Brexit: Trade in Food

George Eustice Excerpts

Thursday 14th June 2018 Westminster Hall

[Neil Parish (Tiverton and Honiton) (Con)]

I beg to move,

That this House has considered the Third Report of the Environment, Food and Rural Affairs Committee, Brexit: Trade in Food, HC 348, and the Government response, HC 1021.

It is a pleasure to serve under your chairmanship, Mr Gray. As you have said, let us hope we see a Minister in the very near future.

Before we begin, it is one year since the disaster of Grenfell Tower, and I want to remember those whose lives were devastated when they lost their loved ones and their homes. We should all reflect on that.

I welcome the Minister’s announcement in the Chamber last night that the Department for Environment, Food and Rural Affairs will bring forward two Bills on sentencing and animal sentience, as recommended by our Committee.

The British public voted to leave the European Union in 2016 so that we could take back control of our money, laws and regulations. Farming is a prime example of that. For 40 years, all our policies have come from Brussels, but now we will be able to decide a new farming policy for ourselves. I chaired the agriculture committee of the European Parliament, and in trying to deal with 27 countries, from Finland in the north to Spain in the south, it can sometimes be difficult to come up with a policy that suits everyone. We have a bright future, provided we embrace what will be good not only for the environment, but for farming and food production in this country.

We need to know exactly what impact Brexit will have on our agricultural sector. That is why the Environment, Food and Rural Affairs Committee held an inquiry on Brexit and food, which we published on 18 February. My Committee spoke to many people—farmers from all sectors, academics and other food and farming professionals—and they all agreed that trade is crucial to the farming industry. As a rural MP and a former dairy farmer, I know more than most how important that trade is. [Interruption.] It is good to see the Minister arriving. I will allow him to take his seat. It is all right, Minister. It is usually me who is late, not him.

[The Minister for Agriculture, Fisheries and Food (George Eustice)]

I must give my apologies for missing the start of the debate. The reason is that I thought a debate of such importance should be in the main Chamber. I was hovering outside the wrong Chamber, but I am here now. I apologise for missing the first few minutes.

[Neil Parish]

That is a very good apology. The Minister elevated our debate to the Chamber when we are actually in Westminster Hall. I appreciate his explanation and thank him for arriving. I am sure his officials will fill him in on the start of my speech.

We have a great farming industry and high-quality products, and it is important that that is supported over the coming years. Continued trade with the EU is essential to ensuring our farming sector thrives after Brexit. We must have an outward-looking, global Britain. That will be key to seeing our agricultural sector flourish, but we must also maintain a good share of our home market and home production. I feel strongly about that. We buy 70% of our food and drink imports from the EU, and we sell 60% of our food and drink exports back to the EU. We can see that trade to the EU is extremely important, and that that means that a farming-focused free trade agreement with the EU is essential. We have always sought reassurance from Ministers that as the deals are done, DEFRA, DEFRA Ministers and the Secretary of State will be at the forefront.

If we do not reach a free trade agreement with the EU, our agricultural goods might well be subject to tariffs once we have left. EU tariffs are high. Tariffs on dairy products are over 30%, and they can be as high as 80% on frozen beef. Reverting to World Trade Organisation rules would be even worse, as tariffs there are far higher for agricultural goods than for many other products. In addition, all countries must be treated equally under WTO rules. For example, Irish beef would need to have the same tariff as Brazilian beef, which could be devastating not only for us, but for Ireland. That is why our report recommends that the Government undertake work as a matter of urgency to evaluate the impact of any deal that they negotiate.

We are calling on the Government to publish a sector-by-sector analysis on the impact of Brexit so that we can better understand how tariffs will affect our farmers. For instance, in the dairy sector we import a similar amount to what we export. We are often importing yoghurts and cheeses, and we have the ability to produce more of those ourselves. We could therefore reduce the need for imports, as we could in other sectors, such as the pig and lamb sectors.

We export some 40% of our lamb, and import some 35%. On the face of it, we could say, “That’s okay. Stop the exports and the imports and we can eat all our own lamb,” but in reality we are exporting fifth-quarter joints and importing legs of lamb from New Zealand. We can see that the trade in lamb backwards and forwards, and with France in particular, is incredibly important.

The Secretary of State assured us on the sector-by-sector analysis yesterday in Committee, and I seek your assurance, Minister, that that work is under way and will be published. In my view, it should have been done already. We have seen, rightly in many respects, many more extra staff being taken on in DEFRA, but I have to say bluntly to you, Minister—

--- Later in debate ---

[The Minister for Agriculture, Fisheries and Food (George Eustice)]

It is a pleasure to serve under your chairmanship, Mr Gray. I apologise again for being late to the debate, for the reasons I described earlier.

I thank the Chair of the Committee, my hon. Friend the Member for Tiverton and Honiton (Neil Parish), for introducing the debate. This is an incredibly important issue that matters to all sectors of the economy and to food and farming. I want to set out, for the record, the Government’s approach to our future trading relationship with the European Union, because that is important. Much of the report looked at the consequences of a possible no-deal Brexit, for reasons I can understand and that I will deal with, but it is important to recognise the UK’s position.

We are seeking a bold and comprehensive free trade agreement with the European Union. We want tariff-free access for all sectors, which would be reciprocated, and we seek a frictionless border. We believe that the growth of technology in the last 20 to 30 years means that we do not have to have as much friction at the border as some would claim. Indeed, we have looked the procedures used prior to 1993, when the single market was introduced—an important point that many people forget. We had frictionless borders not when we joined the European Union, but after 1993. Technology has assisted a lot with the frictionless borders that we enjoy today in the European Union—that is not just about the regulations of the single market.

[Neil Parish]

I agree with the Minister entirely; it would be great if we could get the frictionless trade deal and frictionless borders. Is he convinced that when we have the technology—I think we have it—it will work? I must be quite blunt about the Rural Payments Agency, Natural England and others. I know he will defend them to the hilt, but I said yesterday that they are not fit for purpose. If they were in the private sector, they probably would be dead by now, because they do not handle things properly—every time, we get more and more problems. The key thing is whether we can get this to work and whether we can get Europe to agree to it. Ultimately, let us get those lorries across the border and back again. We all want that. That is the reassurance we are all looking for.

[George Eustice]

I agree with my hon. Friend. I was going to come on to why it is in everyone’s interest to do the type of agreement that we are offering. We do not believe that we have to have total uniformity of regulations on these various issues to have a frictionless border. It is quite possible to recognise what in trade jargon is called equivalence.

Our offer to the European Union is that bold and comprehensive free trade agreement, tariff-free trade and frictionless borders, where the European Union and the UK can both adopt a risk-based approach to any border checks they might put in place, assisted by technology. We want to give each other confidence by agreeing a set of arrangements through which we will recognise the equivalency of our various regulations. That can be done. Our starting point is not as a third country trying to establish a trade deal with the European Union, but as a member state that is stepping back from being a European Union member. On day one, we start with absolute uniformity of our regulations. That is unique in the world, which is why it is absolutely possible to do the type of agreement on borders that we seek.

The other point to recognise is that the European Union has a trade surplus with the UK in food and drink alone of £18 billion each year. It may feign indifference to its trade with the UK for the purpose of the negotiations that are going on, but that matters. Access to the UK market matters to Irish beef farmers, poultry producers in the Netherlands, pork producers in Denmark, horticultural producers in the Netherlands and cheese producers in France. They need access to the UK market. Therefore, it is in their interest to take up what we are offering, which is a comprehensive free trade agreement with frictionless borders.

[Stephen Gethins]

Will the Minister tackle the issue of how the customs relationship will work? Can he set that out? How will seasonal workers work? That is a matter of urgency; other Members also have made it clear that it is a matter of urgency.

[George Eustice]

I noted the hon. Gentleman’s points from his speech and will come back to them.

First, I want to address one of the questions posed by the report: what happens in a no-deal scenario? The reality is that there are quite a number of options open to an independent country in control of its own trade policy. It does not have to be most favoured nation rules, and that is the end of the story. One option for an independent country when setting its own trade policy would be to have unilateral tariff rate suspensions—it would keep the bound tariffs where they were, but it could suspend them on certain product lines if it wanted to. It also could have what is called an applied tariff for some product lines that was lower than the bound tariff set in the WTO schedule.

An independent country could also establish unilaterally something called autonomous tariff rate quotas—ATQs. They enable the country to create a quota in certain product lines to allow that tariff-free trade.

My hon. Friend the Member for Tiverton and Honiton pointed out that one of the issues is that those have to be what is described in trade jargon as erga omnes—open to all—around the world and not just to the European Union, but we could, of course, abide by our own sanitary and phytosanitary regulations. In a short period where such measures might prevail, our existing trading partners would find it easier to satisfy those and potential new ones. There are many tools in the box that we would have as an independent country controlling our own trade policy.

My hon. Friend also asked about a sector-by-sector analysis. He will be aware that in December last year, the Department for Exiting the European Union published analyses for each sector. The hon. Member for Stroud (Dr Drew) read that and was very complimentary about the detail in it. There was a specific report in there on the food and drink sector—my hon. Friend will be aware that, in addition to that, the Government have done a great deal of more detailed ongoing analysis and modelling—but for reasons that we have been clear about, and that I think Parliament understands, there are certain things in a negotiation that we should not put out there. Not everything that we have done has been published, but we have published that report sector by sector.

[Neil Parish]

I thank the Minister for giving way again. This is important and we have plenty of time, hence I will take up a bit more. When you say “sector by sector”, are you talking about the food and drink—

[Neil Parish]

When the Minister says “sector by sector”, is he referring to the food and drink sector? Our report naturally referred to the individual sectors of agriculture—dairy, sheep, beef and so on. This issue is linked not only to trade, but to the support policies that will be needed. An extensive beef and sheep farmer perhaps needs the basic farm payment much more than a dairy farmer due to the overall income from that business. That is what we are particularly interested in.

[George Eustice]

Yes, I understand, and I was going to come on to that. Although, of course, we have done other, more detailed work, not all of which has been published, I think I pointed out in evidence to the Committee that in March 2016 the National Farmers Union commissioned a detailed piece of work by a Dutch university, which looked at precisely that issue—what would happen under a most favoured nation trading scenario for a range of sectors. I probably cannot go much further, except to say that I recommend that research to anyone with an interest in this area because its analysis was broadly correct. In summary, it showed that some sectors are indeed more exposed than others to our trade with the European Union.

Notably, as the shadow Minister pointed out, the sheep sector is quite dependent on our trade with the European Union. The analysis commissioned by the NFU bore that out. It also identified that there might be some impact on barley producers that export for the lager industry in Europe in a most favoured nation scenario. However, broadly speaking, for most producers in every other sector there would actually be a slight firming in farm-gate prices, because most sectors would have less import competition. It is hard to predict exactly what would happen in a no-deal scenario, but in a scenario in which it was slightly harder to export lamb to Europe and harder to import beef from Ireland, some mixed beef and sheep enterprises likely would diversify a little more into beef to substitute for Irish imports and put a little less into sheep, particularly if they were exposed to the export market in countries such as France, Greece and Belgium.

There would obviously be changes under such a scenario, but it is worth reflecting on debates in the House in the late 1950s on whether we should join the European Union or remain a member of the European Free Trade Association. I am afraid that, given the nature of the debates we are having now, I revisited some of those debates to understand how we got into this pickle in the first place. It is telling that in the late 1950s and early 1960s there was cross-party agreement that joining the European Union would be bad for agriculture. One reason we did not join early was that it was recognised that that would be negative for agriculture. It is interesting that the NFU analysis largely bears that out to this day.

[Neil Parish]

Just to be facetious, Minister, does that mean you are going to re-establish deficiency payments? Do not forget that deficiency payments were coupled with that.

[James Gray (in the Chair)]

Order. Two points. First, interventions must be quite short. Secondly, I am sorry to pull the hon. Gentleman up again, but it is an absolute rule in this place that hon. Members must refer to one another as “the hon. Member”, “him”, “the Minister”, “she” and so on. Hon. Members may not refer to the Minister as “you”, because whenever you use the word “you”, you are referring to me. Please make an absolute habit of using only the third person.

[George Eustice]

I am interested in history, but I am not necessarily interested in implementing all historical policies. To extend the history lesson, there was also a view in the 1960s that we should not have subsidies but we should have tariffs. Obviously, we have moved some way since then.

[Dr Drew]

I always love a bit of history, but to bring us up to date, in all those previous reorganisations and structural changes, there was time to make changes partly because the British Government were deciding things for British farmers. Will the Minister assure us that the transition period must respect the importance of these changes, and that there must be support for those who will suffer if we get this wrong in the short run?

[George Eustice]

Yes. I was going to return to that point. The Select Committee report states that we have to take care during the transition. We absolutely recognise that. Indeed, in our recent consultation, we described what we have as an agricultural transition, where any changes we make to the support regime will be done gradually over a number of years to take account of the fact that we do not want to deliver unsustainable shocks to the industry that it would not be able to cope with.

My hon. Friend the Member for Tiverton and Honiton mentioned the importance of Northern Ireland. I absolutely understand that a huge amount of trade takes place across that land border. That is why, unsurprisingly, the way we should approach that issue dominates much of the discussion about our future arrangements with the European Union. He will understand that that is a much broader discussion, which is being handled by people in the Government more senior than me.

Let me pick up on some of the issues raised by the hon. Member for North East Fife (Stephen Gethins), such as customs, which is being looked at. We have a cross-Government working group, which has brought on board lots of Departments, including Her Majesty’s Revenue and Customs and the Treasury, to look at customs, as well as DEFRA and our Animal and Plant Health Agency to look at border inspection posts. DEFRA’s focus is ensuring that we have the right capacity at any border inspection posts, and we will seek to agree our approach to that. Generally speaking, customs is regarded as an easier and more administrative thing to do, rather than necessarily requiring lots of checks and infrastructure at borders. Technology really has moved on in that area.

I simply make the point that one of our biggest successes in food and drink—perhaps the biggest, and certainly the biggest in Scotland—is Scotch whisky. We have zero tariffs on Scotch whisky, but that sector competes globally and has a recognised international brand. It is also very used to dealing with national markets, even within the European Union, because there are different alcohol duty rates so there must be bonded supplies for each country. There are sectors that have got very good at managing borders. Several hon. Members made the point in yesterday’s debate that we have borders even within the single market for things such as customs duties.

Probably the second biggest food export from Scotland is Scottish salmon, which again is renowned around the world. Scotland’s biggest competitor in that sector is Norway, which is outside the European Union and outside the single market for the purposes of fish products, because, as the hon. Gentleman will know, the European economic area does not cover fisheries products. So there are sectors, including fisheries and Scotch whisky, that have developed quite sophisticated ways to address some of these challenges. This is not an insurmountable problem.

The hon. Gentleman also raised seasonal labour. We recognise that that issue is important, which is why the Home Office commissioned the Migration Advisory Committee to look at what our labour needs will be after we leave the European Union. The MAC is already doing that piece of work. It published an initial summary of the responses it received, and it is now looking in earnest at what arrangements we will need after we leave, and in particular after the end of any transition period.

However, in some ways we already have the necessary structures in place under our existing migration system, through things such as tier 3. That is currently set at zero because we have free movement of people, but we could make some allowance for work permits in less skilled sectors if we wanted to and deemed that we needed to. We have been clear that we are looking at the idea of a seasonal agricultural workers scheme. We had one, which ran successfully from 1945 until 2013, and we have been clear that we are looking at that issue. I worked in the soft fruit industry for 10 years, so I am fully aware of some of the challenges. Those are issues that we will have the power to deal with as an independent country—they will not need to be negotiated with others.

[Stephen Gethins]

I am astonished by the Minister’s use of the phrase “an independent country” given that Ireland, Greece and Denmark all consider themselves independent countries. On customs and seasonal workers, he referred to infrastructure. I mentioned urgency, so what is the timescale for that infrastructure? We have heard from a wide range of experts—we still believe experts—that the end of 2021, or even the end of 2020 when the transition period ends, is not realistic. Have they got that wrong?

[George Eustice]

Look, on your first point—sorry, Mr Gray, it is a contagious problem. On the hon. Gentleman’s first point, there are degrees of independence. As things stand, as an EU member we do not have an independent farming policy, an independent fisheries policy or an independent policy on migration. When we leave and become not an EU member, we will have independence in those areas.

On the hon. Gentleman’s second point, there will be some challenges, but we have been working on this area. One scenario we have been planning for right from the referendum result is a no-deal scenario where we come out without an agreement, even in March next year. There are contingency plans and work has been done to prepare for such scenarios. While there will be challenges, we are aware of them and have been addressing them.

[Dr Drew]

The problem is that those who might have come here in the future will not do so and we are now into the second year in which they would have been making such arrangements. What inducement is there for someone to come here, when effectively they have been told for two successive years they are not wanted, rather than go to other parts of Europe, as they are now?

[George Eustice]

There are anecdotal reports that more have come back this year because of recent changes in the exchange rate. Some daffodil producers in the west country say that it was easier to get labour this winter than last. It is quite common for seasonal agricultural workers to return for a number of years, and indeed levels of returning are one of the yardsticks used to assess the availability of labour.

The hon. Member for Bristol East (Kerry McCarthy) posed a question in an intervention about rules of origin. The Government are looking at that area. Obviously, not every nation state in the world is a member of the European Union. Lots of countries are not, and they have quite established procedures on rules of origin. While we have not reached a final position on those issues, there is, for instance, the pan-Euro-Mediterranean regional convention, which is a rules of origin system covering countries both in and not in the European Union. Other parts of the world have therefore addressed such issues.

I turn to points raised by the shadow Minister, who asked about how we are approaching the WTO. We have been clear that our schedule of tariff rate quotas on agricultural products should be divided between the EU and the UK based on an historical reference period. We regard that as a matter of technical rectification rather than reopening everything for renegotiation, and that is the approach we are taking on existing TRQs.

The hon. Gentleman mentioned New Zealand lamb and pointed out that we have a TRQ of just short of 250,000 tonnes for lamb from New Zealand coming into the UK. It is also important to recognise that, in recent years, New Zealand has only ever used about 70% of its quota. That demonstrates that long before the ceiling of that tariff rate quota is hit, they find themselves unable to compete with UK producers. I am more optimistic than some about British sheep producers’ ability to compete with New Zealand and Australia. Many do so already. As a country, we should not get spooked by some kind of New Zealand haka on lamb production. We need to get on the pitch and play, and I think we will find that we can beat them.

We have been clear that in any future trade agreements we will maintain our standards. We will not reduce our standards in pursuit of a trade deal. That is a common feature. It is quite possible for us, through doing trade deals with third countries, to require that those who wish to supply us under such agreements must meet our standards.

Just this morning, I visited the Agriculture and Horticulture Development Board and talked to officials who were involved in our negotiations with the United States on reopening its market for British beef, which we have worked on for a number of years. There are opportunities for British beef exports to the United States, but there are also one or two technical areas where the United States wants us to change our rules for those supplying them to meet their standards. For instance, they have a slightly different approach to monitoring things such as E. coli and to the methodology that a vet should use when visually inspecting animals as they arrive in the pen.

We could go in and say, “This is no good. You’ve got to change your rules to be like the British rules,” but we do not. Actually, we say, “Fair enough. Those suppliers who want to supply that market should do that. We should respect their rules, and they should respect ours.” Equally, if US producers want to supply the British market, it is absolutely open to us to say that that must be done on British standards. We are a free-trading country, and we will be open to doing trade deals, but we are clear that we have standards and values that we will not abandon.

[Neil Parish]

We have very high standards in this country. We also use less and less antibiotics in producing meat. The Americans still use a lot more antibiotics, their environmental standards are lower and often their welfare standards are lower. On the antibiotic side in particular, we must be clear in negotiations that we do not reduce our standards and allow in products that have had many more antibiotics.

[George Eustice]

My hon. Friend makes an important point. In a trade negotiation we are talking about food standards, not just food safety. Some people misleadingly try to divert the debate, but it is about food standards, and issues such as animal welfare and the approach taken to farm husbandry are integral to those standards. We should not be shy about saying so.

A number of hon. Members mentioned IT systems. We—in the European Union—currently use the trade control and expert system, but we are doing a detailed piece of work to build a replacement system, should that be needed, and that work is well advanced. My hon. Friend asks in his Committee’s report for the Government to set out clarity about the future of the agriculture Bill. I am aware that this week the Secretary of State appeared before my hon. Friend’s Committee, where he was given that reassurance. The report also raised the potential impacts of tariffs on food prices. Again, as with the sectoral impacts, the Government are looking at this area, but we are not in a position to publish details. However, I recommend those hon. Members interested to look at work done by, for instance, the Resolution Foundation, which identified the fact that the impact on domestic food prices would be quite marginal, even under a most favoured nation scenario.

We have had a comprehensive debate covering a wide range of issues. I welcome the Committee’s interest and it bringing its report to the House for debate.

[James Gray (in the Chair)]

The question is, That this House has considered the Third Report of the Environment, Food and Rural Affairs Committee, Brexit: Trade in Food, HC 348, and the Government response—