By Davidson Gordon
The Scottish sheepmeat market is in chaos, with only two weeks to go before the end of the transition phase to leave the European Union.
The recent meeting between the British prime minister and the president of the European Commission has not eased uncertainty for Scotland’s sheep farmers and processors, according to Quality Meat Scotland’s new business commentary.
The potential for market disruption, especially in the early weeks of 2021, highlights the crucial importance of contact between farmers and processors as time runs out to reach an agreement by 1 January.
The QMS export survey for August 2019 through July 2020 showed that nearly 98 percent of Scotch Lamb PGI (protected geographical indication) exports were accounted for by EU countries. At the same time, exports accounted for an estimated 23 percent of sales of Scottish sheep production, compared to 8 percent of sales of cattle processing, demonstrating the higher risk to the sheep sector in the event of a negative result from trade talks.
“The main concern for the sheep sector is that without a trade deal, Scotch Lamb PGI will face significant tariff protection from the EU from early 2021,” said Iain Macdonald, senior economic analyst at QMS.
“Based on import prices at the Rungis wholesale market in Paris on Dec. 10, the price offered to the Scottish exporter after the EU importer has paid the duty would have to fall by 36 percent to remain competitive at the same market price,” Macdonald said.
“In such a scenario, Scotch Lamb PGI exporters would be reliant to some extent on EU prices rising as a major source of lamb becomes more expensive, and on EU import demand being less sensitive to higher prices because of the quality of the product,” he continued.
A weaker sterling pound and a 4 percent lower lamb crop in New Zealand are other factors that could offset the decrease in competitiveness, leaving the country less space to fill a supply gap.
“This is, of course, before taking into account the additional administrative burden of leaving the EU single market. Currently, shipping meat from Aberdeen to Paris is similar to shipping from Aberdeen to London, except for the extra shipping time, but from Jan. 1, it will become much more difficult,”said Macdonald.
New administrative procedures would add time and expense to the existing process, such as export health certification and border inspections. Fortunately, a six-month grace period for the UK has been suggested by the EU. Freight forwarders to resume shipping goods from the United Kingdom Through the EU.
It should be noted that, even if a trade agreement eliminates the danger of tariffs, the effect of the obligation to trade as a third party would still disrupt exports. As traders and officials adapt to new ways of operating, this may be especially acute in the early weeks of 2021.
“Thinking back to late March 2020, when the first wave of the covid pandemic hit northern Europe, the export market was virtually closed for a while and stocks of lamb rose rapidly,” Mr. Macdonald recalled. Between the third and fourth week of March, prices on the Scottish lamb auction market dropped by around 30 percent and did not completely recover in April. They also took longer to recover from their low point than prices in markets in England and Wales.
The additional demand risk due to the later marketing rhythm is of particular concern to Scottish sheep farmers, which means that a higher proportion of the Scottish lamb crop remains on farms at the end of the calendar year.’ In the five years leading up to lamb year 2019, 55.8 percent of lambs sold at Scottish auctions were exchanged in their year of birth, compared to 64.4 percent at auctions in England and Wales,” he noted.
Results from the June count of this year also show that Scotland has a 2.1 percent higher lamb crop, while the English crop was 1.2 percent lower. Meanwhile, since late July, the amount of store lambs traded at Scottish auctions has risen from last year by more than 5 percent.
The marketing of finished lambs in 2020, however, was much faster, so we could end the year with a smaller carryover than at the end of 2019. Considering that stock lambs were also sold earlier than last year, before the turn of the year, a greater percentage of these lambs could end up on the main market than in the 2019/20 season.
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