Can food and drink ever thrive under the Northern Ireland protocol?

Northern Ireland has barely featured as an issue in the contest to become the next prime minister. With the debate focusing chiefly on tax cuts, inflation, and one candidate’s views on gender, Brexit’s biggest hangover – which has left Stormont without a government and an EU trade war hanging in the balance – has been left to fester in the shadows.

The issue-that-shall-not-be-named is the Northern Ireland protocol, the part of the UK-EU trade deal that created a border in the Irish Sea and is straining London’s relations with Brussels to breaking point. The protocol eliminates the need for border checks between Northern Ireland and the Republic of Ireland, but consequentially means that goods moving from Great Britain to Northern Ireland are subject to the full range of controls for entering the EU.

Shortly before his resignation, Johnson’s government brought forward a new bill to rip up the protocol. It took relations with Brussels to an all-time low and risks the prospect of retaliation, but foreign secretary Liz Truss argues the changes are necessary to fix the “practical problems” in the protocol and address the “growing sense that the rights and aspirations of some parts of the community are being undermined”.

“I know how much this matters to businesses on the ground,” she said, presumably thinking of the likes of Marks & Spencer, who have made no secret of their issues with the protocol. “Highly bureaucratic and pretty pointless”, in the words of chairman Archie Norman, who has aired his grievances publicly on numerous occasions.

While supermarket supply chains are still benefiting from a grace period that shields them from the worst of the controls, once this ends it means that, as Norman says, food and drink entering Northern Ireland from Great Britain could be hit with hundreds of pages of paperwork, hours of border checks, and millions of pounds of extra cost.

Norman is no doubt airing the concerns of many, but the impact on each business is complicated and variable. For example, some claim that Marks & Spencer is struggling more than most on the Irish Sea due to its poor preparation for the new arrangements. “M&S has made a hash of Ireland,” says one source with knowledge of its operations. “They’re running bonded warehouses they don’t need, doing paperwork they don’t need. They’ve got it wrong.”

And what Truss omitted from her speech is that some businesses in Northern Ireland even appear to be benefiting. For while there was much speculation before the Brexit deal that supermarkets could withdraw from Northern Ireland if the bureaucracy was excessive, so far at least, they have simply opted to adjust their supply chains instead.

In many cases, this means buying more produce locally to avoid the risk of checks altogether. Lidl, for example, has signed up several local producers in recent months, including Newtownards-based Willowbrook Foods on a deal worth £11m a year to supply 24 vegetable lines into stores across the island of Ireland; Co Down bakery Grahams on a £2.5m deal; and Holywood-based spicy meat maker Hellbent on an all-island deal worth an estimated £340k. Hellbent also won a new listing with Sainsbury’s in January 2021 as the retailer sought to increase local meat sourcing immediately after the protocol began, while Marks & Spencer itself turned to Newry-based sandwich maker Around Noon in June.

The attraction of local sourcing is one reason why Northern Ireland’s food and drink manufacturing has seen a 7% boost since the protocol came into effect, according to figures from the Northern Ireland Statistics & Research Agency (NISRA) , meaning the sector is now growing at a faster rate than its GB equivalent.

Trade figures also suggest more businesses are choosing to buy local rather than ship across the Irish Sea. While figures are not available for trade between Great Britain and Northern Ireland, HMRC data shows Northern Ireland food and drink imports from ROI have grown 12% since the protocol began. It’s a stark, albeit not unrelated, contrast to the 19% drop in ROI-GB in both directions as supply chains start to shift.

“How do you invest if you’re not sure what the situation is going to be?”

This growth in Irish trade “is significant”, concluded a paper by the Economic & Social Research Institute (ESRI) in December, “and is likely explained by changes to supply chains, be it as a result of substitution by Irish and UK firms or firms redirecting trade through Northern Ireland”.

But such headline figures can belie the complexity of the protocol’s impact. For as Ulster Bank chief economist Richard Ramsey puts it, while food and drink is the “standout sector” to benefit from the protocol, its impact is “neither as bad nor as good as many people would have you believe”.

The problem is, says Around Noon CEO Gareth Chambers, that while Northern Ireland gets “the best of both worlds” with frictionless trade into both Great Britain and the EU, there is no dodging the fact that bringing goods in from Great Britain now means greater cost, lead times and bureaucracy.

Around Noon, like many, has reorientated its supply chains to adapt to the protocol by sourcing more ingredients from the island of Ireland and no longer bringing any finished goods over from England. Now, everything it makes for the English market comes from its Slough facility while all products sold on the island of Ireland are made in Newry.

“There’s nothing going across the water apart from our bakery supplies across into GB,” says Chambers. “This has meant we’ve managed to attract some new clients for whom the protocol has been a challenge.”

And for suppliers looking to pick up new business, there are plenty facing challenges. Sainsbury’s was the first to make this clear within days of the protocol coming into effect when it emerged that Henderson Wholesale was plugging gaps in the retailer’s local supply with 300 lines including ready meals, bacon and soured cream.

Sainsbury’s is understood to have primarily been concerned with potential rule changes that would have banned processed meats entering Northern Ireland and, as Henderson sources around 75% of its fresh products locally, it made the decision to move supply over to Ireland to manage the risk.

Not that Henderson hasn’t battled too with bringing goods in from GB. The wholesaler and part-owner of Spar is a beneficiary of the supermarket grace periods but even then “things didn’t just happen,” says Billy Moore, Henderson’s group finance director, affectionately known to his colleagues as ‘Billy Brexit’ in light of the recent focus.

“I said in November 2020 that GB suppliers don’t have a clue what’s going on here and to an extent, they still don’t,” he says. “[The government] keeps delaying things so they have never seen or felt what we’ve been experiencing the whole time in Northern Ireland.”

The biggest problem facing Henderson is in its foodservice arm, which supplies cafés and restaurants across the island of Ireland. Here, not only is it operating without the grace periods, but under the rules of the protocol, it must sometimes pay tariffs on goods arriving in Northern Ireland that are at risk of moving into the EU. For Henderson, this means forking sums of cash over to HMRC every month that, in theory at least, it should be able to claim back on anything that stays in the north.

“HMRC owes us money,” Moore explains, “but they’re in a bit of a pickle because they don’t have the ability to legally implement a reimbursement scheme. They need ministerial intervention which they are not prepared to give until the negotiations run through.

Moore says he’s spoken to “everybody and their granny” about the issue, including former Northern Ireland secretary Brandon Lewis, Northern Ireland minister Conor Burns, and Treasury minister Chris Heaton-Harris. “Everybody said ‘we’ll sort this.’ They didn’t,” Moore says. It means that despite the Treasury’s assurances, every business bringing goods into Northern Ireland at risk of moving into the EU is still paying tariffs with no way of reclaiming them back, Moore says. The Treasury declined to comment.

Bigger and bigger and bigger

The protocol is clearly not perfect, but many NI companies do now appear to be getting to grips with the situation. A January survey by Manufacturing NI – whose members include major food businesses such as Hovis and ABP – found that less than a quarter of its members were struggling with the Northern Ireland protocol, down from 40% six months earlier. “This demonstrates that as firms become more experienced, or adjusted, they believe issues do not impact negatively on their business,” its report said.

To some extent, they have benefited from a consistency of rules since the protocol came into force. While there has been huge uncertainty over extensions to the grace periods and the status of processed meats, these do at least remain as they were at the start of 2021.

But that consistency is soon to change. From 7 August, the EU will ban titanium dioxide as a food additive in the first regulatory divergence between the bloc and the UK since Brexit. Brussels made the decision following an assessment by the European Food Safety Authority (EFSA) last year which raised concerns over the white food colouring’s possible genotoxicity, but the UK’s Food Standards Agency (FSA) disagrees.

The colouring is not widely used but as the first divergence in food standards, it raises questions about how both businesses and government will manage the issue from now on. Because of the divergence, any product containing titanium dioxide will be able to circulate in the British market, but won’t be able to cross into Northern Ireland given the risk that it could go on to the EU. “It’s an issue mainly for the retailers,” says Michael Bell, executive director of Northern Ireland Food & Drink (NIFDA). “But it raises questions for the FSA as well. How are they going to manage this divergence issue as it gets bigger and bigger and bigger?”

The other looming change is the possible end of the Trader Support Service (TSS), a free government service to help with customs declarations on behalf of businesses. The service began on 1 January 2021 for a period of two years, and so far there is no indication it will be extended. One small company in Northern Ireland says this could increase its customs costs per pallet from £20 to £80 and make its business unviable.

For now though, inflation and labour shortages are the often more pressing matter on people’s minds. “At the minute our biggest concern is not the minor details of the protocol,” says Brian Irwin, chairman of Irwin’s Bakery, Northern Ireland’s largest independent bakery. “It’s the inflationary pressures. That is an existential problem.”

Not that bakers across the island of Ireland are not troubled by the protocol. “Bread flour is a big thing in the Brexit calculations,” Irwin says, pointing out that around 180,000 tonnes move west from Great Britain on to the island of Ireland each year.

In Irwin’s case, it imports around seven lorries of flour a week from Great Britain, though because it’s not an animal product, it escapes any of the time-consuming checks. Nonetheless, Irwin’s must now pay an extra £15 for the necessary customs paperwork on each load. While that’s “inconvenient”, on a full lorry’s worth of flour it’s manageable, Irwin says.

It’s working for us

The biggest problem facing Irwin’s right now is the uncertainty surrounding if and how the protocol is going to change. “How do you invest if you’re not sure what the situation is going to be?” Irwin says. “How do you get customers to switch their trade to you if people aren’t certain of the arrangements in the long term?”

In recent weeks, this uncertainty has deteriorated further thanks to Johnson’s resignation and his government’s bill that would unilaterally rip up the Northern Ireland protocol. Introduced in June, the bill would, said Liz Truss writing in the Financial Times, “fix the specific problems that the protocol is causing while maintaining those parts that are working”.

The move has poisoned relations with the EU and raised concerns of a trade war. Ireland’s taoiseach Micheál Martin called it an act of “economic vandalism” that could lead to a “very serious situation”. And food and drink businesses on both sides of the Irish Sea fear the repercussions if the bill moves ahead.

The dairy sector is especially concerned. As one of the largest integrated industries across the island of Ireland, about a third of all milk produced in Northern Ireland heads south of the border for processing into products like butter, cheese and Baileys. But EU retaliation could see this free flow cut, leaving Northern Irish farmers with nowhere else to send their milk but Great Britain.

“Our clear message has been ‘do not do anything that will in any way interfere with the current working,’” says Mike Johnston, CEO of the Dairy Council for Northern Ireland. “Let’s bank what we’ve got and see if we can improve it. But it is working for us.”

The government’s bill contains two key clauses relevant to food and drink. The first takes aim at the existing agreement that Northern Irish traders follow EU rules and regulations. Instead, it says, they should have the choice to follow UK or EU regulations – or both – in order to “remove the barriers to goods made to UK standards being sold in Northern Ireland,” Truss said.

“I know how much this matters to businesses on the ground,” she added. “I have heard from retailers such as Asda whose goods are still subject to checks on their way into Larne despite having no stores in the Republic of Ireland that they could go on to.”

However, Northern Irish businesses dismiss the plans as unworkable. “If you’ve got two standards then customers will pay different rates for different standards,” says NIFDA’s Bell. “But once you have an economic differential then any entrepreneurial criminal is immediately going to figure out some way to exploit that. And they’re not going to respect food safety or integrity.”

The government’s other ploy is to create red and green lanes for goods arriving in Northern Ireland so that food destined for the north can pass without bureaucracy while any heading for the EU will go through full border checks.

“Yes we need the protocol sorted out. But we need stable government more”

Some have tentatively welcomed the scheme. “It’s the right idea,” says Shane Brennan, CEO of the Cold Chain Federation, who while recognising that a green lane system isn’t perfect, insists it would be better than the current “fudge”.

Brennan suggests that the government’s proposals to digitise Britain’s borders for EU imports by harnessing new technology and data could be equally applied to goods moving from Great Britain into Northern Ireland. Both solutions would rely on businesses sharing commercial data with officials, which in turn could allow for spot check inspections, audits, and traceability, to address any concerns. “That’s essentially how green lanes become a robust way of goods moving between the mainland and Northern Ireland with less risk of it finding its way into the single market,” Brennan says. “Because ultimately, it’s all very traceable if you do.”

However, some question if the scheme would work as well for small businesses transporting partial loads as it would for the supermarkets carrying full loads. “If you’ve got 10 consignments on the truck then to go in the green lane, they must all be not a risk,” says Rob Hardy, founder and CEO of customs agency EORI UK. “But the haulier doesn’t know if they’re at risk. The supplier doesn’t even know.”

Regardless of any concerns, it appears that despite Johnson’s resignation this month the bill is still likely to proceed. Neither of the two Tory leadership contenders have made any indication they plan to scrap the bill, though Rishi Sunak did reportedly argue against it in cabinet for fear of reprisals from the EU.

Ironically, were the EU to retaliate to the UK’s bill and impose trade restrictions, then some expect the UK government to use article 16 – the section of the protocol that has long been touted as a way for the UK to upend the protocol – to reinstate the grace period for supermarkets.

Not that any retailers will be cheering. Because with DUP politicians unwilling to enter a new power-sharing agreement until the protocol is addressed, and a new PM not taking office until September, businesses are being left in limbo as to what the future holds.

In the meantime, a toxic political atmosphere hangs over Northern Ireland. Several businesses contacted by The Grocer were wary of speaking publicly due to the current tensions over the protocol, citing Manufacturing NI CEO Stephen Kelly, who has received death threats for his comments that the description of the challenges aired by some DUP politicians “isn’t reflected in what businesses see”. In June, he told RTE Radio: “In the past certainly, we’ve had calls from MPs and others basically saying ‘you need to watch yourself, you need to be careful what you’re doing, what you’re saying’.”

So for now, the way forward remains unfortunately opaque. If No 10’s next resident pushes ahead with the bill as expected then relations with the EU will almost inevitably deteriorate. With inflation now at record levels, this could not come at a worse time.

“We need to be given a rulebook by our government, agreed with Europe, which doesn’t cost consumers a fortune, and doesn’t restrict consumer choice,” says Bell. At the moment, he says, it’s a holding pattern with numerous decisions at both the political and business level on hold.

Ultimately, however, all businesses have a clear order of priorities. “Yes, we need the protocol sorted out,” says Bell. “But we need stable government more. That’s the foundation of good businesses and unfortunately, the machinations of London is moving us further away from that.”