Impact of the Draft Brexit Deal on European Food and Agribusiness

This RaboResearch F&A cross-sectoral report describes the impact of the draft Brexit deal and the accompanying political declaration on food & agribusiness companies in Europe. There is however still great uncertainty about whether this deal will be approved in the European parliament, and more importantly the UK parliament.

Under this deal, trade will continue unchanged during the transition period of almost two years, with a possible extension for another two years. According to Senior Analyst Harry Smit: "Though much remains unclear, this draft Brexit deal can be characterised as an orderly Brexit, aimed at a managed and gradual exit of the UK out of the EU."

Both parties have the intention to establish a comprehensive free trade area without tariffs and with ambitious customs arrangements. This agreement could be realised during the transition period, and enter into force straight after the transition period. From then on, the UK can implement new trade deals with other countries. As a result, European companies run the risk of increased competition on the UK market.

The cost of customs controls for trade with the UK under such an agreement could deteriorate the competitive position of European suppliers on the UK market. As a result, some trade flows could be redirected from third countries to the UK directly, instead of via the EU, and cross border value chains may have to be reorganised.

The UK can pursue its own policies for quality standards, support to agriculture, environmental standards, etc. In F&A for example, this entails the risk that phytosanitary, veterinary and food quality standards will start to differ between the EU and the UK. Furthermore, UK farmers run the risk of lower income support compared to their EU peers.

In the absence of a deal on the future relationship after the transition period, the UK will be part of a EU-UK Customs Territory. This should facilitate a continued free flow of goods with minimal red tape as long as an agreement on the future relationship is not yet in place. Fisheries are exempted from this EU-UK Customs Territory. Being part of this EU-UK Customs Territory, means the UK cannot implement new trade deals with third countries. 

Questions that remain are: will this draft deal get approval by the European and UK parliament? How long will the transition period last? Will the EU and the UK reach an agreement on the future trade relationship before the end of the transition period? What will this future trade relationship look like?