Storm clouds gather over Brexit

Food industry experts are far clearer on the dangers of a hard exit than politicians, writes David Burrows.

In a fortnight’s time, on December 14th, EU leaders are expected to meet in order to decide whether negotiations on Brexit can move to phase two – in other words, from all the stuff about separation (the divorce payment, citizens’ rights and so on) to future relations, including a possible trade deal. Given how the talks have gone so far, miracles may well be needed.

But the government is doing its best to keep glasses half full. As the UK staggers towards a hard Brexit, food businesses should worry not, the farming minister, George Eustice, suggested recently. “The food and farming sector will be OK if there is no trade deal with the EU and we revert to WTO [World Trade Organization] rules on trade with them.”

Owen Paterson, a former DEFRA secretary and constant Eurosceptic, is another who believes that the spiky WTO tariffs that await below the cliff edge at Dover are nothing to fear. If the European Union is “still messing around by Christmas” then we should “give notice, on January 1st, that we will be moving to WTO rules”, he reportedly said at the Conservative Party conference in October.

Do the likes of Paterson and Eustice (not to mention the transport secretary, Chris Grayling) know something the rest of us don’t?

David Read, the chairman of Prestige Purchasing, has suggested that while there are certainly opportunities from Brexit, the current situation is far from rosy. “It would be a gross understatement to say [Eustice’s view] contradicts the opinions being expressed by most business leaders in foodservice and hospitality whom we have talked to,” he noted in a piece for Footprint.

Listening to the experts gathered at the Food Matters Live event in London last week, Read seems to have captured the zeitgeist more accurately than ministers and MPs.

Ian Wright, the director general of the Food and Drink Federation, said leaving the EU is the most serious challenge the food industry has faced since World War II. “We are not going to run out of food: the issue is choice and availability.” Paul Johnson, the director of the Institute for Fiscal Studies, admitted that he was “usually the gloomy one” but couldn’t compete with Wright’s outlook. He did his best: “Fifty percent of our trade is with the EU. We are bang next to it and it’s big and it’s very rich. If there’s no trade deal … we are really going to be in trouble. Where we are is not a pretty place.”  

Johnson explained that other sectors would be facing new tariffs of about 6% if a trade deal with the EU failed to materialise. They can cope with that, but the food sector is staring at what some have called “terrifying tariffs” in excess of 40% for some goods. In some cases it can be up to 600%, according to Brian Kelly, a partner at law firm Covington and Burling.

But as Kelly and other trade experts were at pains to highlight during their presentations at Food Matters Live, it’s not just the impact of these WTO tariffs on the cost of ingredients and the prices on menus or on shelves: there is a whole new system to get used to. There could be more than 10,000 tariff codes on a Mars bar, for instance. “It’s very complicated,” Kelly said, as he joined the gross understatement club.

But the EU is only one trading partner in a world full of opportunities. “We want to get out into the wider world, to trade and do business all around the globe”, said the prime minister, Theresa May, in her Lancaster House speech in January. So what about all the mouth-watering deals the government has been promising with other countries?

This week, as part of its new industrial strategy, the government announced a new Food and Drink Sector Council that will “lead the work to secure the UK’s position as a global leader in sustainable, affordable, safe and high-quality food and drink”. One of the first tasks for the group – which will involve leaders from farming, manufacturing, retail, hospitality and logistics working in “partnership” with government – will be to “build on emerging proposals for a sector deal in food and drink manufacturing, including support to transform exports and capitalise on its unique innovation opportunities in sustainable agriculture and food manufacturing”.

The FDF, which has been pushing for such an initiative, welcomed the news. There is little detail so far but the government clearly needs all the help it can get when it comes to striking all those new deals. At Food Matters Live, Wright warned that new trade deals won’t just fall into the international trade secretary’s lap. “I started working on a free trade deal with India back in 2000 [when I was with Diageo]. And here we are [in 2017] and we haven’t got anywhere.”

India is one of Liam Fox’s top targets when it comes to bilateral trade deals, but it’s likely to involve concessions on immigration. As Manoj Ladwa, editor of a new study of the UK and India’s partnerships called “Winning Partnership: UK-India Relations Beyond Brexit”, noted recently: “It is clear that the UK government has catastrophically misjudged the difficulty it could face in striking trade deals with large and complex nations such as the US and India once the UK leaves the EU.”

The US is also being wooed. In that case there is the chance the UK – despite the reassurances of the DEFRA secretary, Michael Gove – will have to relax rules on food standards. Deaths from food poisoning in the US versus the UK are 100 to one, said Wright, as he upped the gloom factor from a seven to a nine. “Do we want a regime that keeps us alive or one that doesn’t?”

Aline Doussin, a partner at law firm Squire Patton Boggs, has experience of dealing with the US negotiators. She revealed that its team will always play the “Congress won’t pass this deal” card in order to secure a better deal. Wilbur Ross, the US commerce secretary, has already put this play into action: in November he warned the UK not to sign up to “hindrances” to transatlantic trade such as the “limited role of science in assessing risk, especially in sanitary and phytosanitary matters”. In other words, we have to take the chlorinated chicken or we can “do one”.

Ladwa isn’t the only one who feels the UK is already out of its depth. “The only way you can make good any gaps left by [less trade with the EU] is to access markets like China and the US,” explained Declan McHugh, an associate director of Lexington Communications. “The only bits they could drill into are food, agriculture and healthcare and that could force us to reduce standards,” which could by turn make trading with the EU “difficult”.

This perhaps explains why the prime minister’s tune has changed since that Lancaster House speech. In Florence in September, the attempts to play hardball with threats of a hard Brexit and the claims that “no deal is better than a bad deal” had evolved into more conciliatory messages, including a bigger divorce payment offer and time-limited implementation periods. “The government is more pragmatic but weak and divided,” said McHugh.

The EU, meanwhile, has stuck to its original position: the UK can’t have its gâteau (which incidentally could have thousands of WTO tariffs) and eat it. Michel Barnier and his team want a deal, but the UK must be worse off as a consequence of Brexit. “The food industry will be the industry affected more than any other [by Brexit],” said Luigi Scordamaglia, the president of Federalimentare, which represents the Italian food and drink industry. “We can discuss not whether the impact will be positive or negative but how negative it will be.”

 

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