Brexit: top three challenges for food manufacturers

Brexit could have a big impact on food manufacturers

Food manufacturers will face three key challenges after the UK quits the EU, reveals research by farm business consultant Andersons.

The top three challenges were likely to be food manufacturers’ ability to: secure ingredients, access to labour and the threat of tariffs and barriers to trade, according to The Andersons Centre report Implications for Farming.

Much depended on the nature of the UK’s exit from the EU, Andersons’ senior agricultural consultant Michael Haverty told FoodManufacture.co.uk. The two broad options of a hard exit – without an EU deal and replying on World Trade Organisations (WTO) rules – and soft exit – retaining access to the EU market and migrant labour – would have very different food industry impacts.

The first challenge was how Brexit might impact manufacturers through the availability of food ingredients. “If a hard Brexit takes place, that could have significant implications for the volume of supply coming from UK agriculture,” said Haverty. Commodities such as lamb could prove vulnerable.

Hard Brexit would affect both food exports and imports. It could mean UK food and drink exports to the EU being subject to new tariffs, in line with the duties paid by non-EU countries, according to WTO rules.

Subject to new tariffs

It could also mean a more liberal approach to trade, which might result food and food ingredients being imported into the UK “quite cheaply”.

Haverty said: “That may well have a massive impact on farmers. On the one hand, you’re going to be hit with tariffs in key exports markets. On the other hand, you’re going to be undercut with cheap products – such as beef and sheep – coming in from Latin America.”

Three Brexit challenges

1 Security of supply

2 Access to labour

3 Tariffs and barriers to trade

The second challenge was the availability of labour. Andersons highlighted figures identifying about 400,000 people employed in food manufacturing in 2014. Up to 35% were said to be migrant workers, with 21% of the total made up by workers from countries that joined the EU in 2004 – plus additional people from Romania and Bulgaria.

The problem for the UK government was how to restrict the flow of migrant workers into the UK while negotiating a trade deal that allowed access to the EU’s 500M consumers. This, at a time when food manufacturing sector, agriculture and horticulture remained reliant on migrant workers.

“I think labour availability presents significant challenges – particularly in the meat sector, such as abattoir workers, and in the fruit and vegetable sector,” said Haverty.

Certain areas of the UK – such as the south east and east of England and the poultry sector in Northern Ireland – were particularly vulnerable to labour shortages.

‘Labour is the big unknown’

“What will happen to the supply of labour is the big unknown,” said Haverty. “Some arrangements may be put in place but that could take time.”

Solutions to the problem could inform some form of quota system or protected status for food industry workers.

Meanwhile, the prime minister intends to protect the right of non-UK nationals already working in the UK food industry to remain here, environment secretary Andrea Leadsom told FoodManufacture.co,uk in a recent exclusive video interview.

The third of three key Brexit challenges for food manufacturers will be the potentially vexed question of tariffs and their impact on the food sector.

“If the UK reverts back to something akin to WTO status, then tariffs – and in particular cascading tariffs become a very relevant issue for the industry,” said Haverty. “Companies need to pay close attention to that.”

So, for example, exporting flour to the EU would attract one rate of tariff. But exporting biscuits might attract a higher rate. “The more you add value to the produce the higher rate of tariff [that is payable on imports]. The raw materials can still continue to come in at a lower rate but finished product would be liable for higher duties.”

But if the government chose the soft Brexit route to exit the EU, the impact on the food manufacturing sector and its agricultural suppliers could result in “not a huge amount of very real change”, concluded Haverty.

Read more about the Brexit report here.

 

How do you like your Brexit: hard, middling or soft?

Very hard Brexit

  • Falling back on WTO rules, which are implemented immediately
  • Triggering Article 50 immediately
  • No attempt to negotiate any new agreement with the EU

Hard Brexit

  • Swift but minimal free trade agreement (FTA)
  • Article 50 being triggered in the near future
  • The FTA might lean more towards the style of earlier FTAs which focused on basic tariff reduction and goods trade, but exclude services where the UK runs a large surplus

Middling Brexit

  • Triggering Article 50 when the UK and others are fully prepared – this could be early next year or after the French and German elections (Prime Minister Theresa May confirmed Article 50 would be triggered before the end of March 2017)
  • Full FTA, covering both goods and services with cooperation on regulation and product standards Cooperation on issues from foreign policy to Justice and home affairs.
  • This could take some time to negotiate and may require some form of transitional period

Soft Brexit

  • UK joins the European Economic Area (EEA), similar to Norway
  • Effectively stays in the single market but giving up a say on the rules of the market.
  • Judged an unlikely long-term option by Open Europe

Very soft Brexit

  • UK joins the EEA and seeks to stay inside the Customs Union.
  • Open Europe believes the UK seems likely to leave the Customs Union

 

Source: Think tank Open Europe

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Comments (1)

Jeff - 08 Oct 2016 | 02:19

The madness of Brexit

Absolutely bonkers decision based on hatred, xenophobia, empty promises, lies, misplaced patriotism and ignorance. Three months in and we still have no idea what was voted for.

08-Oct-2016 at 02:19 GMT

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