The Brexit countdown has started. By triggering Article 50, May has started the clock to our exit of the European Union. In just two years, she hopes to negotiate an exit deal, set up a new free trade deal with the EU and start the slow process of negotiating free trade deals with the rest of the world.
The Conservative government has a mountain of a task ahead of them. The consequences of failing are significant. In the case of the UK grocery sector, the consequences could be devastating.
This is because UK membership of the EU affects almost every aspect of the food chain and almost everyone involved in the food and drink sector. It therefore stands that leaving the EU without a deal will hit the sector incredibly hard.
Arguably, the most significant impact will be the hike in the cost of food. Difficult cost pressures will come from three different directions.
Firstly, as soon as the UK leaves the EU Customs Union, trade will be subject to tariffs. This is not, as some Brexiteers have argued, a choice. WTO rules require that a minimum tariff is applied unless there is a Free Trade Agreement in place. For agricultural goods, the tariffs are a staggering 22.3%. This is important, because the UK still consumes far more than it produces. Our deficit in food trade with the EU, for example, is currently €23.3bn.
Secondly, even beyond the tariffs, there will be increased transaction costs on imports. At present, food and drink products are traded across borders with no forms or checks. Once we leave the EU, products will have to go through customs checks. These checks require payment. This is especially worrying for food manufacturers with highly integrated supply chains, sourcing raw materials in one member state, processing them in another, and then selling them in the UK. Irish meat, for instance, will face now have to face costly Animal Health Certificates at each crossing into the UK. The delays and costs caused by these checks will impact on quality, cost and delivery time for grocery sellers.
Thirdly, the fall in the value of the pound is driving up costs for manufacturers, and in turn for those who sell food. Businesses – and especially small and medium sized businesses – have already experienced 20% price increases in imported raw materials since the referendum, with further increases expected.
If May fails to secure what is looking like mission impossible, then most, if not all, food and drinks manufacturers and sellers will see substantial cost increases. In some cases, these cost increases will be fatal for the business. This issue alone shows the vital need for the Government to be held to account over its Brexit negotiations.
Susan Kramer is Liberal Democrats Shadow Chancellor
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