Brexit blog 1: How will a no deal hard Brexit affect the UK sugar industry?
Could reverting to WTO rules after a hard Brexit mean lower costs for UK sugar buyers? In theory, yes. But in practice the UK sector’s oligopoly structure means prices could actually increase.
Brexit means the EU no longer negotiates trade deals for the UK
A no deal Brexit means the UK’s sugar industry reverts to World Trade Organization (WTO) rules and tariffs with the European Union (EU) and the 67 countries with which the EU has trade agreements. It also means the UK can negotiate its own bilateral trade deals with other ‘third countries.’
Sugar trade agreements with sugar producing third countries – those outside the EU – have been negotiated by the EU since the UK joined the European Economic Community, the forerunner to the EU, in 1973. Now the UK can negotiate directly with these countries and secure its own terms and tariffs.
To my knowledge, however, sugar is not on the Department of International Trade’s (DIT) radar and has not been part of trade deal discussions with third countries yet. But if we want to sell UK exports tariff free to countries such as Australia, then Australia will want something in return, such as the opportunity to sell its sugar to us, tariff free.
As I discussed in my blog Tariffs on Sugars Explained, tariffs have a huge influence on pricing, increasing the market price by between €90 and €419 per tonne if current rules are applied. So, at the risk of stating the obvious, in theory both producers and buyers globally will benefit from no or low tariff deals.
And the UK is a sugar-deficit market, i.e. we don’t generate enough sugar to supply our demand, and we don’t produce sugar cane at all. Therefore, unless wheat suddenly becomes much less profitable for UK farmers, we will always import some of our sugar. Especially as the UK is one of the largest consumers of speciality sugars based on sugar cane because of its colonial past.
Will sugar buyers benefit from zero tariff bilateral post-Brexit trade deals?
Continuing to use Australia as an example, it currently supplies China’s growing demand for sugar cane. Striking a zero tariff trade deal means Australia could divert its sugar cane exports to the UK.
That’s great for business buyers and consumers. Confectioners and bakers, for example, could see good quality sugar products derived from cane entering the portfolio mix. In theory this would force the price of sugar down because increased tariff free sugar cane exports from Australia, and other non-EU producers, broadens supplier choice for buyers and incentivises cane growers to increase production.
I’ve used the word ‘in theory’ twice so far. A tariff free trade agreement with multiple ‘third countries’, including Australia, Jamaica, Brazil and the many other non-EU sugar producing nations should both stabilise and reduce the global commodity price of sugar.
But when you examine the realities of the European and UK sugar markets, this is unlikely to happen. The EU’s trade quotas and tariffs, alongside the UK’s sugar market oligopoly dominated by only two players, means normal market forces won’t work.
This will be the topic of my Brexit blog part 2, publishing next week. Check our blog page or follow us on LinkedIn, Twitter or Facebook to be notified when this is published.