On Pakistan’s potential for food trade with the UK
Brexit has opened up the market of the United Kingdom (UK), including for the food. Pakistan, despite many inherent problems and being the net-food-importing country, has a huge potential to tap into the UK’s food market as it has excess supply capacity for certain food items.
The search for cheaper sources of food has accelerated recently in the UK after the dissolution of half-century long trade and economic partnership with the EU. The UK is considering importing food products from Australia, New Zealand, and Canada as these countries used to supply a bulk of food to the UK before its membership of the EU in 1973.
Agriculture is a relatively small component of British economy. In 2019, its contribution to the GDP was less than 1 percent. This sector has remained largely shielded by EU-wide quotas and subsidies under the Common Agricultural Policy (CAP) which are going to be dismantled soon. A withdrawal of the EU subsidies amounting to $4 billion would affect production and increase demand for imports. Moreover, agricultural production in the UK is largely reliant on the EU labour force for most of the processes such as sorting of potatoes and picking of apples. UK farmers have recently faced a shortage of labour, as many contractual workers did not show up because of uncertainty in immigration policy, further compounded by the pandemic related containment measures.
The UK produces less than 60 percent of the food it consumes. In 2019, it imported food products worth $63 billion, of which around $45 billion (70 percent) was sourced from the EU members. Several developing countries such as China, Brazil, South Africa, India and Chile also supply limited quantities, at around 15 percent. Of the import items, the largest quantity are fruits and vegetables, meat and meat preparations and dairy products. These three categories of food items – all of which are produced in Pakistan – account for around 50 percent of the UK’s food import, indicating a huge potential to tap in the new trading environment.
The UK’s new trading arrangements with the EU in the shape of Trade and Cooperation Agreement (TCA) allow tariff-free and quota-free trade from the EU but challenges in meeting divergent SPS requirement, conformity assessments and rule of origin have emerged. The recent report by the Economist Intelligence Unit (EIU) finds that the food and agriculture sector faces the biggest risks from Brexit. This assessment reflects the UK’s reliance on EU supply chains and EU workers in these sectors, as well as the limited benefits to be gained from regulatory divergence.
With the right set of domestic and trade policies, Pakistan can become an agricultural export powerhouse, not only to the UK’s market but to the global marketplace.
Pakistan is blessed with cheap labour and amazing agriculture production capacity, which need to be capitalised on to avail this opportunity in the UK’s market. Food products are a relatively small component of Pakistan’s exports to the UK. The value of food items exported to the UK in 2019 was around $150 million, that is about 9 percent of Pakistan’s total merchandise exports to the UK ($1.6 billion) in this period, but 0.25 percent of UK’s total food imports. Like the merchandise trade, the food trade balance has been in Pakistan’s favour as the value of food imports from the UK was considerably lower ($19 million) than exports. This trade pattern has been very stable for the last ten years as the share of imports and exports has deviated only marginally from the historical average. Pakistan’s current exports to the UK largely comprise cereals and cereal preparations, fruits and vegetables and spices. These three products groups constitute around 95 percent of Pakistan’s food exports to this market. There is ample potential for increasing exports of these products as well as to introduce new products in this market.
With the right set of domestic and trade policies, Pakistan can become an agricultural export powerhouse, not only to the UK’s market but the global marketplace.
First, at the domestic level, Pakistan needs to focus on developing production capacity. The recent imports of wheat and sugar, at the peak of crushing season, underlines large unmet domestic demand and unavailability of surplus for exports.
Second, Pakistan needs to focus on value-addition and adhering to quality and global standards of aspects such as packaging. As an example, a nicely-packed piece of marunda (rice-cake) is sold for 2-3 dollars in developed countries, the packaging process costs dimes; only if one pays attention.
Third, meeting sustainability standards of larger retail chains in the UK such as Morrison, ASDA and Sainsbury is equally imperative. These standards, termed “private standards”, are over and above the regulations of SPS and TBT requirements imposed by the government. Fortunately, there is a lot of international support to train SMEs for meeting these requirements.
Fourth, the agriculture sector has to be supported as a tool of economic development strategy. Several countries have become developed via the export of food items; manufacturing is not the sole recipe for economic development. Moreover, agriculture trade remains resilient during the crisis as observed during this pandemic as well as the global financial crisis in 2008-09.
An early move could offer a considerable advantage as the UK is currently negotiating FTAs with Australia and New Zealand, and just concluded a trade deal with Canada. Currently food imports from these two countries face relatively high tariffs, which might be eliminated in the forthcoming agreement, leading to increase in the import of grains and other food products from these countries, eroding the comparative advantage enjoyed by Pakistan at this stage.
Time is of the essence here. New markets do not wait long enough for new suppliers. The relevant institutions such as the TDAP and Pakistan’s commercial diplomats in the UK need to be tasked promptly.
The writers are international economists