Without clear strategy, Brexit remains a challenge for the UK food industry

The UK Parliament’s Environment, Food and Rural Affairs Committee has opened the  “Brexit: Trade in Food inquiry” which seeks to examine how potential post Brexit trade deals could affect farmers, food processors and consumers. The Committee is particularly seeking views on how trade policies can best allow UK consumers to access affordable, good quality food after Brexit, which provides an opportunity for businesses and consumer interest groups to highlight their priorities for future arrangements.

There are a whole range of issues for MPs to be examining when it comes to Brexit and the food and farming sector. Perhaps the most urgent are issues around any potential ‘cliff-edge’ or transitional agreements, disruptions to the supply chain and the supply of labour in the food and agriculture sector, which are sometimes overlooked factors in the debate. The inquiry’s questionnaire also touches on the impact of future trade agreements with EU countries on the farming sector, as well as highlighting the role of the devolved nations in the consultation process, with a particular focus on the speculative impact of new tariffs.

Looking towards the future but not yet looking at the immediate challenges

With the food and farming sector forming a key part of the UK economy, it is seen as vital by the government that future trade arrangements allow farmers and food processors to compete effectively. And yet many questions remain outstanding: the government will need to clarify its position on whether or not it is seeking a transitional deal to avoid this ‘cliff-edge’ when leaving the EU. For example,  in the extreme circumstances of no deal being reached with the EU, on the day after Britain leaves the UK’s membership of the European Union’s free trade agreements, currently covering 38 countries, will lapse. As Britain will not be allowed to negotiate any new trade deals with third countries whilst it is still a member of the EU, the UK risks falling back on WTO terms with both non-EU and EU countries.

Low pound and customs checks risk disruption of supply chain

The UK is a net importer across most food commodities. Wherever the UK lacks home grown supply, certain commodities can increase in value and therefore resulting in higher prices for consumers. A low pound will likely lead to an increased costs of the import of raw materials, thus having the potential to seriously disrupt the supply chain.

Cascading tariffs can lead to an accumulation of costs: raw materials, such as flour, might be cheaper to export, as they are subject to lower tariffs, but finished products, such as bread or biscuits, might be subject to higher tariffs. Additionally, with big food manufacturers and global brands often operating pan-European manufacturing chains, materials can cross multiple borders at various times, from its sourcing, to processing, packaging and finally landing on supermarket shelfs. Material being subject to tariffs each time it crosses the border in this process will lead to skyrocketing prices, making the finished products less competitive on the market.

Thus far, the management of the supply chain between the UK and the EU has been relatively simple for businesses. But since the UK voted to leave the European Union, businesses are now required to plan ahead, taking into account changes which might affect the shelf life and availability of fresh produce. If material is travelling from another continent by ship, the time it is on sea can take months off a product’s shelf life.

Can local supply mitigate the impact of Brexit?

To sustain the food supply in the United Kingdom after Brexit, there are two solutions: increase imports from outside the EU to compensate for EU produce or replace EU imports with locally grown and produced food.

UK farmers risk being hit on various fronts: they could lose access to EU farming subsidies, the European export market and EU workers whilst having to fend off competition from cheap imports from outside the EU. In its pursuit of more liberal trade policies with the world and to guarantee food supply, a ‘Global Britain’ could lower import tariffs to incentivise more trade with non-European markets. This could lead to the UK market being flooded with cheap imports, bringing down prices. A race to the bottom in food prices risks putting British farmers out of business. On the flipside, protectionist policies to shelter them from the impact of cheap imports can harm Brexit Britain’s prospect to strike vital trade deals.

If the government interprets Brexit as an opportunity to increase home grown food supply, a potential shortage of labour after the end of Freedom of Movement poses a serious threat. Without a labour force to sustain increased production, it seems unlikely that UK farming will be able to compensate for missing food imports.

Making your voice heard

The government has not yet committed to a strategy on trade after Brexit, let alone on food and farming policy. The cabinet is split on various issues, including whether Britain should seek a transitional agreement for a certain period of time and whether to seek single market membership or forge a completely new trade deal with the EU.

The Committee’s inquiry is a vital opportunity for those in the food sector to voice their concerns and engage with policymakers on the issue. Whilst no concrete position has crystallised, businesses and interest groups have a strong opportunity to secure a better Brexit deal for their industry by ensuring decision-makers are taking their concerns on board.

Interested parties are able to make written submission until 20 October. For more information about Brexit and its impact on the food sector, please get in touch with The Whitehouse Consultancy’s specialist EU team