexit, UK farmers will no longer receive the generous agricultural subsidies that are associated with EU membership,” the submission said.

“The current EU CAP provides UK farmers with up to 50pc of their annual income, with the average farmer in England receiving direct subsidies of (A$412) per hectare each year.

“Additional payments are available under agri-environmental and other schemes, with the total EU payments to UK farmers exceeding (A$4.9 billion) in 2015.

“It is estimated that payments such as these are roughly equivalent to 50pc of the total income from farming generated in the UK each year.

“In theory, when the UK leaves the EU, CAP payments will no longer be available to UK farmers.

“The suggestion is that the UK government will need to replace these payments with a similar subsidy, and this is an area of significant interest to the NFF, as this ongoing subsidy severely impacts on the competitiveness of Australian products in the market.”

In its submission, JBS Australia said the EU and UK farming sectors were “highly subsidised” which had the effect of placing downward pressure on those markets and acted in combination with tariffs, tariff rate quotas and sanitary and phytosanitary restrictions to provide “solid protection” for farmers in those countries, from international competition.

“JBS supports the Australian government being proactive with the UK in the Brexit period, through undertaking a comprehensive joint scoping study in relation to an FTA between both countries,” it said.

“If there is political will on both sides, then with Brexit there is the opportunity to execute an FTA quickly to deliver better market access for both countries.

“From an Australian perspective, the key is to promote our long term capacity in supplying the UK market and to identify roadblocks in the red meat sector, that we currently have in the EU and to show how breaking these down will result greater commercial opportunities through increased trade.”

As examples, the JBS submission cited the market’s “restrictive” tariff rates quotas, position on hormone growth promotants and the “Australian imposed” European Union Cattle Accreditation Scheme.

“There is an opportunity for the government of the day in the UK to use an FTA with Australia to drive real economic reform in the UK including agriculture,” it said.

Agribusiness Australia’s submission said one of the more challenging issues facing UK farmers was that they’d no longer receive “generous” EU agricultural subsidies associated with EU membership.

It said the UK government had long been a critic of the CAP, arguing that it should be transformed into some form of risk management or insurance system, rather than the current system of direct payments.

“If this view prevails, then it is likely that UK farm subsidy levels will be reduced in the future,” it said.

“This obviously has implications for UK agriculture, given that it is widely acknowledged that UK agriculture is not internationally competitive.

“It is inevitable that the UK’s agricultural production would decline significantly in the event that subsidies were removed.

“This would mean additional opportunities for competitive agricultural exporters such as Australia, although the nature of UK agricultural imports (predominantly fruit and vegetables, pork and poultry meats, and wine) means that Australian would only gain small additional benefits from a reduction in UK farm subsidies.”

Agribusiness Australia also said it remained to be seen how the CAP’s removal would impact on UK food producers - but any increase in trade barriers or reduction in producer subsidies would act to raise the cost of food sourced domestically and from the EU.

“Since the Brexit vote, sterling has depreciated to some of its lowest levels in 30 years; and it would be reasonable to expect continuing short-to-medium terms weakness,” it said.

“This will result in imported foodstuffs becoming relatively more expensive on the UK domestic market.

“In the longer term, high food prices may be off-set by free trade agreements beyond the EU – including with Australia.

“Experts suggest that the UK’s dependence on agricultural imports from the EU will be reduced due to likely trade barriers, and this will open up opportunities for other nations to export agricultural products to the UK.

“However, the UK currently accounts for only approximately 1.5 per cent of Australian agricultural exports, and it seems unlikely that even in the post-Brexit era, this will increase to any great degree.”

SunRice’s submission said the Australian rice industry hadn’t benefitted from recent FTAs signed with Japan, China or South Korea and wasn’t provided any subsidies or protection from the Australian government - unlike many competitors.

“While recognising the challenges of including Australian rice in FTAs focused on Asian markets due to cultural and political sensitivities, such factors should not impact in any way on trade negotiations with the UK as it has no domestic rice industry to protect or support,” SunRice said.

“Since 2011, the UK market has averaged almost 80pc of SunRice’s total volume of trade to the EU.

“The market for Australian Japonica rice in the UK is growing strongly due to the phenomenal increase in the popularity of Japanese cuisine.

“However, Australian milled rice exports to the UK are restricted because of the broader EU’s application of tariff rate quotas (TRQ) and the prohibitively high tariffs on imported volumes above the TRQ levels.

“The UK’s exit from the EU, and the possible negotiation of a FTA between Australian and the UK, represents a significant opportunity for Australian rice exports into a market where there is demonstrable and increasing demand for high quality Australian rice.”