Does PM's EU deal work for the food & drink industry?

David Cameron fired the starting gun on the long-awaited EU referendum last week, and already knives have been unsheathed, schisms have opened, and rows erupted. And that’s just in the Conservative Party.

The impact on financial markets has been dramatic. The pound fell to a seven-year low against the dollar this week, ratings agencies Moody’s and Fitch warned of possible downgrades for the UK’s long-term credit rating in the event of an exit, banking giant Citi raised the likelihood of Brexit from 20%-30% to 30%-40%, while bookies slashed the odds on leaving, as the first YouGov poll following the announcement predicted a neck-and-neck race.

So how does the food and drink industry view the possibility of Brexit? And how significant is the new deal the PM presented to the nation after a gruelling 48 hours of talks in Brussels to eke out a renegotiation agreement with the 27 EU member states?

The bosses of Asda, Unilever, Diageo, Wyke Farms, Greene King, Boots and Ocado were among the 200 business leaders who signed a letter to The Times this week, which said Britain would be better off in a reformed EU. Outgoing M&S boss Marc Bolland, ex-Diageo CEO and Compass chairman Paul Walsh and Innocent Drinks co-founder Richard Reed were also signatories in personal capacities.

“Leaving … would deter investment, threaten jobs and put the economy at risk” the letter read.

However, Tesco, Morrisons and Sainsbury’s decided the matter was best left to the British public to decide as the spectre of the heated Scottish referendum – when John Lewis among others was threatened with boycotts by nationalists – loomed over the debate.

Cameron declared his hard-fought reforms on economic governance, competitiveness, sovereignty and immigration, gave the UK “special status”.

One of the centrepieces of the reforms – the “emergency brake” on in-work benefits for EU migrants and the indexing of child benefit payments – has particular significance for UK food & drink, which employs about 400,000 staff (16.5% of the total manufacturing workforce), with migrant workers accounting for 38% [ONS Labour Force Survey 2014].

FDF director general Ian Wright, who has previously predicted a decade of chaos following a Brexit, says the labour question is critical.

“The welfare reforms will be welcome for some who felt we were too generous in those provisions, but we have an unquenchable thirst for flexible labour in this industry.

“We need access to highly flexible labour to deal with seasonal demand and tidal flows of products at different times. And there is no evidence we would be able to meet the demand for labour if workers from the EU were to be unavailable.”

Pressure group Migration Watch says the deal would “do virtually nothing to reduce mass immigration”, with the national living wage outweighing any impact of the ‘brake’.

Jack Ward of the British Growers Association is worried about the proposed tighter restrictions on benefits for migrant labour. “The main thrust of the Cameron deal has been to curb access to in-work benefits for EU migrants working here in the UK.”

But he admits the optimum profile for a recruit will be someone who wants to work consistently for an agreed period. “For these people, in-work benefits are not the main reason for coming to the UK. The attraction is about earning potential, not benefit opportunities.”

Worries over SAWS

Indeed Ward believes the government’s 2013 decision to close the Seasonal Agricultural Workers Scheme (SAWS) for non-EU students is likely to have a bigger impact.

Adrian Barlow, CEO of English Apples & Pears, is also concerned about the growing row among government ministers over the legal basis of the reforms. This meant there was a “lack of clear factual evidence about the benefits, disadvantages and consequences”.

“The great danger is immigration would be confused with the supply of seasonal workers and tighter restrictions would prevent UK growers from recruiting sufficient seasonal workers from overseas. It is essential these two separate matters are not confused.”

Single market benefits

Cameron said the deal meant Britain could have the “best of both worlds”, with access to the single market and a seat at the table, but also protection from “an ever-closer union”.

And the single market was critical to Britain’s ability to trade in Europe adds Asda CEO Andy Clarke, who recently signed a deal with buying group EMD. “A single market is less complex than negotiating new trade deals with Europe, and leaving the EU would take Britain into the unknown at a delicate time for the global and domestic economy.”

On the export side Diageo says its whisky business would suffer from Brexit because of disruption to trade agreements: “The single market gives us a level playing field and open access, while the EU’s clout in international trade helps open up new markets with agreements favourable to the UK, reducing tariffs and resolving trade disputes.”

Ice cream start-up Oppo, one of the smallest signatories of The Times letter, also worries trading would become harder without access to the single market. “We purchase most of our ingredients in Europe, our manufacturer is in Europe, and we are now looking to start selling to Europe,” says co-founder Charlie Thuillier. “That will remain so much easier by staying in the EU.”

However, many businesses in the food and drink industry and, indeed, trade bodies remain non-committal, whether out of fear of alienating staff and customers or out of uncertainty. If the first week is anything to go by, who knows where this may lead.