Brexit chaos: Vote delay fuels industry dismay on possible “no deal” scenario

11 Dec 2018 --- Brexit has been plunged into further chaos after UK Prime Minister Theresa May called off today’s scheduled make or break vote in Parliament at the eleventh hour. And, as she heads off to negotiate further in Europe, the food industry, which is extremely susceptible to the trading challenges that a “no deal Brexit” presents, is left “dismayed” over yesterday’s abrupt U-turn and what this could mean. It’s not yet clear when the vote will take place but it could be early next week or even mid-January before the much debated Withdrawal Agreement is voted on.

Yesterday saw May dramatically postponing a Commons vote on the Withdrawal Agreement which has the backing of Europe, after realizing it would have been rejected by a significant margin.

May is now holding talks on the continent as the chaos over Brexit continues to gather pace.

The Withdrawal Agreement sets out the terms of the UK’s smooth and orderly exit from the EU, and the Political Declaration, which sets out a framework for the UK’s ambitious future relationship with the trading bloc. But the deal is not rubber-stamped until MPs cast their vote.

The food industry is watching events unfold with bated breath, keen for May to secure a deal with the EU and avoid a no-deal scenario that would revert to World Trade Organization (WTO) rules.

“FDF members will be dismayed by the political and economic chaos provoked by a further delay to the Brexit process,” says Ian Wright, Chief Executive, Food and Drink Federation (FDF).

“Every political decision takes us closer to the catastrophe of no-deal. Each extra day of uncertainty diverts time, effort and investment. It undermines growth and employment. And, as we have seen from the weakness of Sterling, constraints businesses ability to plan and export,” he adds.

“The confidence of the business community in political decision-makers is hanging by a thread.”

Speaking to FoodIngredientsFirst, Food & Drink Exporters Association (FDEA) Director, John Whitehead, is urging Parliament to focus on the future of the UK’s economic well being.

“The Food & Drink Exporters Association recognizes that there are varying opinions among our members on the proposed EU exit deal, but there is a unanimous concern about the negative impact of uncertainty as we approach 2019 and the March 29 deadline,” he says.

“We must ensure that we have continued free access to our main markets in Europe and no new barriers to restrict the industry from maintaining its growth in sales outside the EU.”

“A ‘no deal’ could create huge problems in the short term, with delays at customs interrupting just-in-time supply lines and potential additional animal health inspections and new labeling requirements adding to costs and delays.”

In September, Barclays published a report which said that failing to reach a Brexit deal could end up costing £9.3bn (US$12.2bn) a year as food retailers and their supply chain face a mass of additional tariffs as a result of the UK not negotiating a trading deal with the EU. The report calculates widespread disruption and price hikes with the “Hard Brexit” model forecast to create an average tariff of 27 percent for food and drink supply chains, which is significantly more than the 3-4 percent levy that would hit non-food products.

UK food and drink exports have increased by 1.8 percent to £16.4bn (US$21 billion) from January to September, compared to the same period in 2017, with exports of branded goods edging up. The food and drink trade deficit has narrowed by 1.3 percent as a result, now standing at -£18.0 billion (-US$23 billion), according to the latest analysis from the FDF.

“As the reality of the changing trading environment emerges, there is concern that sales may start to fall in the EU after Brexit and many exporters are exploring opportunities in new areas further afield. In light of this, we fully endorse the need for practical help and support to ensure that companies are prepared for what lies ahead,” adds Elsa Fairbanks, also a FDEA Director.

The Brewers of Europe (BoE) is also watching closely as the EU27 and the UK are closely intertwined, through interconnected value chains, an international specialized workforce and extensive trading. This doesn’t just include beer itself, but also ingredients, machinery and brewing technology.

“The EU27 is by some margin the UK’s largest single export market for beer by volume. The outcomes of the Brexit negotiations must ensure the brewing sector can continue to maximize its economic and cultural contribution to both the EU and the UK. This means minimizing negative impacts from Brexit, by reducing as much as possible barriers to trade and enabling the ease of movement of beer, in both directions,” BoE Secretary-General Pierre-Olivier Bergeron tells FoodIngredientsFirst.

There are suggestions that various suppliers are setting their stalls to guarantee supply amid the potential trade barriers. Just before May called off the vote yesterday, Barry Callebaut announced that it has completed the transaction to acquire Burton’s Biscuit Company’s chocolate manufacturing assets in the UK. The move came after the cocoa giant signed an agreement with the UK’s second biggest biscuit manufacturer, for the long-term supply of more than 12,000 tons of chocolate and compound per year in September.

“The transaction with Burton’s will support our further growth in the UK, which we expect to remain a fast-growing market for chocolate production for the foreseeable future. The Moreton facility provides us with additional manufacturing capacity that supports our further growth in the UK,” Frank Keidel, Barry Callebaut’s Head of Media Relations, told FoodIngredientsFirst.

With just over three months to go before the UK leaves the EU, any delay to a future agreement is particularly concerning, according to Helen Dickinson, Chief Executive of the British Retail Consortium.

“Retailers urgently need certainty about what our future trading relationship with other neighbors on the continent will be,” she says. “A ‘no deal’ outcome would harm consumers, resulting in higher prices and less choice on the shelves. We call on parliament to urgently find a workable proposal to avoid a catastrophic no-deal Brexit. Time is running out.”

President of the European Commission Jean-Claude Juncker has told May today that although there deal could be clarified, there is “no room whatsoever for renegotiation.”

Brexit is one of the most polarizing political issues to have faced the UK in modern times, but the divisions are much more complex than just the Remain camp and serious Brexiteers. Much has been made over the so-called lack of support for May’s deal. And many politicians have criticized her negotiating job with EU counterparts, claiming the Withdrawal Agreement is weak and not what the people of Britain called for when they voted to leave the EU.

The chances of getting the deal voted through appeared to be negligible at best as May faces strong opposition from her own party as well as resistance from the Democratic Unionist Party (DUP) which props up her government as a junior coalition partner after the Conservative Party failed to get enough of a majority during the general election called by May in 2017. Then there’s obvious opposition from the Labour Party with many believing leader Jeremy Corbyn was preparing for another General Election if the vote failed to get MP backing today.

What all this means is more uncertainty.

The PM’s meetings with European leaders and EU officials today are aimed at rescuing the Brexit deal. Further talks with Brussels are understood to focus on the “backstop” on the Irish border, which has caused widespread concern among MPs. She is seeking “further assurances” over the Northern Ireland-Ireland border issue.

Immediately after May’s announcement that she would be deferring the vote, the pound fell sharply. It was down almost two cents against the US dollar at US$1.2562 at the close of business yesterday. This is close to its lowest level since April 2017.

As the days go on before the Christmas recess, all eyes will remain firmly fixed on the next steps and whether or not the deal will be ready to face a vote in Parliament. If this doesn’t happen before December 20, the House will return on January 7, unless some extraordinary measure is taken in the meantime. The time is ticking to the UK’s departure from the EU and the growing possibility of a no deal scenario will only increase concern in the highly susceptible food and beverage industry.

By Gaynor Selby

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