UK food prices will rise no matter what Brexit trade deal the government negotiates with the EU, Rabobank has warned.
If the UK leaves the free-trade area it will be forced to impose extra border controls on EU food imports, regardless of what other deal is struck with Brussels, according to a report published by the food and agribusiness bank as the government prepares to invoke Article 50 today.
This would push up the cost of foods sourced from the EU - such as olive oil and some fresh fruit & veg varieties - by up to 8%, it predicted.
A weakening pound could add further upward pressure on food prices, with Rabobank expecting the sterling to depreciate by a further 5% over the next 12 months.
“UK consumers should brace themselves for some price rises - perhaps by as much as 8% - on those products on which Britain is almost solely reliant on the EU,” said Harry Smit, senior analyst at Rabobank.
“Unfortunately, whatever the outcome of Brexit negotiations, they are going to have to get used to higher prices on olive oil and many fresh fruit and flowers.”
Removing tariffs
The UK could potentially keep prices in check by removing all import tariffs on food products - a post-Brexit trade scenario that is “more likely than many assume”, the Rabobank report added.
Removing tariffs would expose EU food and agriculture exporters to competition from the rest of the world, but might also result in reduced imports from Europe, it said.
“Much of the current focus on how Britain will trade post-Brexit revolves around the UK continuing trade with the EU or providing additional protection to its farmers by imposing protectionist import tariffs,” Smit added.
“Yet in our view, a third possible scenario not being as widely discussed is the New Zealand model - essentially a ‘present to the rest of world’ in which it eliminates all food import tariffs, possibly as a quid pro quo for receiving more favourable terms for its key export sectors, like financial services.”
Removing tariffs would be “consistent with the UK’s historically pro-free trade approach and indicative of politicians’ keenness to keep food prices in check”, but would be potentially “bad news” for EU food exporters, he said.
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