Sheep Farming: No-deal EU Exit

Election of Select Committee Chairs (Notice of Election) – in the House of Commons at 10:10 pm on 3rd September 2019.

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Motion made, and Question proposed, That this House do now adjourn.—(Jeremy Quin.)

Photo of Jenny Chapman Jenny Chapman Shadow Minister (Exiting the European Union) 10:22 pm, 3rd September 2019

When I was first elected to this place in 2010, I never thought I would find myself standing up to challenge the Government about the decimation of the UK’s sheep industry. The ancient practice of shepherding is as old as the hills, but it is now facing an unprecedented challenge brought by the threat of a no-deal Brexit. The threat of no deal brings with it a man-made, Boris-built disaster that could harm so many sectors from chemicals to cars, food to pharmaceuticals, and steel to services—virtually every area of economic activity in this country would be hit, and that includes the sheep industry. The idea that the rearing of lambs could be so comprehensively, cruelly and deliberately threatened by our own Government’s decision is beyond belief.

Keeping sheep is already a vulnerable business and a no-deal Brexit will just add to the problems. The unprecedented loss of markets and the imposition of tariffs and barriers will severely harm this industry.

Photo of Susan Elan Jones Susan Elan Jones Labour, Clwyd South

Does my hon. Friend agree that this is yet another example of privileged, idle old Etonians who could not care less about the lives and livelihoods of our working hill farmers in Wales and across the UK?

Photo of Jenny Chapman Jenny Chapman Shadow Minister (Exiting the European Union)

My hon. Friend is absolutely right. I represent an urban constituency, but even in urban Darlington there are agricultural workers whose jobs would be affected by the effect of a no-deal Brexit on the sheep industry.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Human Rights), Shadow DUP Spokesperson (Health)

I thank the hon. Lady for bringing this matter to the House for consideration. I spoke to her earlier today and perhaps her opinion on Brexit is very different from mine, but the Conservative Government have indicated that as long as they have the power to do so, they will maintain the grants that are available for farmers, and for sheep farmers in particular. Does she agree that the problems and the deficits there might be in lamb prices could be offset by the Government’s commitment to give what the EU gives now?

Photo of Jenny Chapman Jenny Chapman Shadow Minister (Exiting the European Union)

If it was that simple, we would not need to have this debate. This is not just about farm payments; it is about loss of markets. That is something that has not been properly understood, and the Government have not given a decent account of what they intend to do to address it.

Photo of Brendan O'Hara Brendan O'Hara Shadow SNP Spokesperson (Inclusive Society)

The hon. Lady will know that Scotland is home to one fifth of the entire UK sheep flock, and that much of that work is being done by farmers and crofters in less favoured areas such as my own constituency. Leaving the European Union with no deal would have a devastating effect on farmers and crofters, so will she join me in urging the Government to listen to the words of Andrew McCornick of the Scottish National Farmers Union, who has said unequivocally that a no deal must be avoided because our farmers need security and fair access to European markets?

Photo of Jenny Chapman Jenny Chapman Shadow Minister (Exiting the European Union)

I agree with that. One of the specific problems faced by the farmers the hon. Gentleman describes is the fact that those flocks possess unique characteristics, and that once they are gone they may never be able to be bred back into our national flock.

Photo of Wayne David Wayne David Shadow Minister (Defence) (Armed Forces and Defence Procurement)

Is not the heart of the problem the fact that lamb would not be competitive if it had a 48% tariff placed on it? That would be an absolutely ridiculous situation. The Government might talk about short-term subsidies to help the immediate situation, but that is no way to save the industry as a whole.

Photo of Sarah Wollaston Sarah Wollaston Chair, Health and Social Care Committee, Chair, Liaison Committee (Commons), Chair, Liaison Committee Sub-committee on the effectiveness and influence of the select committee system

This will certainly devastate the hill farmers in my constituency, but we must also consider the impact that it would have on the landscape. Many people do not realise that our landscapes are the way they are because of grazing.

Photo of Jenny Chapman Jenny Chapman Shadow Minister (Exiting the European Union)

The hon. Lady makes an excellent point, and that is why even my constituents in urban Darlington care about what happens to our national flock and to the livelihoods of the tens of thousands of people who work so hard to keep our landscape the way that it is.

Photo of Deidre Brock Deidre Brock Shadow SNP Spokesperson (Devolved Government Relations), Shadow SNP Spokesperson (Environment and Rural Affairs), Shadow SNP Spokesperson (Wales)

I wonder whether the hon. Lady was as disturbed as I was to hear the Leader of the House speak so casually earlier this evening of trading purely under WTO rules, given that analysis from the Agriculture and Horticulture Development Board suggests that WTO tariffs could add anything from 38% to 91% to the price of sheepmeat for EU buyers, which would be catastrophic for the sector.

Photo of Jenny Chapman Jenny Chapman Shadow Minister (Exiting the European Union)

I agree with the hon. Lady, and I will refer later in my speech to the report that she has mentioned.

Photo of Helen Goodman Helen Goodman Shadow Minister (Foreign and Commonwealth Affairs)

Last week, I went to the Upper Teesdale Agricultural Support Service. Its concern is that because the Government have failed to bring forward the Agriculture Bill, it is not clear whether the Government have the legal powers to make payments in the event of no-deal Brexit. Does my hon. Friend agree that the Minister must answer that point this evening?

Photo of Jenny Chapman Jenny Chapman Shadow Minister (Exiting the European Union)

That is the first time I have heard that point made in the House; it is one that my hon. Friend and I discussed earlier today. She is absolutely right: farmers need to hear from the Minister what he intends to do about their payments, and we need to ensure that he has the power to make those payments. The principal problem for the sheep sector is that, according to the report Deidre Brock mentioned, under no deal the export of sheepmeat to the EU 27 would be almost entirely wiped out, with the only exports being those via a tariff rate quota of less than 400 tonnes. Of course non-EU exports could increase over time, although the possible rise of around 5% would not be anywhere near enough to offset the loss of EU trade. Reduced trade with the EU would leave around one third of UK meat without a market.

Photo of Ruth Jones Ruth Jones Labour, Newport West

I congratulate my hon. Friend. She is absolutely correct to raise concerns about the impact of a no-deal Brexit on the sheep industry in Britain, and nowhere will that impact be felt more than in Wales. In acknowledging the work that the NFU Cymru and the Farmers Union of Wales do on behalf of Welsh farmers, may I point out that 96% of all the Welsh lamb sent out of the UK goes to the 27 other nations in the EU? If we do not get this right, sheep farmers in Wales will be pushed to breaking point, and we cannot allow that.

Photo of Jenny Chapman Jenny Chapman Shadow Minister (Exiting the European Union)

This affects every region of the country, from the Lakeland fells, to Exmoor, to Teesdale, where I live. People are saying, “Why does this matter? Surely this just means that there will be more lamb for the UK market, the price will be cut, and we can all enjoy more lamb this Christmas”, but the problem is that we just do not have the facilities to safely slaughter, store and freeze that volume of lamb in the UK. If the Minister plans to introduce such facilities, he needs to say so tonight, because knowing that this year’s yield of around 15 million lambs can be safely stored and enjoyed by consumers, and therefore paid for, would be of huge benefit to the 34,000 people currently employed in the industry. If that meat cannot be stored and sold—even at a knock-down price—the sector will be decimated.

The Government have said that they are aware of the special circumstances that would lead to a substantial negative effect on the income of UK sheep farmers, and that they would compensate farmers. To their credit, the Government have pledged to continue to commit the same cash total in funds for farm support until the end of this Parliament—although obviously that might be coming sooner than was anticipated. Financial support is already included in farmers’ business plans, but it does not compensate farmers for a sudden loss of market or for feed costs for animals that they cannot now slaughter. It does not ensure that sufficient feed is available to keep lambs bred for slaughter alive. It does not create abattoir or cold-storage capacity. It certainly does not create new export markets or offset tariffs, because that would be against WTO rules.

In answer to one of my written parliamentary questions on 18 July, the then Minister, Mr Goodwill, said:

“We are doing all we can to mitigate the challenges our farmers will face and we have contingency plans in place to minimise disruption.”

But Ministers have not explained, and continue to refuse to explain, what those contingency plans are. The Minister’s predecessor offered from the Dispatch Box to meet me, but the current Minister then declined that invitation and has refused to discuss the issue. If a wasteful cull of millions of lambs and breeding ewes is to be avoided, measures need to be put in place now. If the slaughter and storage facilities are not in place and no deal happens, farmers will have little option but to cull their flocks. The meat will not be eaten, and the waste will be shameful.

The lack of new trading arrangements and an implementation period would mean that farmers will set about drastically reducing the size of their flocks. Chillingly, the AHDB says:

“Culling rates would record significant uplift driving the increase in adult sheep slaughterings. Quarter one of year two”— of a no-deal Brexit—

“records a year-on-year uplift in slaughterings as the remainder of the year-one lamb crop are slaughtered.”

The estimate of 3 million lambs is at the lower end of the estimates.

Photo of Matt Western Matt Western Labour, Warwick and Leamington

My hon. Friend is making an important speech. Perhaps she can enlighten us or confirm this, but my understanding is that the breeding season is probably just about to start, because sheep gestation is typically around 150 days, if I well recall, so farmers must be planning now exactly what their programmes will be.

Photo of Jenny Chapman Jenny Chapman Shadow Minister (Exiting the European Union)

That is exactly right. I think the phrase is “In with a bang and out like fools,” because sheep breed at the end of October or the beginning of November, and the lambs arrive in the spring. As the Minister well knows, farmers make their arrangements and plan such things a long way in advance, which is why, according to farming bodies, we need at least a two to three-year transitional period. The AHDB report I was referring to goes on to say that

“under a rapid response scenario, the national flock would be culled to reduce size”.

Photo of Kerry McCarthy Kerry McCarthy Labour, Bristol East

Does my hon. Friend share my astonishment that the Welsh Secretary said over the summer that we could start exporting to Japan and that that market has opened up? They do not eat lamb in Japan at the moment, and they are certainly not going to start eating it on 1 November just to oblige us.

Photo of Jenny Chapman Jenny Chapman Shadow Minister (Exiting the European Union)

My hon. Friend makes an important point. Yes, in theory and given enough time, it may be possible to find new markets, but it will be too late by then, because our flock will have been decimated and will take decades to rebuild. Should the situation improve in future years, with new markets, it might just be possible to re-establish the flock, but it really is not likely. Once the breeding ewes have gone and their special characteristics have been lost, it will take years to recreate the unique features of our national flock. Tens of thousands of jobs and our treasured landscape would be lost, and this is all so preventable.

A minimum of a two to three-year transitional deal is needed, and we need agreements that recognise the safety and quality of our produce. Critically, we must increase the capacity of essential cold storage facilities now. When Ministers reassure me and try to reassure farmers, they need to explain what precisely they intend to do.

Photo of Tonia Antoniazzi Tonia Antoniazzi Labour, Gower

This is an important debate, particularly for my Gower constituency, where the lamb industry is very vibrant. Does my hon. Friend share my concern about the amount of cold storage that will be needed and about the Government’s plans to meet that need? Does this country have enough cold storage for medicines post-Brexit?

Photo of Jenny Chapman Jenny Chapman Shadow Minister (Exiting the European Union)

If any of us were in the business of cold storage or large-scale fridges, we would be doing quite well at the moment. My understanding from the trade body that represents such businesses is that there is no additional capacity, so should we suddenly need to store this volume of meat, those facilities will not be there and the safe consumption of that meat will not be a possible solution to this issue.

I did not believe it when I first heard about the mass culling of millions of lambs that would be rendered inedible, but then I read the reports, listened to the National Farmers Union and spoke to agricultural workers and farmers across the country. It is very clear that this is not “Project Fear”.

I ask the Minister to get out from behind his ministerial desk and deal with this now, before it is too late.

Photo of George Eustice George Eustice The Minister of State, Department for Environment, Food and Rural Affairs 10:37 pm, 3rd September 2019

I congratulate Jenny Chapman on securing this important debate on a day when we have already had a lot of discussion about our EU exit. She has raised this issue in a series of parliamentary questions, and a little later I will address some of the concerns and issues she raises.

The UK sheep sector is incredibly large and important. Combined, our upland and lowland sheep production had an annual production value of around £1.26 billion in 2018, accounting for around 4.5% of all agriculture output in the UK. As a number of hon. Members have said, the sector is also responsible for some of the most iconic landscapes in the UK.

There are 16 million breeding ewes and some 70,000 sheep farms across the UK, and the sector is particularly important in some of the devolved regions. For instance, around 50% of UK sheep production and the national flock is in Wales and Scotland. The UK is the largest producer of sheepmeat in the EU, producing around 38% of all the sheepmeat and goatmeat produced in the EU last year. The UK is also the world’s third largest exporter of sheepmeat, behind New Zealand and Australia, so we are a truly global player in this sector.

Around a third of our annual production of lamb is exported and, as the hon. Member for Darlington said, over 95% of it goes to the European Union. Total lamb exports in 2018 were valued at around £384 million, with a large amount of that coming from the European Union. The main export destination for lamb in 2018 was France, followed by Germany and Belgium, but for certain parts of the industry, notably those in Wales that tend to produce smaller lambs, some of the Mediterranean countries such as Italy and Portugal are also important purchasers of our goods. Some of our heavier lamb, predominantly from lowland areas, is more sought after in northern Europe. We recognise that, because of all those factors, in the event of a no-deal exit the sheep sector is the most exposed in its trading relationship with the EU, and we have always acknowledged that.

In managing those risks, we have two important factors going for us. First, we have a large domestic market for food in general and for lamb in particular. Measured by import value, the UK is the world’s third largest market for food and drink, coming after only China and Japan. That means there are many opportunities for import substitution, as we currently source a significant quantity of lamb from New Zealand.

Secondly, we have an independent exchange rate—an independent currency and a floating exchange rate. That is incredibly important for the agriculture sector. It helps as an automatic stabiliser when we have shocks. We now contemplate the prospect of having to leave the EU without a withdrawal agreement, although that is not our preference, as all hon. Members know. Having a floating exchange rate makes that easier for the farming sector than it would have been had we become trapped in the euro some years ago.

Photo of Helen Goodman Helen Goodman Shadow Minister (Foreign and Commonwealth Affairs)

I am astounded by what the Minister has just said. The pound has fallen by 20% since the referendum, which means that for every export the farmers are getting 20% less money. How can that be good for them?

Photo of George Eustice George Eustice The Minister of State, Department for Environment, Food and Rural Affairs

The hon. Lady has it the wrong way round, as it is always the case that for sectors that are producing goods, such as agriculture, a weaker exchange rate against the euro leads to higher prices. It is no secret that since the referendum result in 2016, when there was an adjustment of sterling against the euro, agriculture commodity prices in the UK have been at highs, and that has helped farm incomes. That is a recognised fact; exchange rates are a key driver of agriculture commodity prices.

We recognise that even with those important factors going in our favour, the sector is still exposed. Some modelling has been done by a number of different organisations, including the NFU. It is important to recognise that tariffs are a tax on consumers first and foremost. Some estimates therefore anticipate that were the EU to apply full most favoured nation tariffs on lamb, there would likely be an increase in consumer prices in the EU of up to about 20%. That reflects the fact that the UK is the dominant lamb producer in the EU and there are limited other options for it to source its lamb from.

Photo of Gareth Snell Gareth Snell Labour/Co-operative, Stoke-on-Trent Central

The Minister mentions choosing to apply MFN tariffs. I profess not to be an expert on the sheep industry, but in the ceramics industry we have been told that there is no choice over MFN and it is the tariff that has to be applied to abide by World Trade Organisation rules. Is the Minister now saying from the Dispatch Box that the Government can apply discretion on that? If so, will he outline what that plan is?

Photo of George Eustice George Eustice The Minister of State, Department for Environment, Food and Rural Affairs

Yes, absolutely, there is discretion, and the UK Government have already indicated what their tariff schedule would be in a no-deal scenario. Governments have the opportunity to have a lower applied tariff—lower than the bound tariff set in the WTO. The option is also open to any Government unilaterally to suspend tariffs. Indeed, should it wish, tariff suspension would be open to the EU, which I think is unlikely. Alternatively, and more likely, is the creation of an autonomous tariff rate quota for lamb that would be open to the whole world, including the UK. There are many options that both the EU and the British Government have unilaterally to apply tariffs that are lower than the WTO bound tariff.

However, as I said, it is important to recognise that we are the dominant producer. The EU could source more product from New Zealand, provided it had access to the ceiling currently set under the EU tariff rate quota. In the medium term, countries such as Spain could increase their production, but they are unlikely to be able to do that in the short term. For those reasons, it is likely that there would be an increase in consumer prices in the European Union as a result of its applying the full MFN tariff.

It is important to recognise that that increase in price would dampen demand in the European Union. Modelling suggests that that would increase supply in the domestic market and that as a result prices in the UK could fall by up to 30%. To put that into context, that means prices going back down to roughly where they were in 2015, which was a difficult year for the sheep sector. We are talking about a significant potential reduction, but it is not unprecedented. It would simply be going back to levels prior to the referendum result.

Photo of Tonia Antoniazzi Tonia Antoniazzi Labour, Gower

The Welsh Affairs Committee recently went to New Zealand and visited the sheep and beef industry, which was very interesting. Our farmers worry that our markets are going to be flooded with cheap New Zealand lamb. What can the Minister say to allay our farmers’ fears?

Photo of George Eustice George Eustice The Minister of State, Department for Environment, Food and Rural Affairs

The Government have already made it clear that because of the particular sensitivity, we will apply full MFN tariffs on lamb, so there will not be any additional imports to the UK beyond those we already have. There is a splitting of the existing TRQ for New Zealand lamb between the UK and New Zealand—a combined total of around 250,000 tonnes—but there will be no additional lamb because we will apply full MFN tariffs outside that TRQ.

Photo of Tonia Antoniazzi Tonia Antoniazzi Labour, Gower

How is the tariff going to work between Europe and the UK? Has it been decided what percentage of the tariff is going to go to the UK or to Europe?

Photo of George Eustice George Eustice The Minister of State, Department for Environment, Food and Rural Affairs

Yes, that has been decided. One of the few areas in which the European Union has from the very beginning being willing to work with the UK is on agreeing a splitting of the tariff rate quota schedules, and those have already been lodged with the World Trade Organisation.

As I said, we recognise that in a no-deal scenario we will have to show some solidarity with the sector, which will nevertheless face potentially significant falls in prices to levels not seen since 2015.

Photo of Douglas Ross Douglas Ross Conservative, Moray

I welcome the Minister back to the Dispatch Box. He is giving a strong account for this important sector. On my summer surgery tour, farmers from Tomintoul to Rothiemay expressed their concerns about the future of the industry. What reassurance can the Minister give, on behalf of the Government, that this issue is being given the utmost priority? What can he say tonight to reassure sheep farmers in Moray, across Scotland and throughout the UK?

Photo of George Eustice George Eustice The Minister of State, Department for Environment, Food and Rural Affairs

I can absolutely give my hon. Friend that reassurance. He will be aware that the Government are seeking a free trade agreement with the European Union in the medium to long term and, if we can get it, in the short term. In the short term, the Prime Minister has already made it clear that in the event of a no-deal exit we will show solidarity with the sheep industry and make interventions, where necessary, to support farmers’ incomes.

Photo of George Eustice George Eustice The Minister of State, Department for Environment, Food and Rural Affairs

I am going to conclude because we are running out of time.

Helen Goodman raised the important issue of whether we have the legal vires to make those interventions, and I can confirm that we do. The Government have a number of legislative vehicles with which to do so, including elements of retained EU law, and the Natural Environment and Rural Communities Act 2006 also includes general grant-making powers that give us the ability to do so. We are considering two possible options. One is a headage payment on breeding ewes, should that be necessary. That would be important in the event that farmers producing lambs are the ones who have the shock to their income. The second option would be something called a slaughterhouse premium, which would in effect involve a supplementary top-up payment for lambs at the point of slaughter. We could use a combination of those options but, broadly speaking, a headage payment and income-support approach would be the right approach to adopt.

Photo of George Eustice George Eustice The Minister of State, Department for Environment, Food and Rural Affairs

I want to conclude now as we are running out of time.

The scale of, or need for, any intervention is difficult to judge at this point, because it will depend quite considerably on the approach that the European Union finally takes. As I said earlier, it is open to it to create an autonomous tariff-rate quota, but it is also highly dependent on the extent of exchange rates. I can give hon. Members an undertaking tonight to reassure them that the Rural Payments Agency has already been told to design the administrative procedures necessary to make such headage payments. Discussions with the Treasury are at an advanced stage about what support may need to be set aside, while recognising that no final decisions can be taken until we actually leave the European Union.

I know that the hon. Member for Darlington has previously raised the issue of culling sheep, and she raised it again tonight. I can confirm that that is not under consideration. We regard any problems as being potentially short term and the correct approach would be to supplement farmers’ incomes through the headage payment schemes that I have described. We do not want to reduce the capacity of our flock.

We are a global player in this sector and we believe that there is a bright future for our sheep sector. However, in the unlikely event that it is not possible to get a longer-term free trade agreement with the European Union, there are, of course, other approaches that we can take. Our existing tariff-rate policy is set for just 12 months. It is open to us in future to review that and to apply certain tariffs to other EU sectors in order to give our farmers opportunities to diversify into different sectors such as beef. Many of our sheep producers are mixed beef and sheep enterprises. It is also open to us to support the opening of new markets through, for instance, the deployment of new attachés to our embassy to help gain that market access. I know that the hon. Lady said that that was against WTO rules, but that is not correct. Certain types of export refunds are against WTO convention, but there is no rule against investment to support market access.

In conclusion, we recognise that the sheep sector more than any other agriculture sector is exposed because of the scale of its exports to the European Union, but the Government have been working for the past two years on modelling the potential impacts and planning the types of interventions that we may need to make to ensure that our sheep farmers are protected from any no-deal exit.

Question put and agreed to.

House adjourned.