Why the price of lamb could drop by one-third after March

Sheep farmers will suffer a devastating 30% cut to the value of lamb if the UK leaves the EU without a withdrawal agreement, the AHDB has warned.

At current prices, that would slash the value of a 40kg lamb by about £23, as tens of thousands of tonnes of unwanted lamb, previously destined for the EU, drags down the value of the UK market.

The majority of MPs are opposed in principle to leaving the EU without a deal, but time is running out for them to find an agreement on how to leave that prevents this.

See also: Feed plan halves pre-lambing ration cost on Devon farm

Lack of access to the UK’s largest trading destination for sheepmeat will cause flock owners to cut sheep numbers as they become increasingly unprofitable, the AHDB says, with a significant fall in breeding ewe numbers forecast.

New Zealand implications

The situation could be further exacerbated if New Zealand does not, or cannot, divert the meat it sends to the UK to the EU or other markets.

The report sets out two potential scenarios, with either a sharp decline over two years as producers cull breeding ewes early and put replacement ewe lambs in the food chain, or a longer decline over four years by just retaining fewer replacements.

In a rapid response scenario, breeding ewe numbers could be cut by 22% in one year.

This would mean a reduction of some 3.6 milliom ewes from the current national flock of about 16 million, which is the same amount it has declined in the 18 years between 2000 and 2017.

Worst-case scenario

The worst-case scenario for market prices is a situation where farmers cull rapidly in 2019 and 2020, causing sheepmeat production to go up in the short term, combined with New Zealand supplying product at the normal rate to honour existing contracts.

This would be because the country would have to honour long-term contracts, or because there may still be demand for certain cuts which UK farmers could still not fulfil due to seasonal supply.

National Sheep Association chief executive Phil Stocker said: “If it wasn’t for doubt over our access to the EU market the sheep sector would be looking strong,” explaining that tight supplies in the UK and globally have helped push prices higher.

“However, a no deal or a hard Brexit could lead to a loss of access to the EU in the short term, or tariffs of up to 45% of the value of lamb being exported, and both these outcomes would be highly damaging for the UK sheep sector.”

He said that if New Zealand was able to move more into the EU market, reducing supplies to the UK, the balance between supply and demand could be stabilised, particularly if the domestic industry adapted to improve year-round lamb supplies.

How likely is no deal and how will trade with the EU be disrupted if it happens?

The UK is likely to leave the EU on 29 March, at which point it will surrender its unlimited tariff-free access to the rest of the trading bloc.

If an interim agreement is secured, trade will continue as normal until a future trade deal between the EU and the UK can be agreed and signed.

Prime minister Theresa May won the backing of a majority of MPs in parliament this week to return to Brussels and re-open negotiations on the so-called divorce deal, but EU negotiators said they will be unable to offer any meaningful changes.

She has promised MPs they will be able to vote on any proposed deal on 14 February, and if a majority of them back a deal then, or at any time between then and 29 March, no deal can be prevented.

If negotiation efforts fail

If all efforts fail, and a no-deal exit comes to pass, trade with the EU could cease altogether in the short term.

The UK will need to apply to the EU for “third country status”, which is the designation all non-EU countries need to have to send goods into any EU country.

Opinion is divided over how long this could take, with the process normally taking several months, although some trade experts say the process could be accelerated if there was sufficient political willpower.

Further barriers

However, even once this is secured, there will be very little access for lamb without a tariff being applied unless an agreement on a quota of tariff-free meat can be agreed with the EU independently of a trade deal, which is an unlikely prospect.

The current effective tariff rate of chilled lamb entering the EU is 46%, which is based on a charge of 12.8% of the value of the shipment plus an additional €171.30/100kg.

There is likely to be other, more permanent factors which will also add cost to UK-EU trade, including the requirement for all animal products entering the EU to pass through a veterinary inspection post.

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