Hard (No-deal) Brexit – Impact on the United Kingdom’s food industry

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| The European | 2nd October 2018
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On 23 June 2016, Brexit referendum took place in which 52 percent of the United Kingdom’s population voted to exit from the European Union bloc. The post-referendum meetings and negotiations for the terms of Brexit have yet to pave the path for the UK’s exit from the EU.

 

The referendum was held under the government of the former Prime Minister David Cameron, who was an advocate of “remaining with the EU”. He resigned after the result of the referendum. Theresa May became the new British Prime Minister. One of her election campaign mantras was, “the government will secure the best deal for Britain in leaving the EU“. To date, Brexit is a political impasse.

 

Should the British population be worried about Brexit? Yes. However, getting worried will not solve the difficulties that might arise as an outcome of Brexit negotiations. There also exists a possibility of a “Hard (No-deal) Brexit”. In the case of “Hard Brexit”, the UK has much to lose.

 

Self-sufficiency in the food sector is a matter of national security. The UK is not self-sufficient in its food sector and relies on food imports to meet its food requirements. “Hard Brexit” will have a severe impact on the UK’s food industry.

 

The food sector of the UK is vulnerable because it sources 30 percent of its food supply from the European Union plus a further 11 percent through trade deals negotiated by the EU.

 

Barclay’s “Corporate Banking Division” researched and compiled a comprehensive report documenting the impact of “Hard Brexit” on the UK’s food industry. The Report is titled, “Scale, Disruption and Brexit: A New Dawn for the UK Food Supply Chains?”

 

Given below are the salient features of that Report: 

 

  • New tariffs of UK £9.3bn per year (will be) imposed on food and drink imports from the EU

 

  • A new average tariff of 27% for food and drink supply chains compared to a 3–4% non-food average tariff

 

  • Every consignment of goods from the EU will require a customs declaration which starts at a minimum of UK £50

 

  • The average cost of complying with SPS (Sanitary and Phytosanitary Rules) on imported food and drink from the EU could be equivalent to an additional 8% duty.

 

The hardliners who support Brexit (even Hard Brexit, if it comes to that) are also the ones who are proposing the idea of “stockpiling” food supplies. The idea is preposterous.

 

Ian Wright of the Food and Drink Federation (UK) says,

 

“There isn’t warehousing space in this country. There doesn’t need to be, because companies do not hold huge inventories. It’s massively financially inefficient to do so. Only 49% of the food we consume is produced in Britain. The rest comes from abroad, and most of that is in the form of ingredients to be turned into the foods we eventually eat. It arrives just in time to be used, after which the finished goods are immediately dispatched.”

 

He further says,

 

“I don’t think the government understands that (impracticable).”

 

A spokesperson of The British Retail Consortium says,

 

“In 2016, 10,000 containers per day from the EU passed through the UK ports – carrying 50,000 tons of food per day. Fresh dairy, meat, fruit, and vegetables would rot. Stockpiling of food is not a practical response, the industry has not been approached by the government to begin planning for this, retailers do not have the facilities to house stockpiled goods and, in the case of fresh produce, it is simply not possible to do so.”

 

In July 2018, the UK government prepared its own proposals (Chequers Plan) for “post-Brexit” relationship with the EU.

 

The summary of those proposals is given below:

 

  • No tariffs on trade between the UK and the EU

 

  • No rules of origin on trade between the UK and the EU

 

  • No customs declarations

 

  • UK tariff levels set independently

 

  • UK to operate a dual tariff system, collecting duties at the UK rate (for goods destined for the UK) and the EU rate (for goods destined for the EU)

 

  • UK alignment with EU SPS rules – avoiding SPS checks at the border.

 

 

The market analysts outrightly termed this plan “unrealistic”.

 

The UK needs to adopt practical measures to attain self-sufficiency in the food sector. It should analyse the strategy adopted by the Middle Eastern countries for attaining self-sufficiency in food supplies.

 

Special economic zones for the purpose of agriculture, dairy, poultry, and meat should be established. Investor friendly business environment to encourage foreigners to invest in the food sector must be introduced.

 

Genuine investors look for “clean economies” and good business opportunities to invest their idle capital to earn attractive returns. It is no secret that laundered money is parked in the UK’s property market. To bring genuine investors to invest in the UK food sector as well as other vital economic sectors, the UK financial regulators should immediately get active to curb corrupt practices on their territory.

 

If the UK succeeds in making attractive and realistic policies for investors to invest in special economic zones set up for the food sector, it will meet its goal of attaining self-sufficiency in the food sector in a short span of time.

 

Think-tanks must chalk out strategies for the impending food industry crises in case of “Hard Brexit“. Switching trade partners in the food sector to soften the impact of “Hard Brexit” is a short-term fix. The UK government should immediately start working for attaining self-sufficiency in the food sector.

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