Is the Food and Drink Sector Prepared for Post-Brexit Britain?

Mark Jones, food and drink expert at Gordons, looks at how the food and drink sector will deal with potential challenges post-Brexit.

The triggering of Article 50 is impacting a wide range of UK industries, but the potential impact on the food and drink sector could be significant and if it is, businesses and consumers will pay the price for it.

Last year after the referendum, I speculated how an exit from the EU could impact the food and drink sector, noting that around two-thirds of our agricultural exports go to Europe. At the time, it seemed unlikely that trade deals would be detrimentally affected, but a new House of Lords report has claimed that the true impact of Brexit on these parties could be greater than imagined.

The report claims that leaving the European Union without a trade deal in place could put up to 97 per cent of British food and drink exports at risk.

Negotiations between the EU and the UK government continue to be rocky and the election promotes further uncertainty. A failure to reach an agreement on imports/exports and labour could causes food prices to skyrocket.

Offsetting the impact

Ministers remain hopeful that opportunities in other international export markets could offset the introduction of any such barriers, but the House of Lords report nevertheless highlights a major reliance by the agricultural industry on local markets.

One of the main factors is foodstuffs with several ingredients that can often pass through a multitude of borders before it eventually reaches shop shelves, from dairy in certain food and drinks to the raw ingredients in baked goods such as cakes.

Other evidence to the committee provided by Peter Hardwick, head of exports at the Agriculture and Horticulture Development Board, calculates that as much as 80 per cent of agricultural exports go to the European Union.

There is also the matter of goods that go to countries that have a free trade agreement with the EU. Currently there are 27 of these agreements in place that cover 38 countries, from Africa to North America; all of which would need separate renegotiations in order for exporters to continue benefitting from low tariffs, according to the House of Lords report.

Only Britain’s membership of the World Trade Organisation would remain in effect, and with tariffs of up to 30 per cent being in place for some agricultural goods, such as dairy, the cost would be high – something Lord Teverson says is further evidence of the UK’s dependence on the EU for its export markets for such products.

Farmers face serious challenges, with the report highlighting that they could be in for a Brexit quadruple whammy. As well as losing access to EU farm subsidies, they could lose European export markets, workers from the continent, and protection from cheap imports from outside the EU.

Supply chain of events

Such a chain of events would understandably then be passed through the supply chain and eventually result in costs at the till rising; a bill that consumers will have to foot. The alternative is products disappearing off the shelves completely. In the UK, the average household spends around nine per cent of its income on food. Chinese households spend around 22 per cent, Japanese households sit at 14 per cent and, closer to home, France stands at around 13 per cent.

The currency has already dropped significantly since the referendum. Food prices are increasing for the first time in years as a consequence. If the currency takes another hit, and the UK no longer has access to labour and the single market, prices could rise dramatically. Based on current spending on food and the average wage, households spend around £47.50 on food per week. A rise of six per cent, to take us on par, more or less, with Japan, would mean households spend £79.20 a week on food, or £1,648.40 more every year. That is a lot of money for the average consumer.

Labour is one of the biggest concerns, as large parts of the supply chain are made up of migrant workers. For example, under Food Standard Agency rules, an abattoir in England, Wales or Northern Ireland cannot operate unless they are overseen by a vet. So, what you might say?! Well, about 85 per cent of the vets working in abattoirs are not from the UK. UK vets do not want to oversee animals sent to slaughter. The same can be said of agriculture, where 20 per cent of the workforce comes from abroad.

A quick look at the Meat Processors Association members will tell you that 63 per cent of their workers are not from the UK. If these sectors suddenly find there is a dramatic labour shortage they will have to pay much more to entice British workers to fill the void. And if input costs increase, so do output costs, which means the price of food on supermarket shelves rises.

This may sound like scaremongering to a degree, but Robin Teverson, chair of the committee, says that life after the EU’s common agricultural policy will “not be easy” for the many UK farmers who rely on its financial support – and potentially far worse for others.

Uncertainty remains

The current government says it remains confident of striking a new EU free trade agreement as well as new bilateral deals, but a transition period may be required to enable the food industry to adjust.

It is clear that much uncertainty remains around how the sector will progress in the wake of Brexit, and with the clock truly now ticking, agreements will need to be made to provide greater assurances to farmers – and the wider supply chain – to provide an indication of how exactly it will affect the path of goods across countries and, ultimately, onto supermarket shelves in the post-Brexit world.

If you need legal advice on food and drink retail matters, please contact Mark (0113 227 0297 or mark.jones@gordonsllp.com). For more information about us please click here.