Retail food prices will be little affected by Brexit, Defra farm minister George Eustice has argued, whether the UK gets a free-trade deal with the European Union or not.
Giving evidence to the House of Lords’ EU energy and environment sub-committee on Wednesday (28 February), Mr Eustice said there was no reason to expect food prices to swing much beyond the range normally seen in the marketplace each year.
“There are some economists who say that, if you end up with no deal and you impose WTO tariffs, there will be huge rises in prices. On the other hand, we have economists who say we can shop around the world and secure dramatic falls in prices. The most likely scenario is that food prices won’t really change very much at all.”
Mr Eustice insisted it was very likely the UK would get a free-trade deal with the EU anyway. “But even if we didn’t, the analysis shows that the impact on food prices is actually quite marginal.”
The main food price drivers were global energy and commodity prices, he said, and these would not be affected, regardless of whether the UK was in a customs union or not.
Mr Eustice pointed to research by the Resolution Foundation, which looked at the extreme scenarios of full WTO tariffs being applied to imports and exports, and of complete trade liberalisation post Brexit. The first suggested a 4% rise in food prices, while the latter showed a 1% decrease.
Even though tariffs could be as high as 60%, their impact was actually substantially diluted by the system of tariff rate quotas (TRQs), said Mr Eustice.
“Secondly, with processed foods, like a loaf of bread, the value of the wheat which goes into it is only about 9% of its value.”
But the figures quoted by Mr Eustice were challenged by Lord Krebs, who said the British Retail Consortium (BRC) had predicted rises of up to 29% for beef and 20% for cheddar cheese should the UK revert to WTO tariffs.
Mr Eustice said this was because they were looking at the tariffs in isolation and had failed to take account of “real life scenarios”.
Speaking to Farmers Weekly after the meeting, BRC policy director Andrew Opie insisted the organisation’s assessment was realistic, having been based on supply chain data and taking into account that 80% of UK food imports come from the EU.
“We are confident that, if we don’t get a free-trade deal with the EU, food prices will increase and those price increases could be substantial,” he said.
What was uncertain was how UK producers would react, he added. If beef producers were unable to export to the EU because of tariffs, then more domestic beef would come onto the home market, and this might suppress any price increase.
There could also be an element of product substitution, with consumers switching to white meat such as poultry if red meat prices were driven too high.