While the government was seeking to negotiate a free-trade deal with EU, were it to fail and fall back on World Trade Organization (WTO) terms, it would not impose a “zero tariff” regime to keep prices low for consumers, since this would damage domestic food producers, Gove told the House of Commons Environment, Food and Rural Affairs Committee (EFRA) committee.
“It would be better for consumers if there were not tariffs, as food prices would fall but it would put considerable strain on farmers,” said Gove.
“My preference would be that we would maintain tariffs in order to ensure that we didn’t have the sort of change occurring in agriculture, horticulture or any of the other productive sectors that would lead to the level of disruption that would be unhelpful for reasons of continuity of supply or health for the industry.
‘Challenges for the livestock sector’
“Reduce tariffs and you of course reduce prices, but you create challenges for the livestock sector – particularly for the red meat sector.”
While rising food prices through the imposition of tariffs would hit consumers, it would create opportunities for domestic producers through import substitution, he argued.
EFRA committee member, Labour’s Angela Smith, suggested that WTO rules meant that the large quantities of cheddar cheese imported from countries such as Ireland, would incur a 40% tariff.
“In the years following Brexit, the price of Cheddar would go up by 40% for a significant proportion of the cheese on supermarket shelves,” claimed Smith. However, Gove argued that UK producers would increase production to compensate for the loss of imports from Ireland and elsewhere.
“If foreign products cost more, then there are new opportunities for domestic producers though import substitution to meet that demand,” he said. “If it is the case that we end up on WTO terms, then I am sure that British Farmers and British food producers will meet demand in this and many other areas.”
‘Aiming for a free-trade agreement’
Also giving evidence to the EFRA committee, food minister George Eustice added: “Obviously we are aiming for a free-trade agreement but if you end up on MFN [Most Favoured Nation] tariffs [under WTO terms], there are swings and roundabouts.
“If you look at dairy, we currently export to the Irish Republic £362M worth; we import £589M.
“What would probably happen if everybody put up a tariff is that we would consume more of the cheese that we produce rather than sending it to Ireland and Ireland would be selling us less cheese.”
Eustice also referred to research from the Resolution Foundation, which suggested that whatever trade scenario the UK ended up with, the impact on retail prices would be “quite modest”.
With tariff liberalisation, food prices would go down by 1.42%, while under WTO terms, prices would increase by 4.3%, he reported.