“Death knell” for frictionless trade? UK Treasury will not support manufacturers favoring EU rules following Brexit

20 Jan 2020 --- The issue of potential food price spikes is once again in the spotlight as the UK races towards the Brexit deadline at the end of this month. Britain’s Chancellor of the Exchequer, Sajid Javid, has asserted that there will be no alignment with EU regulations once the nation’s exit becomes official, escalating warnings over possible food price increases. As the EU remains the dominant market for exports of food and beverages, UK’s industry is now pressed to find new avenues to sustain frictionless trade with the single market.

Three Brexit extensions have already left businesses tense over “wasted preparations,” as industry representatives have previously told FoodIngredientsFirst. With less than two weeks until the new deadline, Chancellor Javid intones that the nation’s Treasury will not support manufacturers that favor EU rules given that businesses have had three years to prepare for departure from the single market. “Admittedly, they didn’t know the exact terms,” he concedes in a Financial Times interview.

“There will not be alignment, we will not be a ruletaker, we will not be in the single market and we will not be in the customs union – and we will do this by the end of the year,” he adds.

Meanwhile, in a radio interview with the BBC, Tim Rycroft, COO of the Food and Drink Federation (FDF), contends that the comments sound a “death knell” for frictionless trade, while warning that food price hikes may be expected by the end of the year.

Complicating matters for both trade and food pricing agendas, UK Prime Minister Boris Johnson issued a proposal to the EU for a new Protocol on Ireland/Northern Ireland last October. Johnson outlined plans that would see Northern Ireland stay in the European single market for goods, but leave the customs union, resulting in new customs checks on the border. 

Critics have argued that the introduction of a new border control may result in greater challenges for consumers, not only including higher food prices and a lower level of choice, but also in terms of potential capacity shortages because of Ireland/Northern Ireland border control. Last year, UK stockpiling was at a record spike. Coca-Cola, alongside many businesses, has already committed to extending its inventory in preparations for Brexit.

Responding to Chancellor Sajid Javid’s comments on regulatory alignment, a British Retail Consortium (BRC) spokesperson, asserts, “We need a UK-EU deal which puts consumers first: minimizing barriers to trade so that the British public do not face higher costs on food and other goods from next January.”

“The UK imports half of the food it consumes, most of which from the EU. New tariffs and increased regulatory checks would increase the cost of food for everyone, and it is the Government’s responsibility to prevent this through its negotiations with the EU. A negotiation involves give and take from both sides but we need a pragmatic approach on our regulatory relationship with the EU,” adds the BRC spokesperson.

While also stressing that Brexit may unequally favor certain industries, Rycroft notes, “We also have to make sure the government clearly understands what the consequences will be for industries like ours if they go ahead and change our trading terms.”

The EU remains the UK's dominant export market.Is British industry prepared?
Britain’s food and beverage sector continues to ignore the uncertain political and economic climate and is forging ahead at home and abroad, according to a new report published by Make UK, a manufacturers’ organization, and Santander bank.

“This data gives food for thought on the importance of this sector to the UK economy which, despite uncertainties in the UK and internationally, has remained resilient. We are committed to helping manufacturers improve productivity and establish new trade partners globally,” contends Andrew Williams, Head of Food and Drink, Santander UK.

According to the report, the sector is worth 15.9 percent of total manufacturing GVA with sales in 2018 of £85.6 billion (US$111 billion), a sharp increase of 7.6 percent in just two years from 2016. As a result, the sector is now a major employer across the UK with some 440,000 employees, up 5.3 percent since 2016 and now at the highest level for 15 years.

The analysis shows that a large element of this growth is coming from overseas, with sales abroad up by just under one quarter in the last two years alone. The EU notably remains the biggest total market accounting for just under two thirds (61 percent) of exports worth £13.9 billion (US$18 billion), with Ireland the largest single destination (21.4 percent) worth £4.2 billion (US$5.4 billion) closely followed by the Netherlands, France, the US and Germany.

However, other markets are also seeing significant growth, with sales to Asia & Oceania up by 295 percent in the last twenty years and in the same period by 260 percent to the US. A post-Brexit UK-Australia free-trade agreement is currently being prospected, just as a two-decade ban that prevented British beef exports to China finally came to an end last year.

The report also analyzes the UK’s position in the world supply of food and beverage as well as a number of domestic industry trends. Globally, the UK is the fourth largest food importer in the world and the second largest beverage importer. This highlights that, notwithstanding the sector’s positive export growth, the UK is a net importer of food and beverage by a significant margin with a total import value of £46billion (US$59.7 billion) compared to exports worth £23 billion (US$29.8 billion) in 2018.

Given these statistics, Make UK highlights that the UK is importing twice as much food and beverage products as it exports. The organization underscores a critical need to avoid border and customs checks on fresh food coming into the UK post-Brexit.

In addition, the report highlights the rapid rise of online shopping for and delivery of food and drink to the home in the UK which far outpaces the trend anywhere else in Europe. While supermarkets still account for the vast majority of purchases (93 percent), online shopping now accounts for over 7 percent of the total and is rising rapidly, worth £141.9million (US$184 million) a week.

This trend in the UK is some way ahead of other major European countries, with the nearest being France at 5.5 percent, followed by the Czech Republic at around half the level of the UK. Online purchases are less than 2 percent of the total in Germany and less than 1 percent in Italy.

Even in lieu of looming Brexit, Make UK Chief Economist, Seamus Nevin, argues, “The food and drink sector continues to benefit from British public’s desire to eat, drink and be merry. Despite the economic and political uncertainty the sector seems to be shielded from the difficulties experienced elsewhere and is driving hard for growth in the UK and overseas. It is now a key contributor not just to manufacturing but a significant employer in many regions of the UK.

“Despite growth in the rest of the world however, the EU remains the dominant market for exports of food and drink. As such, it is vital that frictionless trade continues in any post-Brexit agreement if the remarkable growth pattern of the sector is to be maintained,” he concludes.

By Benjamin Ferrer