Monday, February 20, 2017

Brexit: it's not about the prices

If the remainers have to put up with being undermined by Tony Blair, they at least have the consolation that leavers have to suffer the crass behaviour of the "Leave Means Leave" and their attempts to bring about a "plane crash" Brexit.

Clearly not having caught up with the idea that we have won the referendum though, they are still fighting the battle. And their latest stunt is to have The Sun announce: "Brexit to chop food bills", while having Owen Paterson claiming in the Sunday Telegraph that: "Brexit will cut shopping bills by £300 a year".

The real detail comes in The Sun, though, where the graphic (above) illustrates a number of foods and beverages, each with the current "EU price" and the supposed lower "new price" that we will be paying after Brexit. 

For a start, the prices are meaningless. The figure "EU price" for 250gm of butter, for instance, is cited at £1.50, while the "new price" is £1.10. Yet, go to the Morrisons website and the price is £1.08 – without having to wait to leave. The "EU price" of 300gm of bacon is £2.00, against a "new price" of £1.86, but Morrisons offers £1.84 a pack, or two for £3.00. 

Fresh prawns are also on the list. The "EU price" for 165gm is £3.00, with the "new price" at £2.64. This time, Tesco comes to the rescue, with £2.25 for 250gm, equivalent to £1.49 for 165gm. In all three of these cases, shopping around delivers more benefits than Brexit. 

That is not the case, though, with bananas. For a bunch of five (notionally one kilo), the "EU price" is 65p. The "new price" is 55p, giving a differential of ten pence. Yet, such is price volatility of this commodity, that Tesco wants 80p. 

The reason for the 10p discrepancy, we are told, is that after Brexit a tariff on non-EU goods will no longer apply. Cumulatively, removing tariffs could save us "up to £300" on the annual shopping for a family. 

But saving ten pence on a bunch of bananas it not something we want to do – not when you understandthe story which goes back to the "banana wars" and the decision in 2009 when the EU agreed to cut tariffs to €114/tonne by 2017. That works out (at current exchange rates) at 9.8p per kilo. 

The point is that the tariff only applies to MFN bananas (mostly Latin American) – about two-thirds of our imports. Bananas from African, Caribbean and Pacific (ACP) countries come into the EU tariff-free. Yet, on the supermarket shelves, there is rarely any price differential. 

The reason for that is, as Joanna Blythman explains, that Latin American bananas are cheaper to produce. But this is not for any good reason. They are typically grown on huge plantations owned by transnational fruit exporting companies, or their satellites. Writes Blythman:
the natural landscape will have been flattened to allow for intensive banana cultivation stretching as far as the eye can see. These vast acreages are heavily treated with pesticides, usually by aerial spraying. This is why, in Latin America, the banana is often referred to as "the chemical fruit".

The workers generally live either in lamentable shanty accommodation on site or are bussed in great distances to work a long and punishing day. Paid piece rates, they have to work themselves into the ground to make a living wage.
ACP bananas, on the other hand, tend to be grown by artisan farmers. The communities which depend on them – mainly in the Caribbean – are fragile, and lack resilience. The tariffs offset the worst effects of a historical dependence that needs more time to remedy. 

In this context, even those opposed to tariffs would agree that their precipitate removal would do incalculable harm. It would not be in the UK interest to remove them for the time being – and nor would it be wise to settle on a defined end point. 

That said, as Blythman also wrote, the current price of bananas is scandalously low. Retail prices bear little relation to the cost of production, and are more a reflection on supermarket purchasing power. 

In 2014, you could buy a kilo of bananas for about 68p. Back in 2002 that same bunch would have cost £1.08, 59 percent more. If banana price inflation had kept up with the pace of Mars bars, the fruit would have cost £2.60 a kilo in 2014. Two years later, The Sun has the price at 65p. 

It yesterday's price of 80p holds, it will represents an overdue price adjustment which needs to go much further before sustainable prices are being paid. To argue that, because of Brexit, we will see – or want to see - cheaper bananas is beyond absurd. 

Never let it be said, though, that the Leave Means Leave can't outdo its own stupidity. For this, it picks up on the featured product: lamb chops. These it will have us buy for an "EU price" of £5.00, while the "new price" is £3.35. 

In my survey, the Asda price was £6.00. Tesco came in at £5.50. But the post-Brexit price will be nowhere near £3.35. To get this fictional price, we can see what Leave Means Leave has done. They've applied the third country tariff rate which currently stands at 12.8 percent plus €311.80 per 100 kilos. That is roughly equivalent to a 50 percent tariff. Deduct that from £5.00 and you get your £3.35 (rounded down). 

The thing is, nobody pays this. The countries which export to the EU all have tariff-free quotas. This includes New Zealand, with the largest, at 228,254 tonnes annually – which goes mainly to the UK. Supply exceeds demand, so the quota is unfilled unfilled each year, with New Zealand only taking up 76 percent of its allowance in 2015. Non-quota lamb is so uncompetitive that virtually all sheep meat is sold through the quota. 

What that amounts to is that almost all the lamb sold on the UK market, which is over 90 percent self-sufficient, is quota-free. Post Brexit, prices would only drop if exports to the EU were blocked, diverting export product to the home market and triggering a collapse. 

Clearly, this would only be temporary, but the effect on UK farming - and the countryside, which relies on its "living lawnmowers" to keep vegetation in check – would be drastic and long-lasting. A short-term consumer gain is hardly a welcome benefit, and not one to attribute to Brexit. 

Moving on from lamb, we next find that the "EU price" for lettuce is £1.25, while the post-Brexit price would be £1.12. The question here is why would there be any saving? And the answer is: there isn't.Leave Means Leave have played the same trick that they used with lamb. 

They have taken a 10.4 percent tariff and applied it to total sales. But roughly 55 percent of fresh vegetable consumption is home produced and tariff-free. Of the imports, over 80 percent come from EU Member States, mainly Spain and the Netherlands. They are also tariff-free. 

What is more, most supplies from the rest of the world are currently tariff-free. Thus, the vast majority of fresh vegetables (over 95 percent) attract no tariff at all. The difference, pre- and post-Brexit is hardly measurable – there are no savings to be had. 

If post-Brexit, we impose tariffs on EU produce, prices might actually go up 4-5 percent. But that notwithstanding, after the recent shortage of lettuces when prices soared, levels have now stabilised. A head lettuce can be bought from Tesco for 40p. 

Incidentally, we see a similar tariff dynamic with bacon. We are 55 percent self-sufficient in pig meat (which includes bacon and cured products). The balance is imported mainly from Denmark and Holland. Additional supplies come from Germany, Ireland, France, Spain, Belgium and Poland – all of it tariff-free. Since we pay virtually nothing now, there is virtually nothing to save, post-Brexit. 

It would now be tedious to go though the whole list, just to illustrate how untenable the claim is. But it's intriguing to see the "EU price" for 200gm of carrots reported at 90p, and the "new price" at 78p, when you can have 1Kg from Aldi for 43p, the equivalent 200gm price being 9p. Leaving the EU suddenly doesn't look so terribly exciting, if you're only doing it for the money. 

Some of the entries in any case look rather silly. We are told to consider that the "EU price" of a 75cl bottle of white wine is £5.75, which will drop, post-Brexit to £5.54. But since we pay no tariffs on wines from EU Member States, there will be no difference (one assumes) if we keep buying wines from that source. 

Tariffs on wines, when levied, are charged as a rate per hectolitre. The standard plonk is charged at £117.72 per hl – roughly equivalent to 16p a bottle. The strongest wines can go up to 28p. Theoretically, for many non-EU brands, tariffs will be dropped post-Brexit. Amongst other things, it is reported, that means Brexit will bring flood of cheap Aussie wine to the UK. 

However, one can already acquire a tolerable Australian Chardonnay from Asda for £1.75 a bottle. Even if 16p was shaved of the import price, we would probably see no difference on the supermarket shelves. The cost saving would be absorbed.

Nevertheless, we're told that a 75cl Prosecco bottle has an "EU price" of £7.00. Post-Brexit, it is supposed to drop to £6.80. But once again, a notional tariff is being deducted, despite the fact that we're not paying anything on an Italian sparkling wine with GI status. 

This, of course, is the product that the foreign secretary picked on when he said that Italy would sell less to the UK if the EU did not allow Britain to remain in the Single Market. But if we don't want to stay in the Single Market, one presumes there will certainly be no drop in price, post Brexit. 

That notwithstanding, while Leave Means Leave might want us to pay £7.00 a bottle, Sainsbury's are selling it at the equivalent of £6.00. 

Summing up, the saving from Brexit are being over-stated, and what little can be saved is only a fraction of what most households could save by shopping around. Leave Means Leave's strawberries, with an "EU price" for 400gm of £2.75 and £2.44 "new price", can be bought from Sainsbury's at £2.00. Morrisons sell for the same price, or two packs for £3.00. And the list goes on. 

If you can't afford the luxury of branded products, you can go own-label. A 500gm pack of ketchup costs £1.75. The "new price" is £1.57. But 550gm of Tesco brand ketchup will set you back 63p. Alternatively, you can bulk up. A 2.5Kg bag of washed Maris Piper potatoes costs £2.00. Unwashed, the unit price halves, when bought in quantities of 12.5Kg. 

That apart, shoppers will tell you that prices are going up across the board. Furthermore, pack sizes are shrinking, concealing the scale of the increases. Tiny savings from tariffs are dwarfed by the loss in the value of sterling. It really is not sensible to make such claims about minuscule tariff savings when the overall price trend is upwards and everyone knows it. More to the point, we did not vote for Brexit because we wanted to save a few pence on the food bill. 

In the real world, the survival of the farming industry is much more important. And there is somethingLeave Means Leave needs to get stuck into. It has been learned that the government has commissioned no research in the past six months to inform agricultural policy once the UK leaves the EU. It hasn't a clue where it is going, or what it needs to achieve. 

Messing about with stories about non-existent savings, therefore, is an unwelcome distraction, a waste of everybody's time when the main issues are being missed.