Analysis: How UK growers can face Brexit challenges

The UK cereal sector needs to improve competitiveness to cope with the post-Brexit world. It also needs to improve productivity and develop better trust in the supply chain.

Furthermore, the consistency of UK grain needs to improve, alongside a drive to look for new opportunities and niches for our grain and grain products.

These are the main conclusions of an AHDB Horizons report, Post-Brexit prospects for UK grains, which calls for the supply chain to act as one to drive competitiveness and value.

See also: UK must find niche in competitive global crop markets

“The challenges facing the future of UK grain trade are significant and as a result, survival is likely to require an element of change,” says the report

If trade with the EU becomes more limited, the knee-jerk reaction is to flag new potential export markets, but the competitiveness of home-produced grain on our domestic market is critical, says the report.

Post-2020 policy is an unknown, but two of the main scenarios could be reduced direct support and greater competition. So it will be important for the UK to reduce costs and produce quality that means UK grain is a preferred supplier.

Market access issues are less of a hurdle than the global market dynamics in cereals, says the report. These are changing as the US loses its stranglehold on the global wheat trade.

If there is no trade deal with the EU, this would mean tariffs or export taxes being imposed in and out of the UK and our market could face more internal volatility as a result.

The global grain trade is driven by competitiveness – it’s a high-volume, low-margin business dominated by relatively few multinational companies.

Exports are important, but variable in terms of the size and quality of our harvest, as well as global market conditions.

In global grain terms, while exports are important to domestic prices, the UK is a small player in a big market. We need to question whether we should be trying to be a global player or find niche markets, if they exist in a market so driven by “price on the day”, says the report.

The report flags adding value as one way of overcoming the price-driven nature of the market – for example, exporting more malt rather than malting barley. It questions whether containerised grain product exports can be expanded from the UK, as 50% of containers leave our shores empty.  

Changes in production

More challenging support levels or production economics could reduce production further in marginal areas and change land use, warns the report.

In addition, the competition from maize is likely to rise – it is cheaper to grow in many countries and the UK could become a target for more GM maize imports, which in turn could further complicate trade with the EU.

While global wheat and barley trade is expected to grow, other exporters can at present produce grain more cheaply than the UK, with Russia and the Ukraine exporting more of their production over the past 30 years.

The AHDB has examined the potential of 10 key countries or regions as export destinations for UK grain.

Among the best prospects in this list are Tunisia, Algeria, Saudi Arabia, Morocco and Japan, while Kenya, east Africa, South East Asia, the United Arab Emirates and China also offer potential.  

However, the AHDB reinforces the rising threat from maize. Two-thirds of grain fed to animals worldwide is maize, and outside EU the figure is 75%. Growth in global broiler meat and pigmeat production in recent years has helped maize consumption.

Markets that have forecast growth are often ones in which the UK would find it difficult in the face of the high protein and low moisture content requirements of some destinations, as well as price competitiveness and consistency of supply issues.

The AHDB points out that loss of preferential treatment regarding the EU market is also likely to mean loss of access agreements with non-EU countries such as Morocco and Algeria without new access arrangements and probably tariffs.

There are opportunities in Asia for UK malting barley – the report suggests added-value options should be considered – for example, replacing more barley exports with malt exports.

There is no doubt that the UK faces tough competition from lower-cost producers with higher outputs. While global wheat demand is expected to rise, there are limited easy wins, says the AHDB.

Also, the UK is used to having a wheat surplus, but that is changing – the area is under pressure as growers switch out of wheat to other grains for agronomic reasons. The more variable climate means the crop size is less predictable and there has been a trend to rising wheat imports.

While problems such as the poor maize crop in 2012-13 can lead to unexpected export opportunities, such opportunities are sporadic.

“The UK grain trade can face a challenge in getting the right tonnage of grain from farms at the right time,” says Jack Watts, lead author of the report.

“Sometimes the grain cannot be mobilised quickly enough or it may be a question of the logistics, such as the availability of portside storage or haulage.”

Strong domestic demand, bolstered by the bioethanol plants in recent years, means the UK wheat export surplus has been reducing.

If the area remains at about 1.8m hectares and bioethanol demand remains, the UK’s future as a consistent exporter is in doubt, says the AHDB.

Tonne for tonne, wheat imports to the UK tend to be of far higher value than our wheat exports, raising the question of whether greater value could be achieved through displacing imports.

Barley export prospects

Competition for barley export business is likely to get tougher in future, warns the report.

As UK barley output has grown in recent years, so barley exports have grown, so that 2m tonnes (27% of the 2016 crop) was exported.

This puts the UK on a par with some global barley export players such as Russia, Germany and Canada.

Only small increases in barley demand are expected over the next few years among the main importers and these are expected to be partly met by domestic consumption increases, for example in China and North Africa.

“Therefore, for the UK to export larger volumes to non-EU destinations it would have to win trade from existing suppliers,” says the report.

The immediate effect of Brexit and any arrangement negotiated will depend on where we are in the commodity cycle, points out Mr Watts.

While any tariff implications may be reduced by the effect of a drop in the value of sterling, the same currency fall pushes up production costs.

Top five non-EU markets for UK exports by volume, 2011-12 to 2015-16
Wheat			Barley
Country	Volume (‘000t)	Share	Country	Volume (‘000t)	Share
Algeria	542,800	32%	Algeria	595,300	31%
US	331,700	19%	Saudi Arabia	413,300	22%
Tunisia	210,300	12%	Tunisia	369,500	19%
Thailand	199,600	12%	Japan	168,000	9%
Japan	134,400	8%	Libya	128,300
Source: UK HMRC, based upon total UK exports in 2011-12 to 2015-16