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Brexit: sweetening the deal

2021-05-20 08:58:09

One immediate consequence of the very public upsurge of concern over the UK-Australia trade deal has been the robust response from Australian High Commissioner George Brandis.

In the words of the Telegraph, he has come out "swinging" against warnings a free trade agreement with the UK could push British farmers out of business, describing the claims as "beyond absurd".

This came in a "strongly worded letter" sent to Tory MPs, where Brandis criticised "wild claims" that a deal could lead to beef and lamb from "Down Under" flooding the UK market.

Furthermore, Brandis wrote, if Britain "pulls up the drawbridge" on the deal, it would send a "catastrophic signal", the effect of which would be to scuttle efforts to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, regarded as a key post-Brexit prize.

Brandis accuses opponents of the deal of running a "scare campaign", claiming that there was "no possibility" of any agreement leading to UK markets being flooded. He says Australia's production was already at "full capacity", with the overwhelming majority of exports going to Pacific rim nations.

With the focus very much on meat production, he adds that: "There is no significant excess in capacity because, to put it very simply, almost all of Australia’s exportable beef and lamb is already spoken for".

However, despite the intervention of Brandis, it would appear that there is more to this deal than meets the eye, and – for the moment – selling surplus meat production to the UK is not top of Australia's list. Its farmers are after a much more lucrative prize – a share of the UK's buoyant sugar market.

This is certainly the view of Tom Clarke, farmer and member of the NFU Sugar Board, who has published a lengthy thread on Twitter pointing out that the (now) American-owned Tate & Lyle company (factory pictured) is very much looking forward to accessing cheap supplies of raw sugar, produced by Australian cane growers.

Interestingly, Tate and Lyle Sugars was one of the few big companies to support Brexit and in the aftermath of the referendum sponsored the Conservative Party Conference, paying to have its brand name printed on the lanyards for the security passes given to delegates.

Up until Brexit, the UK was locked into the EU's sugar regime which in the past had invoked the wrath of the WTO disputes body, its over-production having a serious effect on world prices.

When the issue of the EU's sugar regime became high-profile, back in 2005, the Greens were very keen on the EU phasing out the five million acres devoted to beet growing in EU-15. They wanted to turn the land over to energy-producing crops, leaving sugar production to the 76-nation African, Caribbean and Pacific (ACP) group, and countries such as Brazil and Australia.

Nothing much seem to have come of that, which is hardly surprising as the biggest player (then and now), was France, accounting for almost the whole of the EU's surplus. Much of the "reform" process consisted of cutting back on member state production – and especially the UK – to accommodate the French surplus and keep (some of) it off the world market.

With the EU churning out 17 million tonnes per year of beet sugar, the market was protected from cheaper sugar cane by a complex skein of quotas and tariffs. At the time of the referendum, Tate and Lyle was allowed to import an amount of its feedstock at €98 per tonne, but the balance attracted a tariff of €339 per tonne.

Following Brexit, the company – as the only UK user of cane-derived sugar – it stood to gain £73 million a year, when it was allowed by a grateful Tory government to import 260,000 tonnes of raw sugar cane from anywhere in the world, tariff-free.

Tom Clarke picks up the story from here, observing that the Government plan to offer up more of our UK sugar market to low cost suppliers through negotiating new free trade deals such as the one with Australia. The likes of Tate and Lyle, it would appear, makes a better margin from these sources, rather than buying fair-trade cane sugar from poor countries.

Clarke avers that they can only compete with cleaner, greener homegrown Flag of United Kingdom beet sugar, by getting tariff-free deals to import the cheapest stuff, produced in ways illegal here.

And here he makes a powerful point about Australian can growers, some of whom have dubious standards, with poor land management practices which contribute to environmental degradation.

The Tory enthusiasm for Aussie product is all the more perverse when, as Clarke points out, Tate and Lyle's factory in London provides a mere 850 jobs, while the British sugar industry supports something like 9,500 jobs, with the biggest beet sugar factory in Europe based in Liz Truss's constituency.

Despite this, Liz Truss continues to support the Australian deal and now, apparently, has the backing of Johnson, who has told the Commons that a tariff-free deal represented a "massive opportunity" for the UK.

Ian Blackford, the SNP's leader in Westminster was less than convinced, having accused Johnson of being prepared "to throw farmers and crofters under the Brexit bus", by giving Australia tariff-free access for its lamb and beef products.

But Blackford – like most of us – may have missed the point. At this end of the chain, the biggest beneficiary is the former employer of David Davis, the Tate and Lyle sugar company. And it is not the livestock sector which is being thrown under the bus, but the sugar beet growers. You can see why Minette Batters is worried all of a sudden. They are the NFU's most valuable source of income.

Even then, this may not be the whole picture, and Australian High Commissioner George Brandis may be holding back on some important details. For some time now, the Australians have been at odds with one on their biggest export customers China.

In 2020, it was being reported that China was targeting $6 billion-worth of Australian exports, including copper ore and sugar. Then, growers were exporting some 170,000 tonnes of sugar into China worth around $100 million.

And while prime minister Scott Morrison is being sanguine about what is being described as a "trade fight", it is clear that Beijing could inflict "more carnage for the Australian economy" – in a dispute which has intensified after Canberra pushed for an international probe into the origin of the coronavirus without diplomatic consultations beforehand.

Early in November last year, Beijing unofficially told Chinese traders to stop importing Australian coal, sugar, barley, lobsters, wine, copper and log timber. It has also stopped five meat processors from exporting beef to China, now having blocked six abattoirs.

In March this year, China formalised temporary anti-dumping duties on cheap Australian wine, which it claimed was damaging the domestic wine industry. The duties of between 116.2 per cent and 218.4 per cent were higher than the preliminary tariffs imposed in November, and left Australian wine unviable for Chinese consumers.

Thus, Brandis's claim that, "There is no significant excess in capacity", in respect of Australian produce might not hold up for very long, as relations seem to have taken a turn for the worse. This could explain why Scott Morrison is so keen to conclude a swift deal with the UK.

But, while we might be expected to help out an ally in trouble, Johnson needs to be rather more clear about the consequences, if British farmers are expected to pay the price.

Also published on Turbulent Times.