With just days to go until the end of the transition period the lack of certainty over future trade arrangements presents major problems for food businesses and their supply chains. Nick Hughes reports.
So here we are: 1,635 days after the vote to leave the European Union and the UK’s future outside the world’s largest single market remains unclear.
In truth, it was always likely to be thus. Negotiations as critical as those to determine the future relationship between the UK and its biggest trading partner were always set to go to the wire. Domestic politics dictates that both sides must sell to their respective audiences the notion of a heroic last minute victory snatched from the jaws of a devastating defeat, albeit for a long time now the divisions between the two sides have appeared genuine and wide.
The problem is that industry thrives on the kind of certainty that has been consistently denied to businesses for the past four and a half years. No more so than the food sector which is uniquely subservient to the seasons and the perishable nature of its products.
Consistency of price and product are key foundations on which business models are built. Brexit offers neither, just a series of known knowns, known unknowns and unknown unknowns to borrow former US defence secretary Donald Rumsfeld’s infamous phrase.
I set out to write a piece setting out all the ways in which Brexit will impact food businesses, and in particular those companies involved in the foodservice supply chain. But it quickly became apparent, through poring over government and industry papers and joining a recent webinar hosted by the law firm Burges Salmon, that doing so would require a piece of content closer to the length of the Withdrawal Agreement (177 pages) than the text of article 50 (1 page).
Here, therefore, is a far from exhaustive summary of some of the challenges that businesses can expect to encounter over the months ahead. Because regardless of whether you see Brexit as a calamitous mistake or a long-term opportunity for UK plc to regain its sovereignty, strike new trade deals and strengthen (or weaken) its own rules, there is little question that short-term disruption is a price that will have to be paid for “taking back control” – by distributors, manufacturers, retailers, caterers, pubs, restaurants and ultimately consumers too.
Let’s start with tariffs – the most tangible measure of the realities of post-Brexit trade. In the event that a deal cannot be agreed (the most likely scenario at the time of writing) goods moving between the UK and EU will be subject to duties set by the importer under World Trade Organisation rules.
As one of the most protected industry sectors agricultural tariffs are especially high. Four fifths of UK food imports come from the EU, but under the UK tariff schedule 85% of these will face tariffs of more than 5% according to analysis by the British Retail Consortium, with the average tariff over 20%. This includes 48% on beef mince, 16% on cucumbers, 10% on lettuce, and 57% on cheddar cheese. This is significant because two thirds of the UK’s fruit and vegetables are imported with the majority coming from the EU. Ireland, meanwhile, is a key supplier of meat and dairy products, including beef, cheese and butter.
Research from the SHEFS consortium has found that the average British family risks paying 4% more for their fruit and vegetables from January 1st 2021 should the UK leave the EU without a deal, compared with a 0.6% increase that would occur under a free trade agreement. The effect of currency volatility will also be a factor especially in the event of no deal since food and drink is mostly traded in dollars or euros. Ministers, however, have played down fears over the extent of food prices and shortages of certain products.
UK producers exporting to the EU face paying similarly eye-watering premiums. Lamb exports face a 46% tariff while dairy products would command significant double-digit rates of duty. Fish prices are also set for a period of volatility given that the majority of the UK catch is exported abroad – in particular pelagic fish like mackerel and herring along with shellfish – while popular UK fish like salmon, cod and tuna are mostly imported.
Tariffs may be the toughest pill to swallow for food operators but they are also the easiest to avoid. Any trade agreement is likely to remove them, at least for the foreseeable future.
However, the UK’s decision to leave the single market and customs union means a whole raft of other regulatory requirements will come into effect on a staggered basis regardless of any deal being struck.
The most immediate action required of businesses is to register for an Economic Operators Registration and Identification (EORI) number which will be needed to move goods between Great Britain and the EU or Northern Ireland from January 1st 2021. From this date, businesses will need to make customs declarations on imports and exports with the risk of those without the necessary paperwork being refused entry at the border.
From April 1st, any business importing products of animal origin – for example meat, honey, milk or egg products – as well as certain plant products like root and leafy vegetables will need to pre-notify the authorities and have all types of product accompanied by a health certificate. These can cost up to £200 per product and verify that the products meet the health requirements of the destination country.
Then, from July 1st animal products and other high risk foods will need to enter the UK via a border control post (BCP) so they can be physically checked on arrival. To put this into context, Dover, a key port for the food trade, is not currently a designated BCP for animal products and will therefore not be a viable route into Great Britain for suppliers of meat, fish or dairy from next summer.
Back in the autumn of 2018 I visited the Port of Hull, another key point of entry for EU food imports. I was struck by the almost complete absence of activity save for the regular rumble of goods vehicles. Although its statutory functions include food controls the reality of frictionless EU trade meant that barely any food needed to be inspected. A new temperature-controlled portakabin designed for checking food had hardly ever been used. Instead, the chief port health officer and his small team spent most of their days taking water samples from ships to test for contamination and checking catch certificates as part of the authority’s role in policing illegal, unreported and unregulated (IUU) fishery products.
All that is set to change following the end of the transition period. The Hull Daily Mail reported earlier this month that the authority has secured a £537,659 grant from Defra to more than double the size of its current nine-strong team of inspectors and administration staff to deal with the almost 19,000 extra documentary checks a year and 300 annual physical inspections of EU food products being shipped into Hull and neighbouring Killingholme that will be required following Brexit.
It is these extra administrative burdens that sit behind the threat of huge queues of lorries forming outside of French and British ports, and have led to warnings of shortages of fresh foods from the continent.
And the challenges don’t end there. New labelling requirements will mean an EU business address, which currently has to be displayed on EU packaged goods, will no longer be valid in the UK, while a GB address will not be valid in the EU or Northern Ireland. The UK government has pushed back the deadline to apply the changes until September 30th 2022 but the EU has shown no such flexibility and lawyers warn that businesses exporting to the EU would be wise to have their house in order by January.
The Northern Ireland situation is especially complex. In order to avoid a hard border between the north and south of Ireland, the two sides agreed that Northern Ireland would stay in the EU single market for goods and remain bound by EU regulations. In practice, this means that while goods will be able to move freely throughout the island of Ireland, businesses trading both in Great Britain and Northern Ireland will need to apply different labels to products and will also require export health certificates for certain products crossing the Irish Sea. This would mean, for example, that a single import of sandwiches including various meat and dairy ingredients will need to be accompanied by multiple health certificates following the end of a three month exemption period that has recently been agreed between the two sides. No wonder four in 10 food and drink businesses have said they are going to stop or reduce supplies going from Great Britain to Northern Ireland because of Brexit.
Labels will also need to change to display a GB rather than EU logo where the country of origin is required, while new GB health and identity marks will need to be applied to animal products produced in this country. And although the EU has recently agreed to recognise the UK’s six organic certification bodies for 12 months following the end of the transition period, organic suppliers still lack certainty over their medium-term ability to export to the continent.
Suppliers of products such as Melton Mowbray pork pies and Stilton blue cheese that already benefit from a Protected Geographical Indication (PGI) will have their EU registration protected but future PGI applications will have to be made separately to the UK and EU.
Similarly, to make a health or nutrition claim about a product, for instance that it supports cognitive or heart health, companies will need approval from both the UK Food Standards Agency and the European Food Safety Authority if they wish to make the same claim in both markets.
Each of these requirements may seem relatively benign in isolation but the sum of them totals a significant cost to businesses. And while the largest supermarkets or foodservice operators may be able to push the majority of these costs back down the supply chain, for most businesses it will inevitably hit the bottom line and force them to pass on some of the cost to consumers.
Suppliers, wholesalers and distributors, in particular, can expect to shoulder much of the financial and administrative burden at a time when many are suffering terribly from a loss of trade due to the coronavirus.
And what of the labour market? The food supply chain – from farm to fork – has long been reliant on a steady supply of migrant labour mostly from the EU. European Economic Area (EEA) nationals and their family members can remain in the UK after January 1st provided they register under the EU settlement scheme, but in future they will need to gain permission to come and work in the UK. The most common route for businesses will be to register with the home office to sponsor overseas workers in a skilled role; however The Grocer recently reported that just under 32,000 UK businesses – equivalent to 2% of the estimated 1.4 million private sector employers in the UK – have so far done so.
For lower-skilled workers earning less than £25,600 – a group likely to include most farm workers, meat packers and those working in manufacturing, distribution, and customer-facing retail and hospitality roles – there is currently no route into the UK. Although the impact for foodservice operators is likely to be lessened by market contraction due to covid-19 and high levels of domestic unemployment, the challenge of finding people to work on farms and in factories is likely to be far greater.
One role for which the UK is already experiencing shortages is qualified vets. In a provocatively titled press release – “Forget queues at the ports, our lorries won’t even make it out of the factory” – the British Meat Processors Association recently revealed that inspecting every single consignment of meat or meat-based products, “from steaks and sausages to beef curries and Hawaiian pizzas”, would require “an army of extra qualified vets to cope with the 500% increase in workload”.
Amid all the known challenges are the unknowns. These range from general questions like how will the new rules be enforced and will new IT systems needed to process paperwork be ready in time, to more specific details like how import tariff duties will be paid? The Food and Drink Federation has published a dynamic document that lists the questions the UK government still needs to answer. It currently runs to 55 pages and is littered with notes such as “does not answer question” and “awaiting publication of further information”.
For a sector already battered and bruised by the covid-19 pandemic, a second wave of uncertainty in the shape of Brexit is set to arrive just as hope grows that the pandemic is under control. Yet it’s also important to acknowledge the viewpoint that the medium and long-term prospects for the nation and its food supply may indeed be brighter with higher health and environmental standards, more diverse sources of global supply and an agricultural policy that rewards farm businesses based on the public goods they provide rather than the amount of land they own.
The truth is that nobody can predict with any degree of certainty what the future holds. As the seconds tick by towards the end of the most unpredictable year in a generation, businesses must brace themselves for yet another leap into the unknown.