A week is a long time in politics, but events since last Friday were more like an episode of the TV series 24. The UK’s Brexit bombshell not only triggered the resignation of its prime minister; it’s thrown the opposition into disarray; and threatens the very unity of the United Kingdom.
The markets, after going into freefall that day, have actually rallied. In fact, after months of speculation in the run-up to this divisive result, the FTSE 100 is near its six-month high.
But sterling has plunged at the prospect of the UK’s exit from the European Union, with critics berating the absence of a Plan B(rexit), immediately raising the prospect of food price inflation.
That’s almost the least of the industry’s problems, however, with a long list of questions to which it needs answers. How will it be able to trade? What will happen to its EU workers? What about food policy, state aid, product and safety regulation, the environment? And perhaps most importantly, in the political and constitutional vacuum, when will it even know?
There will be no answers to these questions until (at the earliest) the UK officially pulls the trigger on Brexit through the now notorious ‘Article 50’ and negotiations begin. But now is a vital time to take stock of what the sector needs. So what issues should the industry focus on and push for during this transition period?
1. Access to the single market: Maintaining access to the single market is a clear priority. The food and drink industry is at the heart of the UK’s trade with the EU, accounting for £26bn (or 72%) of our £36bn food imports.
The balance of trade clearly favours the EU due to the UK’s lack of self sufficiency in food. As the International Meat Trade Association points out, 45% of meat and meat products in the UK are imported, so freedom to import is “crucial to keep the nation fed”.
The EU accounts for about a third of global scotch whisky exports, for example, and The Scotch Whisky Association so is keen to secure “fair and non-discriminatory” access. But exports to Europe are also crucial, representing £10bn (59%) of the UK’s £17bn total [HMRC]. And exporters hope the fall in sterling will benefit trade. But it depends on the extent to which tariffs are imposed.
Some lawyers believe this is a realistic goal. “There’s the recognition that Britain has a strong economy and it’s a big buyer of EU merchandise,” says Jamie Cartwright, partner at Charles Russell Speechlys. But it all depends on the…
2. Terms of trade: Even if the EU does give the UK access to the single market, it is unlikely to let us continue trading entirely tariff-free. This could result in lengthy and costly negotiations, lawyers forecast. Eversheds’ head of food and beverage David Young believes EU officials will be “in no hurry to do Britain any favours”. “We can’t assume it will be an easy ride,” he says. “They may feel they need to put a significant tariff on Britain to stop other people voting out.”
Provision Trade Federation director general Andrew Kuyk also stresses that tariffs are only part of the picture. “In practice, non-tariff barriers and a lack of common standards - or a lack of consistency in implementing or enforcing them - can be just as trade distorting,” he says.
And James Walton, chief economist at the IGD, points out there are 134,500 EU laws, comprising 40,000 legislative acts, 17,000 non-binding acts, 15,000 court verdicts and 62,000 standards.
“They may feel they need to put a significant tariff on Britain”
David Young, Eversheds
3. Free movement of labour: The UK food and drink industry relies heavily on EU workers. In fact, FDF director general Ian Wright believes free movement of labour is the “absolute bedrock of the single market”.
“As an industry we employ 450,000 people and of those 130,000 are Eastern European immigrants,” he says. “It would be hugely disruptive if these people were to leave the UK labour market.”
British Soft Fruits chairman Laurence Olins says UK residents “do not have the appetite to work in our fields and packhouses on a seasonal basis” despite numerous government-sponsored initiatives.
British Growers Association CEO Jack Ward says more than 60,000 seasonal workers are recruited each year to assist with harvests. “We need the government to dispel any uncertainty and address whether there is still an opportunity to work with the EU to fill these seasonal roles,” he says.
And the implications on the retail side are no less significant, with 125,000 EU workers estimated by the BRC to be working in the sector.
David Lowe, a partner at law firm Gowling WLG, believes this opportunity is likely to remain. “The indication by the EU is that a deal on free movement of goods will need the UK to agree to free movement of people, so perhaps EU immigration will continue,” he says.
See also: Shocked food bosses warn ministers of inevitable post-Brexit price rises
4. Worker conditions: The EU has had a strong impact on UK employment law through initiatives such as the working time directive. Exiting the union will give the UK the option to repeal these laws, which could represent an opportunity to cut costs in food and drink businesses, says Lowe. “Businesses should be identifying what EU-derived laws cause them significant cost and feed in to the government the change they would like to see,” he says.
Employers should be careful to avoid going too far, though; the UK must remain an attractive place to work. This is especially vital at a time when reports of xenophobia are on the rise. “If I had been listening to some of the stuff some of our potential leaders have been saying about foreigners I might be looking out for the nearest headhunter to Europe or China,” says one source.
Cheryl Bennett, director of HR & training at Pelican Communications, advises employers to take pre-emptive action. “It is important that businesses protect these workers and make sure procedures are in place to create a working environment free from discrimination,” she says.
5. Subsidies: The Leave campaign made promises to farmers over the future of subsidies, but there has so far been very little detail on what support they will receive. NFU president Meurig Raymond has written to EU Commissioner Phil Hogan this week calling for reassurance that schemes currently available to UK farmers remain open and in place until 2020.
“Brexit will see the end of many, if not all, EU grants and subsidies”
Peter Cusick, Roythornes
“I have stressed the need for schemes, such as the Rural Development Scheme and the Basic Payment Scheme, to remain in place with the promised safeguards being made in the forthcoming period of negotiation,” he wrote. “We will be looking for guarantees from government that the support given to our farmers is equal to that given to farmers in the EU, who will still be our principal competitors.”
6. Research grants: It’s not just subsidies that are at risk - EU research grants will also be in the firing line following Britain’s exit. “The long-term effect on agricultural and horticultural research could be significant if replacement funds are not forthcoming from the UK government,” warns Peter Cusick, partner at law firm Roythornes.
“What happens to those companies with three, four or five-year research grants from Europe?” asks one source.
See also: The UK votes to leave the EU - industry reactions to Brexit
7. Regulation: Leaving the EU will enable the UK to have more say over its regulation. Quite apart from employment directives, membership has required the food and drink industry to comply with many - often costly and time-consuming - regulations on labelling, food safety and agricultural policy.
For the NFU, Brexit represents a “golden opportunity” to build a new agricultural policy that is adapted to British farmers’ needs, easy to understand and simple to administer.
It is undoubtedly tempting to get rid of the “more onerous” laws, as Dominic Watkins, head of food and law firm DWF, can understand. The actual process of replacing this legislation could be equally onerous, though.
“What goes into the vacuum?” he asks. “With the assumption that we want to continue to grow our trade with the EU, I think it’s likely any UK legislation will have a marked similarity to the existing EU law.” And developing these new laws is bound to incur even more time and costs.
The BRC criticises the lack of a plan on how to deal with this regulatory workload. “We’re surprised the government hasn’t got any idea about how they are going to look into this,” says a spokesman.
8. Fisheries: One of the most notorious EU regulations is the Common Fisheries Policy. The Scottish fishing industry has welcomed the opportunity to break free of this particular regulation and implement “sustainable and rational stewardship” of UK fisheries.
After years of being “sold down the river”, Scotland now has the opportunity to recover “proper, sustainable and rational stewardship through our own Exclusive Economic Zone for fisheries, just like Norway, Iceland and the Faroes,” says Bertie Armstrong of the Scottish Fishermen’s Federation.
A House of Commons research paper says the next step will be to negotiate whether foreign vessels will have access to the UK economic zone. Whatever the outcome, it says the UK will still need a “very close working relationship with the EU” to meet import and export conditions.
9. Protected food names: It remains unclear what will happen to EU protected food names once Britain makes its exit.
The 73 British food products with a protected designation of origin, geographical indication, or traditional speciality could face losing their protection, says Matthew O’Callaghan, chairman of the UK Protected Food Names Association.
And Liz Truss’ ambition for the UK to have 200 protected food names by 2020 hangs in the balance, as there is no guarantee the EU will sanction further applications during the transition period.
Defra says protected names would be part of any negotiation but the uncertainty is clearly worrying some corners of the industry. Hybu Cig Cymru - Meat Promotion Wales - is seeking urgent talks with the Welsh government for reassurances over the scheme’s future.
Others have a more relaxed view. “I see no immediate risk, and would expect to see a similar scheme established at UK level,” says Oliver Nohl Oser, owner of protected name business the Cumbrian Sausage Co.
10. Dip in consumer confidence: The fall in the pound’s value has provoked fears over the UK’s economic outlook. Following the Brexit vote, Moody’s forecasts “a prolonged period of policy uncertainty that will weigh on the UK’s economic and financial performance”.
The BRC says it is difficult to predict exactly how this will play out. “It’s possible the markets may calm down a bit but then another shock hits after Article 50 is finally activated and we could rollercoaster again,” a spokesman says.
Kantar believes this is unlikely to translate to a “substantial fall in grocery volumes”, but certain sectors could be hit more than others.
Ready meals and sweet and savoury snacks are likely to be most affected by any dip in consumer confidence, according to Euromonitor - particularly chilled lunch kits, gum and chocolate.
The food and drink industry will need to do its best to battle this trend, says the Food and Drink Exporters Association. “The focus at this point needs to be maintaining customer confidence around the world and avoid any consumer backlash to British products in Europe,” says the association’s director Elsa Fairbank.
11. Price inflation: To add fuel to the fire, the dip in the pound could also lead to a rise in imported food prices. “With an estimated 40% of the food we consume sourced from overseas, any long-term change in exchange rates may threaten the current period of cheaper groceries,” says Fraser McKevitt, head of retail and consumer insight at Kantar.
It will be up to retailers just how much of these costs they absorb and how much they pass on to the consumer - but they must take into account the uncertain climate and competition from the discounters, who will no doubt keep their prices as low as possible.
12. Trade deals outside the EU: Finally, the UK should seek to negotiate competitive deals further afield. The AHDB says it confident it can do so, having a “strong track record in developing markets outside the EU” to its name. The association has worked with Defra and UKTI to secure market access to China for pigmeat and India for seed potatoes.
Rahul Kale, international sales director at Typhoo, calls on UK trade teams to get “some quick wins in their bag” to enter negotiations in a strong position and avoid “being short-changed”. As he says, bargaining power will be critical in this transition period. And it could make all the difference between the rosy future that the Brexiteers envisage, and the economic turmoil feared by many analysts.
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