New UK / EU trade deal

What’s happened?

UK and EU leaders have met in London and have announced a new deal, aimed at strengthening relations. Details remain unclear for now. For food and drink businesses, key points include:

• Smoother cross-border trade for agri-food goods

• Continued EU access to UK fisheries for 12 years, subject to licenses and quotas

• Joining of carbon markets, to prevent taxes on movement of carbon-intensive goods (e.g.: fertilizer) *

* Known as Carbon Border Adjustment Measures (CBAMs)

Good news for trade and, possibly, inflation

The UK and the EU already have a trade deal, the Trade & Co-operation Agreement (TCA). This provides for tariff-free trade in many goods, including agri-food. It does not remove border procedures, however.

The new UK/EU agreement expands this and promises smoother trade for qualifying agri-food goods, offering businesses new opportunities.

It’s not a return to EU institutions, but it does offer to reduce border procedures - if UK standards align with EU rules. For the moment, UK food standards remain close to the EU’s.

Lower trade barriers could unlock new business opportunities and reduce costs for food and drink companies on both sides of the border.

IGD’s analysis shows that post-EU Exit border measures have added costs and complexity, contributing to inflation.

Simplifying trade may ease this pressure, providing a modest but meaningful reduction in UK food inflation – though risks like poor harvests and rising labour costs might offset these gains.

A major potential win for the food sector is the expected removal of special measures on agri-food trade between Great Britain and Northern Ireland, reducing confusion and challenges.

Key uncertainties remain

Labour movement provisions are missing, a potential challenge for food and drink businesses facing recruitment difficulties. Talks continue on a possible “youth mobility” scheme.

The interaction between the new agri-food trade agreement and UK agri-food policy remains unclear.

For example, the UK may wish to use gene-edited crops to combat climate change – made possible by the Genetic Technology (Precision Breeding) Act 2023, which loosened controls after EU Exit.                                                                            

However, the EU maintains strict regulations on gene-edited crops. This may change in future but, until it does, the EU will wish to exclude these items from its market and it would need some mechanism for doing this.

It is also unclear how the deal will affect the UK’s ability to do new trade deals on agri-food with third parties.

IGD opinion

The EU remains the UK’s key trading partner for food and drink, as it has been for decades.

Unrestricted movement of goods is crucial to ensuring  availability and stable prices for UK consumers. Any measures that ease trade are likely to benefit both businesses and consumers.

The deal signals improved UK-EU relations, but its commercial impact may be limited.

UK food and drink exports to the EU grew in the five years before EU Exit, before falling sharply. While they have started to recover, they remain below pre EU Exit levels.

Increased checks on UK food and drink arriving at EU ports may be a contributing factor, as EU buyers may be reluctant to navigate added bureaucracy.

Had EU Exit not occurred, exports would likely have continued growing - creating an opportunity cost that exporters now have a chance to reclaim.

Food and drink imports from the EU also fell in “real terms” post-EU Exit, but have since recovered and returned to growth.

However, the UK’s food and drink trade deficit with the EU has grown since EU Exit, rather than shrinking.