After almost four years since the UK voted to leave the EU in June 2016, a post-Brexit trade deal was finally agreed on Christmas Eve 2020.
The backbone to the deal is the guarantee of tariff-free and quota-free market access for both sides, which represents a more generous access to the EU’s single-market than has previously been secured by countries such as Canada and Japan.
Minette Batters, president of England and Wales’ National Farmers Union, commented: “The tariff-free element will be a particular relief for farmers that rely heavily on the EU export market, such as our sheep farmers, as well as farmers across British agriculture that produce the safe, traceable and affordable food that underpins more than £14 billion-worth [$19.03 billion; €15.51 billion] of export sales each year to the EU.”
With the UK leaving the EU’s customs union, however, goods moving between the two jurisdictions will now be subject to new border checks, which will increase the time and expense required to complete cross-border transactions.
This will likely be absorbed as another cost of doing business by most companies, but news has emerged of a Belgian beer company and a specialist Dutch bicycle firm refusing to deliver goods to the UK due to the customs changes.
One of the biggest concerns the customs changes create for British agriculture is with regards to perishable goods, which have a limited ‘best-before’ time stamp. Early reports from the Cold Chain Federation, which represents the UK’s temperature controlled storage and distribution industry, suggest disruption caused by the new trading terms has so far been limited.
Covid-19 tests and restrictions for lorry drivers – imposed by France following an abrupt closure of the France-UK border after a new coronavirus variant was discovered in Britain in December – continues to pose the biggest threat to the flow of goods.
Another notable element of the Brexit deal is the UK’s withdrawal from the common fisheries policy. EU fishing vessels will be allowed to continue fishing UK waters for a five-and-half-year transition period, during which EU fishing rights – currently worth €650 million per annum – will be reduced by one quarter as the British quota increases by the same amount. Fishing rights will be negotiated annually thereafter.
PE exposure to British or European wild catch fishing companies is limited, so this is unlikely to have a notable impact on investment stakeholders.
The UK’s new farming subsidy program, which came into force on January 1 and replaces the EU’s common agricultural policy, is another area to be watched closely. England, Northern Ireland, Wales and Scotland will each take their own approach on their respective subsidy programs, with all four states signaling an intent to merge environmental targets with farmer subsidies.
With this being the first full week of trade between the UK and the EU since the new deal’s terms came into effect, it is far too early to draw any definitive conclusions.
The tariff-free and quota-free trade settlement has played a big role in ensuring the free-flow of goods, which should put to bed any food security concerns created by the prospect of a no-deal Brexit.
For investors, this will be a time to assess any areas where potential risks might occur as plans for the New Year are pushed into action.