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After the new chancellor Kwasi Kwarteng announced his ‘mini-budget’ last week, involving sweeping tax cuts which would disproportionately benefit those on the highest incomes and be paid for by higher government borrowing, international investors panicked.
Despite a U-turn on the proposed plans which restored some confidence in the pound, the exchange rate is currently 17.18 per cent lower compared to where it was at the beginning of 2022, creating uncertainty and throwing the plans of UK businesses that import and export goods into disarray.
The effect on indies
Because food is mostly bought in sterling, US dollars or euros, a weak pound affects UK food prices “directly”, according to Tim Lang, professor of food policy at City, University of London. And for indies who import speciality food from the EU and the USA, this means increased costs across the board.
Adrian Beale, co-owner of Buckey and Beale, told Speciality Food, “As importers, the exchange rate is a key part of our business and something we look at on a daily basis. Most of what we purchase is paid in dollars, so we rely on a stable pound to keep wholesale prices stable for our customers.
“Purchasing currency in advance and then setting our pricing around that helps consistency in the short to medium term, but what we’ve seen over the last 15 years, and especially over the last week or so, is a major weakening in sterling, meaning higher prices all round. It’s shocking to think how far it’s fallen when you recall that in 2007 the exchange rate was over $2 to the pound.”
For Jen Grimstone-Jones, owner of Cheese Etc, The Pangbourne Cheese Shop, “The fall of the pound against the euro will make our Continental cheeses more expensive. We are fortunate in that most of our suppliers have to give us two to three weeks’ notice of any price changes so the immediate fallout will be tempered slightly.
“But there will probably also be a knock-on effect on our British cheeses as any cheesemakers that export cheese may take more orders from outside of the UK, this could mean that their cheeses are harder to come by, thus driving the price up.
“However, I think we will be protected from this in that we tend to buy directly from small, artisan producers who don’t necessarily sell many of their products overseas. It is going to be a bit of a waiting game to see what happens.”
Patricia Michelson, owner of La Fromagerie, added, “For my business, the interest rates have meant that the exchange rates are more volatile than ever. We are battening down the hatches and consolidating. We are buying carefully and negotiating where we can.
“But the costs of bringing in products since Brexit has put a huge cost onto the selling price as paperwork and transport alone mean tens of thousands of pounds being spent in order to comply with the new laws. Importing is indeed a problem and won’t go away or get easier to manage for the foreseeable future.”
The importance of imports
While Britain boasts a rich and diverse fine food scene, there is a strong case for making imports easier and more affordable for small businesses.
As Patricia explained, “Importing food, as far as Ms Truss is concerned, is in her words ‘madness’ and why do we have to import so much cheese?
“Well, we as a nation do not have enough agriculture in place to support our nation and anyway, we have been a nation that enjoys exploring food culture and its people – that is why so many people want to live in this country because we are more open-minded and like to trade and grow. Or so I thought.
“The referendum did not give the nation any true picture of what leaving the EU would be like for the country and yet the people still expect all the benefits the government can give whether they can afford it or not.
“Importing cheese and food products may not be deemed important but we can’t live on what we grow and produce in the UK, and even then, we need to import animal feed, serums for cheesemaking, machinery, oil, gas, so many things that are not available in Britain and have to be imported. So even if we were relying on our own produce, the prices are rocketing in the same way as importing food products.”
As Britain is reliant on imports both culturally and for food security, Adrian believes, “It is particularly harsh on importers that have had Brexit, Covid, and a global logistics crisis to deal with, and now we have this along with rising energy bills and industrial action at the UK’s largest port.
“The collapse affects more than just importers of branded goods like us though. This affects British food producers importing ingredients and commodities such as tea and coffee that are also traded in foreign currencies.”
A financial solution
With small businesses already concerned about rising costs and increased energy bills over the winter period, the government needs to act quickly to rectify the financial crash.
For Adrian, “Raising interest rates traditionally increases the value of sterling as it increases the returns for those holding it, so that will help, however, this also increases the cost of borrowing – which many businesses need to do to stay afloat.
“Overall, the government needs to reassure the financial markets that they have public spending under control, that they can balance the books, and that sterling can be as much of a safe haven as the dollar. That won’t be happening overnight though.”
As Patricia concluded, “Interest rates and exchange rates are a big factor, but anyone importing from the EU since Brexit knows how the extended costs have impacted them, and how this scenario has played out for the consumer and will continue to play out.
“We just have to learn to live in a new era and adjust accordingly. However, it is more to do with the British psyche and how we as a nation understand and begin to live and work in a way that is productive and proactive.”