Busting the Food Price Myth in a No Deal Brexit

Link to initial article

​​By Catherine McBride 

On Friday the BBC headline news included an item entitled: Shoppers could pay more after no-deal Brexit.

The story was planted by the British Retail Consortium (BRC) who said that tariffs would add £3.1bn a year to the cost of importing food and drink unless the UK and the EU can strike a free trade agreement. This was a lesson in propaganda: using value rather than volume statistics; assuming the imported goods basket would remain unchanged; and the implication that some extreme percentage increases were a typical example. Towards the end of the article, the BBC admitted that this would only amount to an annual increase of £112 per household or just over £2 per week. However, the more I investigate this story, the more I believe that even this amount is questionable and that could is definitely the operative word in the BBC's title.

The BBC picture editor gave the game away by using the picture below that explains what is really involved when retailers talk about EU food imports: a picture of a man trying to choose between Olive Oils, in front of a supermarket shelf that also contains designer salad dressings, mayonnaise, ready-made pasta sauces and other condiments. All vital ingredients in the shopping baskets of your average BBC journalist no doubt, but maybe not for consumers on lower incomes, even though the British Retail Consortium tried to convince the BBC audience that consumers on lower incomes were their 'main concern'.

But before the metropolitan elite faint, imagining life without extra virgin Olive Oil, other Olive Oils are available. Yes, countries outside the EU also grow olives and also produce extra virgin olive oil and generally for a lower cost than in the EU. And some of them have already rolled over trade agreements with the UK: South Africa makes fantastic olive oil, as does Morocco, the world's second largest exporter of table olives. The British Retail Consortium should possibly have a look for alternative suppliers before putting up the prices of EU imports. [1]

But really to analyse this story we should first consider the massive difference that using value figures, rather than volume figures, can make to import statistics. It is very easy to convince BBC listeners that we import a substantial amount of food from the EU if you use value statistics because so much of what is imported from the EU consists of high value, branded products. And the BRC should know these goods are usually not bought by consumers on lower incomes.

Advocates for remaining in the EU, or making the UK into an EU colony, also know this and so like to use value statistics whenever they talk about the UK's reliance on imported EU food. However, if the real concern is: Will there be food shortages in the UK in January? Or will food prices rise for consumers on lower incomes? Then we should really be looking at volume statistics of EU imports as well as the available alternatives from both UK producers as well as non-EU global suppliers.

For example, consider butter. English butter is very good, which is unsurprising because England could have been specifically designed to be a dairy farm – plenty of grass, plenty of rain, rolling hills, not too cold in the winter and that often overlooked attribute – short distances from farms to large domestic markets. But UK supermarkets still stock Danish butter, Irish butter, French butter, and even Polish and New Zealand butter – although the latter is now made in Wiltshire. As French, Irish, Danish, and even Polish butters are between 20% and 50% more expensive than English butter, every 250g block of EU butter imported into the UK adds that little bit more to the import value statistics. Making it slightly easier for the BBC and the BRC to claim that the UK relies on the EU for a large proportion of its imported food instead of explaining that the UK will survive without Danish butter, and that Danish butter is generally not bought by consumers on the lowest incomes. As for the rest – as I mentioned earlier – other suppliers are available. UK retailers will just have to change the habits of a lifetime and look for them.

I am using butter as an example for two reasons. The first is that England has a comparative advantage in making butter. Milk is one of the few commodities where the UK supplies its own requirements as well as exporting milk to neighbouring countries: some of whom then make it into higher value-added products, like butter and cheese, to sell back to the UK. Exporting low value commodities and importing higher value manufactured products also inflates the imported value statistics for EU food.

The second reason I am using butter is because it is incredibly easy to make. There are no expensive processes or geographical indication protections involved. Just put cream in a sealed container and shake vigorously for several minutes and you will get butter. Many lockdown pastry chefs may have inadvertently made butter by simply over beating cream in a cake mixer.

The UK's tariff on butter will be £1.58 per kilo or just under 40p for a 250g block after January 1st. This would make EU butter at least between 47% and 73% more expensive than British Butter. In calculating the increase in the average shopping basket, the RBC must have assumed that UK shoppers would continue to buy the same amount of imported dairy products from the EU after tariffs have been added even though alternative British products are available. However, if retailers attempt to pass on this level of increase, most consumers will switch to locally made products.

If anything, leaving the EU without a deal should be spurring on the UK dairy industry to make more high value products in the UK. Why does the UK import butter from Denmark or Ireland? The UK produces twice as much milk as Ireland and almost three times as much as Denmark and yet the UK is Lurpak's largest market while Kerrygold is the number 3 block butter brand in the UK. For years, UK farmers have been content to continue producing the lowest value product—milk—and UK consumers have been content to pay more for imported secondary products from other EU countries, even simple ones like butter.

But the BBC's news item bought up another issue. In order to illustrate how dire these price rises would be without a trade deal, the BRC warned us that tariffs of 48% would be added to beef mince, 16% to cucumbers [1] and 57% to cheddar cheese. Cheddar cheese? If there is any product quintessentially English, it must surely be Cheddar cheese. Why on earth are UK retailers importing Cheddar cheese, and from the EU of all places? I can understand them importing Parmesan or Brie, but Cheddar?

But of course, Cheddar isn't imported from the Continent but from Ireland. Although Cheddar takes its name from a village in Somerset, unlike like so many French and Italian cheeses, the word Cheddar is not protected and so cheddar describes the process not a designated area. However, most brands of cheddar sold in UK supermarkets are made in the UK, using UK milk.

This is also true for Beef. According to DEFRA the UK supplied 86% of the beef it consumed in 2019. Admittedly Tesco's website gives the origin of its lean mince beef as either British or Irish but if there is a tariff added to Irish beef, then I expect Tesco will exclusively use UK beef in the future. Beef tariffs are a combination of a fixed per kilo tariff and a variable tariff, so it does not make sense to import lower value products, such as minced beef, when local products are available.

So, it is unlikely that an increase in the price of Irish cheddar or Irish minced beef will push up the price of the average UK shopping basket. It is more likely that Irish producers will absorb the tariff, or only export more expensive items to the UK or lose their UK market share. For many Irish farmers the UK, with 65 million people to Ireland's 5 million, will be their major market.

For example: Irish made Pilgrims Choice Extra Mature Cheddar retails for £6.83 per kilo [2], while British made Cathedral City Extra Mature Cheddar retails for £7.28 per kilo. If Pilgrim Choice has tariffs of £1.39 per kilo added to its import price, it would retail for at least £8.22 per kilo. Now as far as cheeses go, there are many artisan and upmarket cheddars that cost more that £8.22 a kilo but if Pilgrims Choice wants to remain competitive, then a price increase that makes their cheese almost a pound per kilo more expensive than their main rival, rather than slightly cheaper as it is now, will be a major problem – for them. But it will not be a problem for UK shoppers. They will be able to switch to a UK made cheddar very easily.

Those good at arithmetic will have noticed that adding £1.39 per kilo to the retail price of Pilgrim Choice is only a 20% increase, not the 57% calculated by the BBC. But in the UK's new global tariffs, cheddar will have a fixed tariff per kilo regardless of the underlying value of the cheese. For the BBC to calculate a 57% increase to the price of cheddar, the cheese would have to cost only £2.44 per kilo. This may be the wholesale price, but obviously the BBC have chosen to use an extreme example. For more expensive cheddars, the tariff would cause a much lower percentage increase to the price.

Incidentally, Ornua, the owners of Pilgrims Choice and Kerrygold reportedly stockpiled 40,000 tonnes of cheese in the UK in 2019 in preparation for the March 2019 Brexit deadline. No doubt they will be doing the same now.

This should really be the headline for the BBC's news item. Irish Farmers who have relied on supplying the much larger UK Market will be the people most affected if the EU and the UK do not reach a trade agreement, not UK consumers. The items the Irish produce most efficiently, such as beef and dairy products, are also produced efficiently in the UK. British shoppers will be able to easily replace any Irish products with tariff free British ones. Tim Cullinan, the Irish Farmers Association president agrees and was quoted in the Irish Times as saying that 'no country and no sector is as exposed as Irish farmers from a 'no deal' scenario'.

If there is no trade deal with the UK, Irish farmers will discover that they do not have an alternative market for their products in the rest of the EU. The Irish and the British have similar tastes in food, but any Irish cheddar left off the shelves of UK supermarkets will not be easily sold in France or Germany where consumers prefer softer, or very much softer cheeses. Sensibly, Irish dairy producers are trying to increase their sales in the US, rather than the EU.

Irish beef may be better placed to compete with French, German, Spain, Italian and Polish beef but these countries don't have a beef shortage. According to Eurostat the Irish haven't been reducing their cattle herd size in preparation for the loss of the UK markets. Their total Bovine herd was 7.2 million head in Dec 2019, down on 2018 but about the same as in 2016 when the UK voted to leave the EU. As commodity prices are driven by supply and demand, without a replacement market for the UK, Irish farmers should be preparing for a price drop in January. This happened in Australia in 1973 after it lost its largest beef market: the UK. Alternatively, Irish farmers could absorb the tariffs to attempt to retain their UK market share.

The Irish know this even if the BBC is trying to imply the reverse. According to the Irish Times article entitled: Brexit 'no deal' scenario poses a serious threat to Irish farmers, half of Ireland's beef production goes to the UK but predominately to the presently locked-down catering business. So, the loss of Irish beef will be even less of a problem for UK supermarket shopping bills in January.

But either way Irish farmers should definitely be questioning whether the EU and Leo Varadkar really had their best interests in mind when they decided to focus on forcing the UK to hand over its fishing grounds or comply with EU level playing field regulations instead of negotiating a straight forward free trade agreement.

And the BBC should stop trying to scare British shoppers. The UK food supply is much more resilient than the BBC thinks.

[1] According to the UK Government Website – fresh or chilled cucumbers will have 12% tariff not 16%.

2 Prices from Tesco's website 26 Sep 2020, Tesco controls 27% of the UK retail market

[1] The Extra Virgin olive oil UK tariff will be £1.04 per kilo for countries without a trade deal in Jan 2021.