As I write, in early February, there are just over 50 days before the UK leaves the European Union, unless the withdrawal process is extended or reversed, and we’re still not much closer to knowing what kind of Brexit we’re going to get. That must mean that the risk of no deal being done with the EU is rising all the time. So, what would that mean for the agricultural machinery industry?
In answering that question, there are two parts to consider: the direct impact on the industry and the impact on its customers, UK farmers. In truth, the latter is likely to be far more significant than the former. EU tariffs on many agri-food products are very high. Most meat and dairy products have duties equivalent to 40% or more of their value (often much more), as do wheat and barley, outside limited quotas. That means exports of these products to the EU would effectively be choked off overnight.
What that would mean for farmers would depend on the level of tariffs the UK government decides to levy on the same products. If they stick with EU rates, imports would also reduce rapidly, or at least be much more expensive. As the UK is a net importer of most food products, that should mean higher prices for UK farmers, especially for livestock (except for sheep, where prices could fall sharply), milk and eggs.
However, it would also mean higher prices on supermarket shelves (if, indeed, they aren’t empty). That won’t appeal to politicians, so the UK could cut tariffs. That would apply not just to EU produce, though, but to the rest of the world too, potentially exposing UK farmers to new and tougher competition. That could make life hard for many, even before basic payments start to be phased out from 2021.
For the machinery industry, there will be several changes creating extra work and/or cost for businesses – tariffs (although most finished machines are tariff-free), customs paperwork and duplicate approvals and certification, for example. These would be hassles, but manageable ones. Logistics could be a bigger issue, particularly in the short-term, with delays at ports and borders lengthening delivery times, for parts and components as well as finished machines. Some companies are increasing stocks or rescheduling orders to avoid the worst of this.
Overall, the possibility of the UK leaving the EU without a deal is creating uncertainty, making it hard for businesses to prepare. Hopefully, we will soon have a better idea what we’re dealing with.
The AEA is the trade association representing the manufacturers, importers and distributors of farm and outdoor power equipment in the UK. Among the services available to members are a much wider range of statistics and economic analysis about the machinery and agricultural markets.