A briefing note by the think tank Institute of Fiscal Studies (IFS) highlights a “great deal of uncertainty” concerning the nature of the UK’s post-Brexit trading arrangements.
It states that continued full membership of the single market and customs union would see little change relative to current arrangements.
However, its authors warn of the consequences of leaving the EU without a free trade deal and falling back on World Trade Organisation (WTO) tariffs.
In this scenario, the UK could not set tariffs that differentiate between trading partners.
The UK would then have to negotiate a free trade agreement or give developing countries unique market access to enable it to do so.
Without a free trade deal, the UK would either place tariffs on EU imports or charge zero tariffs to all WTO members, although this move is highly improbable. The cost of importing food from the EU would rise as a result.
More worryingly, the authors believe a possibility might arise where the UK would accept cheaper food imports that do not meet current EU regulatory standards.
“If the UK ceased to be a full member of the EU single market, it would be able to apply different regulatory standards to food imports, leading to the possibility of importing hitherto banned produce such as chlorinated chicken”, it stated.
Controversy surrounding the use of chlorine dioxide solution on poultry meat to reduce prevalence of Salmonella is a practice adopted in the US but banned in Europe.
Concern centres on the formation of by-products as a result of chlorine break down.
Removing the ban on chlorinated chicken would allow a speedy trade deal between the UK and US – its largest export market, according to Liam Fox, Britain's trade secretary, with purchases accounting for over (€224 bn) (£200 bn) of UK goods and services annually.
A report into poultry price differences between chlorinated American chicken and UK poultry claims that the US type was more than a fifth cheaper than British meat and would cut UK prices by 21%.
Food is sensitive to tariff increases when compared to other sectors, as roughly 30% food bought by UK consumers is imported from the EU. The region also accounts for 70% of the UK’s gross food imports.
The briefing also expressed unease as to how Brexit would affect pound sterling’s value and the cost of getting imported food products onto supermarket shelves.
It pointed to the 13% depreciation in sterling between January 2016 and March 2017 as a possible and persistent effect on food prices.
Exchange rate price hikes
“There is evidence that producer prices for food have increased since the referendum,” the briefing commented.
“The consumer price for food relative to the overall consumer price level initially declined after the referendum, but started to increase towards the end of 2016.”
Figures supplied by the IFS, in which it found food prices jumping 15% during the last major sterling devaluation in 2007 and 2008, when the currency depreciated by 21%
Though other factors were at play, this demonstrates the sensitivity of food prices to exchange rates, the IFS said.
Nomad and PepsiCo are two food makers that have attributed its UK price rises to Brexit-induced currency changes.
They claimed its brands like Walkers crisps and Birds Eye fish fingers were affected by the rise in raw cost materials.
However, Brexit supporters have stated that food prices would decrease as high tariffs on goods imported from outside the EU are removed.
Sugar producer Tate & Lyle claims its raw material bill is inflated by €40 m a year due to EU tariffs and quotas.