How the food industry can prepare for Brexit

This week, UK and European Union negotiators have resumed trade talks with the aim of nailing down an agreement ahead of the fast-approaching end of the transition period on 31st December.

Much still remains uncertain for the food industry. Will Britain do as Prime Minister Boris Johnson recently warned and leave the EU without a deal at the end of the year? If so, trade between the two will default to World Trade Organisation (WTO) rules, which industry leaders have said could push up food prices for shoppers, with imported food and drink from the EU facing tariffs averaging 18% – not to mention the border delays and disruption that could heap new costs on the industry.

Brexit confidence remains low

The government recently published guidance for the retail sector on preparing for the end of the transition period. However, with no deal in place businesses are far from confident.

In fact, a white paper on the health of the food industry by the Food and Drink Federation and sustainable energy management specialists Businesswise Solutions found that 65% of those questioned said they were ‘not feeling confident’ about how Brexit would impact their business.

“The overwhelming sentiment of the industry is that there has been a lack of information, clarity and direction which has caused uncertainty on a massive scale and prevented businesses from planning ahead or investing in major projects,” the white paper says.

Richard Hampton, director of OMSCO, the UK’s largest, farmer-owned and run organic dairy cooperative, aired frustration at the “continued uncertainty” on key issues like Brexit. “Give us certainty, give us line of sight and we’ll do the rest,” he said.

Meanwhile, Julia Wood, managing director at PDM Produce, was concerned about securing enough workers: “Realistically, our biggest challenge is Brexit and getting workers from Europe in the same capacity as we could in years gone by.” According to the white paper, around a quarter of people currently employed by food and drink manufacturers are from EU countries, and as many as 100,000 jobs could be unfilled if businesses have to rely on the UK population alone.

“We’ll have to adapt and the companies that do, will succeed; and the companies that don’t, won’t - I think that’s the bottom line to be honest,” Julia said.

Could the UK have a Brexit “grace period”?

In a joint letter to the prime minister, Scotland Food & Drink CEO James Withers and other Scottish trade group leaders called for a six month grace period from the end of the transition period to allow businesses to adjust to the new rules in order to avoid “enormous damage” to an industry that has already faced a multi-billion pound impact from the Covid-19 pandemic.

Scotland’s food and drink industry, which is worth £15bn per year, has already lost £3bn in revenue this year due to the coronavirus. Now, the uncertainty facing the new trading arrangement with the EU – the destination for 70% of Scottish food exports and the largest market for Scotch whisky – is compounding concerns caused by the pandemic, the group wrote.

“Whilst new market opportunities may emerge in the future the fallout from a No Deal would be catastrophic, and we cannot emphasise strongly enough the need to avoid this outcome.”

In addition to the grace period, Withers and other leaders called for a package of financial compensation for those facing losses as a direct result of border or market disruption, arrangements for enabling the smooth passage for seafood consignments across the channel and the addition of food and drink sector roles to the Scottish Shortage Occupation List to support seasonal and remote workers.

How can the food industry be ready for Brexit?

With less than two months left until the Brexit deadline, Alison Horner, indirect tax partner at MHA MacIntyre Hudson, believes too many UK companies are still in denial about the changes that will take place regardless of a deal. “Due to Covid-19 the majority of British companies involved in exporting to Europe have not been able to give Brexit the attention they should and unfortunately some are in denial about the scale of the challenge,” Alison said.

“Due to Covid-19 and the misconception that a deal means trading will continue as normal we have sleepwalked into a situation where, less than two months away from the biggest change to the UK’s trading relationships in our lifetimes, many businesses are unprepared,” she added.

Food businesses have been hit hard by regulatory and customs duty related issues, she said, particularly the changes to packaging labels, including a requirement that they must have an EU or Northern Ireland address so that customers can contact the manufacturer.

“This is causing last minute panic among UK Food Business Operators (FBOs) wishing to export to the EU. Although you can in theory use the address of the importer in the EU, many companies don’t have a sole distributor in the EU acting as the importer, let alone their own EU branch or subsidiary,” she told Speciality Food. “UK FBOs in this position need to consider their options swiftly.

“These could include setting up a short term rental in Northern Ireland or a branch in an appropriate EU destination such as the Republic of Ireland or the Netherlands. Establishing a new company on the continent to act as an EU distribution entity as we get further down the track with Brexit, could be another feasible measure.”

What about retailers whose supply chains cross over to the continent? In a recent webinar held by the Association of Convenience Stores, Convenience Store reported that IGD chief economist James Walton spoke of his concerns about stock issues similar to those seen at the beginning of lockdown, as well as increased costs. “Food and drink would be particularly affected by a no deal situation. The cost is quite hard to calculate but could be significant,” James said.

He said that retailers can prepare by stock building, finding alternative suppliers, allowing for flexibility on ranges and promotions, talking about Brexit with suppliers and wholesalers and speaking to trade associations for advice.

Edward Woodall, ACS government relations director, added that as well as speaking to their supply chains, retailers should communicate with their customers about products that might be impacted and price changes that could occur in order to prevent any shock. “The worst situation we can get into is where we stop communicating. It’s all in our economic interest to be prepared.”

While it remains unclear what the outcome of negotiations with the EU will be, by staying in contact with the wider supply chain, as well as their customers, fine food retailers can ensure that they’re prepared to face whatever 31st December will bring.