‘Deeply frustrated and disappointed’: What does Brexit uncertainty mean for food and farming?
Prime Minister Theresa May’s EU Withdrawal Agreement was voted down by 432 MPs to 202, a 230 majority that not even the most sceptical pundits were predicting. Still stinging from the scale of the defeat, May now faces a vote of no confidence today, which the Conservative Government is expected to win.
May has said that the next step will be to reach out to “senior Parliamentarians from across the house” to try and find a consensus.
This desire to build consensus does not necessarily signal a willingness to offer significant compromise, however. Labour, the largest opposition party, noted this morning that May has failed to reach out to its leadership. 10 Downing Street has already confirmed May’s “red lines” – ending freedom of movement, leaving the single market, customs union and jurisdiction of the European Court of Justice – remain in place.
This leaves very little wiggle room for negotiation - and what this means for food businesses in the UK and EU is clear as mud. Uncertainty is a massive problem for business leaders unable to plan for the disruption ahead and forced to place investment on hold.
‘Extend transition period’, FDF urges
Deal or no deal, the UK is currently due to leave the EU on 29 March. The message from the Food and Drink Federation (FDF) was clear following the vote last night: extend the transition period while the dust settles and next steps are agreed.
"The Prime Minister’s deal has been decisively rejected and it is now vital that the political leadership find a way to indicate what alternative should be pursued.” Ian Wright, FDF chief executive said in the aftermath of the result.
“We are calling for an extension to Article 50 in order for parliament to decide what our next steps are; whether that is a new deal, a referendum, an orderly exit from the EU without a deal at a later date, or a general election.”
Wright stressed that the Government needs to listen to the message coming out of the business sector and find a solution that limits the havoc a disorderly Brexit could wreck on the UK economy. “The Government should now be looking to speak with representative organisations such as the FDF, to ensure they are pursuing an alternative that prevents further damage to the UK’s wider economy.”
‘A no deal scenario would be catastrophic’
The National Farmers Union was quick to stress that leaving the European Union without a deal would be “catastrophic” for the country’s agricultural sector.
The NFU's six principles:
- Avoiding a ‘no deal’ outcome and any short-term political and economic turmoil
- Ensuring as free trade in agri-food goods as possible with our principal EU market
- Gaining greater regulatory control and discretion over UK farm practice
- Maintaining access to the seasonal and permanent workforce required by the UK food chain
- Ensuring our international trade respects domestic production standards
- Implementing a new agricultural policy framework that supports farmers as food producers, improves productivity and resilience and properly rewards the delivery of public goods.
NFU President Minette Batters said that, after two years of negotiations, we still lack a clear picture of what the post-Brexit trading relationship will be.
“The NFU is deeply frustrated and disappointed that nearly two and half years after the referendum we are no closer to finding out the details of our future relationship with the EU and what trading environment we could be operating under in the future.
“It is absolutely unacceptable for agriculture to be left with this level of uncertainty. We have repeatedly said that a no deal scenario would be catastrophic for farming, but political events today have created further doubt and uncertainty.”
The farmers’ union has previously set out principles that it believes should govern the future relationship with the UK’s European neighbours. These include free-trade in agri-food and access to Europe’s labour pool as well as greater regulatory control.
In particular, UK farmers are concerned that high production standards in the country could be undermined by cheap imports of products constrained by fewer regulatory restrictions. Worries over future trade deals with countries like the US - which is pushing for the acceptance of hormone treated beef and chlorine rinsed chicken - are front of mind for many. "It is crucial that the Government ensures our high standards of food safety and production are not undermined by lower standard imports from elsewhere in the world,” Batters stressed.
Cost, compliance and food fraud
We still don’t know whether UK exporters will face increased tariffs on products they are selling in the European Union. If the country reverts to WTO trading rules, as it would if no-deal is reached and Article 50 is not extended or revoked, it will certainly face stiff customs charges on agricultural products.
Exporters will also have to contend with additional red tape, not least the challenge of demonstrating their ongoing compliance with EU regulations.
“Brexit could mean any number of issues for on pack labelling and compliance – changes to origin statements, as packs will not be able to say EU if they are from the UK, while UK front of pack nutrition may not be accepted in Ireland for example," Ashbury Labelling’s regulatory affairs director Pete Martin told FoodNavigator.
“Then as we inevitably experience delays or shortage of supply of some ingredients, there are more opportunities for substituting expensive ingredients with cheaper alternatives – and the age-old issue of food fraud becomes prominent again. Food manufacturers will need to become even more diligent about checking the sources of their ingredients, and in turn, ensuring that on-pack labelling truthfully represents the ingredients contained in the product,” he suggested.
Shortages on shelf?
The UK currently imports one-third of the food it consumes from Europe.
UK supermarkets and food makers have repeatedly insisted that a no-deal scenario would be catastrophic for UK food supplies and potentially lead to shortages on shelf. The food sector is concerned that additional red tape will make ‘just-in-time’ supply chains unworkable while increased costs will push up prices for consumers.
Speaking this summer, Helen Dickinson, CEO of the British Retail Consortium, explained: “Our food supply chain in particular is fragile and based on just in time principles, ensuring efficiency and economies of scale, bringing huge benefits to the British shopper.
“Any delays caused by increased red tape will have a serious impact on over one-third of our food imports. The Government's technical notices demonstrate the facts of a no-deal Brexit - reduced availability and higher prices of food and medicine, increased delays and red tape at borders, and a VAT bombshell for consumers and businesses.”
IRI senior regional insights manager Olly Abotorabi told FoodNavigator that its “hard to fully predict the impact of Brexit”, not least because we still lack clarity over exactly what it means. However, he did forecast price inflation and an increased focus on local sourcing.
“It is likely that we will see price inflation as a result of a devalued pound and many FMCG retailers and brands are anticipating this by stockpiling key ingredients. However we might also expect to see changes in where manufacturers and retailers source products from with some growth in local sourcing to protect them against any potential import disruption,” he suggested.
Back to the future: 'Buy British' takes centre stage
Indeed, Aboroeabi added, this feeds into an important trend IRI has picked up through its shopper insight work: growing demand for local, regional and national products.
“Retailers across the region such as Albert Heijn, Carrefour and Morrisons have pro-actively championed local brand initiatives in-store in recent months. We expect this dynamic to continue into 2019 as both retailers and manufacturers continue to realise the equity of ‘local’ and the opportunity to differentiate as well as mitigate some of the proposed import risks associated with Brexit,” he predicted.
With shades of the 'I'm Backing Britain' patriotic campaign on the 1970s, it seems that buying British will once again be in the spotlight. Pundits believe this will play out as a rising awareness of how their food is sourced. Euromonitor International analyst Valentina Vitali expects whatever the outcome of the political negotiations, Brexit will see UK consumers demonstrating a preference for British grown foods.
“Brexit is driving up the desire of consumers to sustain local jobs and producers,” she told FoodNavigator. “Attention is increasingly shifting towards British-sourced products.”
Going against conventional wisdom that Brexit will drive up food prices, Vitali actually expects the opposite. She also believes that the shift will give UK supermarkets the upper hand in the market share battle they are facing against the German discounters Aldi and Lidl.
“While it may be difficult for retailers to adapt their supply chains to the rising products’ rotation due to the high seasonality of UK-sourced products, the reduced reliance on increasingly priced food imports in the wake of Brexit will provide British incumbents advantages [over Aldi and Lidl]. This is likely to translate into lower prices transferred to the end consumer.”
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Posted by Harry Romijn,