A Business, Energy and Industrial Strategy (BEIS) Committee report found government is ‘almost out of time’ to negotiate an orderly trade system with UK businesses needing clarity and certainty about the future relationship with the EU.
The committee said a move by the UK to lower or remove tariffs could have ‘extremely damaging’ consequences for British farming with limited benefit to consumers in terms of lower prices.
It added the sector would suffer from reverting to WTO tariffs in a ‘no deal’ scenario.
Free trade agreement with EU
“There will be trade opportunities arising from leaving the EU and in the long term, the UK’s trade balance may benefit from diversifying and relying less on the EU as a trading partner," said the report.
“It is unrealistic to expect that the sector will stop relying on the EU as its main export destination at least in the short term. Consequently, the negotiation of a free trade agreement with the EU should be the number one priority for the government.”
Reaction from Sustain
Chief executive of Sustain Kath Dalmeny said: “The BEIS Committee quite rightly unanimously rejected any ‘race to the bottom’ on food as UK consumers will not tolerate any lowering of standards. We are frequently told that eliminating tariffs will lower food prices and be good for those on low incomes. But we utterly reject the idea that flooding our supermarket shelves with sugary, salty and fat-filled processed food will benefit our nation’s health or our farmers and food producers.”
UK food and drink exports were worth £22bn in 2017, 60% of which were to the EU.
Only for beverages do exports exceed imports and 30% of UK food imports come from the EU, according to Department for Environment, Food & Rural Affairs (DEFRA) statistics.
Rachel Reeves MP, chair of the committee, said British consumers rightly expect the highest food safety, animal welfare and environmental standards.
“Consumers also value the variety and choice of products when they do their shopping. The success of the industry has been highly dependent on participating in the Single Market and Customs Union,” she said.
“To ensure the continued success of our food and drinks industry, the government must provide clarity and certainty on our future relationship with the EU and seek continued regulatory, standards, and trading alignment with the EU in the processed food and drink sector.”
Ireland and the UK border
The report said the UK should stay as close as possible to EU regulations to facilitate exports to the market and build on consumer trust for EU-branded products.
A 21-month transition period lasts until the end of 2020.
Most stakeholders supported continuing membership of the European Food Safety Authority (EFSA), BEIS found.
The report highlighted concern between Ireland and the UK given the sector is highly integrated across the two countries. The authors stressed the need to avoid a hard border.
The Food and Drink Federation welcomed the focus on challenges facing industry regarding the island of Ireland.
“FDF supports government in its efforts to find the right technology to avoid a hard border and any customs or phytosanitary checks. However, time is running out when it comes to finding a credible, technological solution and the option of a regulatory backstop must be left on the table.”
Diageo and Nestlé comments
Diageo told the committee a 15-minute wait for each truck at the border between Ireland and the UK would cost it £1.3m per year - potentially more for suppliers.
Ferrero comments on food labelling
Government has previously cited changes in food labelling as one of the opportunities afforded by leaving the EU. However, Ferrero noted its products are sold in the same packs in the UK and Ireland. Were UK and EU labelling law to diverge such that future labelling schemes were not compatible, i.e. different products had to be sold in each country, the task of repackaging products from one market to the other could increase costs by as much as 10%. This may reduce the number of different products on the market, the chocolate maker suggested.
“Baileys is manufactured in plants on both sides of the border. The dairy that we use in Baileys is sourced both sides of the border. We buy 11% cent of Ireland’s cream output to make Baileys.
“We move about 18,000 trucks a year over that border, so even small hold-ups to process those truck movements would be really unwelcome.”
Nestlé also expressed concerns to the committee about the border between Ireland and Northern Ireland.
“The fact that we can move things freely between the UK and Ireland in a frictionless way without tariffs is fundamental to our business model and our business in Ireland.
“We would absolutely have concerns and real issues if that frictionless border changed or if we started to see tariffs between the Republic of Ireland and the UK. It is an east-west border as well as a north-south border.”
The Food and Drink Federation identified Korea, Canada, South Africa, Mexico and Norway as priorities for replicating existing EU trade deals as they are the top five non-EU destinations for UK exports.
FDF chief executive Ian Wright said the report highlights areas decision makers must get right on trade, exports, workforce, regulation and R&D to ensure the sectors continued success.
“Any increased friction as a result of physical checks or paperwork at borders will prove costly for the entire supply chain and cause short-term disruption for businesses, consumers and shoppers,” he said.
“We echo the committee’s call to government for increased customs capacity and support for businesses of all sizes to navigate the changes ahead. The proposed transition length is briefer than we believe would be optimum and government must review how ‘readiness’ is progressing.”