“No-deal” Brexit risks to retail: Empty shelves, food price spikes, warn UK supermarkets

29 Jan 2019 --- As UK MPs prepare to vote later today on amendments to Prime Minister Theresa May’s Brexit deal, some of the nation’s largest retailers have joined forces to warn government that a “no-deal” scenario threatens the UK's food security in the short-term – as shelves could be left empty and food prices will spike. This is the latest in a series of warnings over the potential impacts a “no-deal” would bring to the food and drink industry which is enormously susceptible to the trading challenges that a Hard Brexit presents.

Retailers also warn that stockpiling preparations are being hampered because warehousing space in Britain is running out.

In a letter to government from UK trade body, the British Retail Consortium (BRC), and signed by supermarket giants Asda, Sainsbury’s, Marks & Spencer, the Co-op, Waitrose, Costcutter Supermarkets, Lidl as well as Pret a Manger, KFC and McDonald’s, the businesses set out their major concerns over the significant disruption to food supplies which, they say, will be caused by a “no-deal.” 

“While we have been working closely with our suppliers on contingency plans, it is not possible to mitigate all the risks to our supply chains and we fear significant disruption in the short term as a result if there is no Brexit deal,” the letter says. 

“We are extremely concerned that our customers will be among the first to experience the realities of a ‘no-deal’ Brexit. We anticipate significant risks to maintaining the choice, quality and durability of food that our customers have come to expect in our stores, and there will be inevitable pressure on food prices from higher transport costs, currency devaluation and tariffs.”

The letter points out that the timing of Britain leaving the EU, currently set at Friday, March 29, makes the situation even more acute because of the seasonal challenges of growing fresh produce in the UK at this time of year. 

“Our supply chains are closely linked to Europe – nearly one-third of the food we eat in the UK comes from the EU. In March, the situation is more acute as UK produce is out of season; 90 percent of our lettuces, 80 percent of our tomatoes and 70 percent of our soft fruit is sourced from the EU at that time of year. As this produce is fresh and perishable, it needs to be moved quickly from farms to our stores,” the letter continues.

The retailers explain how the complex, “just in time” supply chain will be significantly disrupted in the event of no deal, even if the UK Government does not undertake checks on products at the border, there will still be major disruption at Calais as the French government has said it will enforce sanitary and customs checks on exports from the EU. This is expected to lead to long delays. 

“Government data suggest freight trade between Calais and Dover may reduce by 87 percent against current levels as a result. For consumers, this will reduce the availability and shelf life of many products in our stores,” the letter continues. 

Tariffs and stockpiling 
The retail heads are also extremely concerned about the impact of tariffs and the possibility of reverting to World Trade Organization (WTO) rules. They say that only around 10 percent of retailers’ food imports, a fraction of the products supermarkets sell, is currently subject to tariffs so if the UK were to revert to WTO Most Favoured Nation status, as currently envisaged in the “no-deal” scenario, it would greatly increase import costs. This could, in turn, put upward pressure on food prices. 

“The UK could set import tariffs at zero but that would have a devastating impact on our own farmers, a key part of our supply chains,” the letter notes. 

The retailers say that they are already stockpiling where possible. However, this is hampered because of lack of space. All frozen and chilled storage is already being used and there is very little general warehousing space available in the UK. 

“Even if there were more space it is impossible to stockpile fresh produce, such as salad leaves and fresh fruit. Retailers typically store no more than two weeks’ inventory and it becomes difficult to restock stores if the supply chain is disrupted. We are also attempting to find alternative supply routes but there are limited options and not enough ferries, so this could only replace a fraction of the current capacity.”

The retailers’ letter comes shortly after a Rabobank report which says that in the event of a Hard Brexit, the UK will become a “third country” to the EU. In practice, this will mean that UK companies lose access to the EU market for exports of most agricultural products, due to the introduction of import tariffs at the EU border. As the UK heads towards the increasingly likely scenario of a “no-deal” Brexit, a potential spike in food prices and the issue of tariffs come under the spotlight once again in the analysis. 

Today’s vote
The letter comes at another crucial moment in the Brexit process as UK MPs gather in the House of Commons later today to vote on a series of amendments put forward in a bid to get the seal of approval on the Withdrawal Agreement to leave the EU in an orderly manner next month. 

The amendments could shape the next stage of negotiations with the EU but first MPs are expected to vote at around 7pm GMT. 

Earlier in January, as widely predicted, May’s Withdrawal Agreement was massively voted down by MPs in a historic defeat that saw May face a further vote of no confidence, which she won. The deal was rejected by 432 votes to 202, throwing the future of Brexit into further chaos.

Today represents the next round of parliament trying to sort out Brexit as the amendments will be voted on with the major sticking points concerning how to solve the border problems between Northern Ireland and the Republic of Ireland – the backstop issue – and how to avoid the “no-deal” or Hard Brexit scenario, i.e., leaving the EU without a deal. 

One of the amendments concerns the possibility that if there is no agreement by the end of next month,  May will have to request more time from the EU, delaying Brexit for a possible nine months. 

If any of the amendments are vote through then May is expected to return to Brussels to further discuss the types of changes she needs to win the support of parliament and get the agreement green-lighted by UK MPs. 

This then leaves the scenario where the EU will have to also agree any new amendments and then this will have to go back to UK Parliament once more for a final vote. 

By Gaynor Selby