Concerns have recently been raised over the livelihoods of British farmers during a discussion between senior ministers regarding a UK Australia trade deal.
The UK Australia trade deal will involve cutting tariffs between the two nations, thus reducing protectionism and potentially causing UK beef prices to fall, illustrating why farmers are concerned.
Removing protectionist policies such as tariffs decrease the prices of foreign goods. The UK currently consumes 0.15% of all Australian beef exports, UK sheep meat imports from Australia also account for 14% of total sheep meat imports.
This means that a reduction in tariffs will make Australian meat more available to UK consumers as the price of these meats will decrease, consequently, the overall supply of these meats will increase as UK meat farmers will be in competition with Australian ones.
And this raises massive concerns over the income stability of UK farmers, due to Australia’s size, the nation has an immense amount of land to use as grazing pastures to use for animals such as cows and sheep.
This means that Australia has an absolute advantage over producing beef and lamb meat compared to the UK, consequently, because of this absolute advantage, Australia’s output is higher.
This higher output combined with lower tariffs means that as Australian meat becomes cheaper and more available for UK consumers, it may become the preferred alternative over local or UK alternatives.
Therefore, if this occurs, UK cattle and lamb farmers will see a massive reduction in their income as the revenue they will gain from selling these goods will decrease as consumers tastes and fashions change to favour the potentially more cost-effective Australian options.
Hence, this has raised concerns over the income stability of British farmers with some government officials, such as Michael Gove, going as far as to say that cutting tariffs with Australia is not beneficial at all despite the fact that the UK traded a total of £20.1 billion in goods with the nation between 2019-2020.
So what will the UK government do? The answer is a bit unclear.
Australia have voiced their view and the nation’s governments have stated that it would be beneficial for there to be no tariffs imposed on Australian meats, however, this decision is certainly in favour of the Australian economy as a lack of tariffs brings in extra income to cattle farmers.
This raises GNI within Australia as more income is entering the economy from overseas sources.
This means that, because Australia is seeing additional injections of cash into the economy through exports, the nation will likely see rising economic growth as exports are part of net trade, a component of aggregate demand.
However, if no tariffs are introduced, the UK economy will somewhat suffer as meat producers will see a massive loss of income due to a structural loss of demand.
This may lead to structural unemployment as consumers favour Australian alternatives, because of this, there will be a large number of farmers who will become unemployed as there is no longer a demand for their industry.
This makes it hard for these workers to find jobs as this loss of industry means that they will have to find work in a different occupation, thus increasing occupational immobility of labour.
Hence, to avoid this structural unemployment, it may be better for the UK government to place tariffs on these Australian goods to protect the incomes of British farmers, despite the fact that the UK meat industry is less efficient, in terms of absolute advantage, compared to its Australian counterparts.
Chancellor Rishi Sunak stated that the trade deal will provide the “appropriate safeguards and protections,” to ensure that British farmers are protected whilst ensuring prosperous trade between the UK and Australia.
If you enjoyed this article and love what we are doing please consider showing us further support by following our social media accounts, we also appreciate any feedback as we aim to improve our work.
Written by Hubert Kucharski