No-deal Brexit: Food companies demand “cast iron guarantee” they will avoid competition fines

08 Aug 2019 --- Britain’s food and drink industry is calling on government to waive competition law as the prospect of a “catastrophic” no-deal grows stronger. Such a waiver would allow companies to coordinate and discuss supplies and pricing strategies, which the UK Food and Drink Federation (FDF) says would help mitigate the myriad of challenges industry faces as a no-deal looms. The FDF wants “cast iron written reassurances” that competition law will not apply, arguing that firms should be allowed to coordinate and direct supplies with each other after a no-deal Brexit.

“We have asked for assurances from Government that would allow conversations to take place on issues relating to the supply of food and drink that are currently outlawed by competition law,” Debbie McCreath, Corporate Affairs Executive of FDF, tells FoodIngredientsFirst. “These assurances are needed to allow the food supply chain to work together effectively to tackle likely shortages and to decide where to prioritize shipments.”

Tim Rycroft, Chief Operating Officer of FDF also underscores the need for certain legal concessions.

Any collaboration between businesses would risk incurring large fines from the Competition and Markets Authority, Rycroft underscores.“Competition law is important, but in the event of no-deal disruption, if the government wants the food supply chain to work together to tackle likely shortages – to decide where to prioritize shipments – they will have to provide cast-iron written reassurances that competition law will not be strictly applied to those discussions,” he notes.

Without such assurances, any collaboration would risk incurring large fines from the Competition and Markets Authority, Rycroft underscores. “We asked for these reassurances at the end of last year and, despite support from the Department for Environment, Food and Rural Affairs [Defra], we’re still waiting. Hopefully, now that Michael Gove is in charge of all no-deal planning, we can make progress.”

Under existing rules, suppliers and retailers are prohibited from discussing supply or pricing. Industry also claims that the UK leaving the EU at the end of October, as opposed to the initial March deadline, poses more supply problems because of seasonality issues and the run-up to Christmas. Moreover, pressingly, contingency planning is using up capital.

“Companies are forced to divert money away from investment into no-deal planning,” says McCreath. “They can only do so much with so many questions unanswered by Government. A company specializing in meals for older people spent around £5mn [US$6mn] stockpiling 12,000 pallets of frozen and chilled food. In the event of no-deal in October, they would need to repeat this, but all the warehouse and storage capacity was booked two years ago for the peak Christmas period. Furthermore, due to the nature of the business providing vulnerable citizens with meals day in, day out, they build production.”

When asked whether the food and beverage industry should be given prioritization in concessions, McCreath says, “We are not asking for special treatment. This issue is bigger than us. For food and drink, it would boost our efforts working in partnership with Defra to ensure the whole food chain is able to collaborate effectively to reduce the risk facing remote communities, schools, hospitals, old people’s homes etc.”

“The waiver should already be in place and should last until such time after we leave the EU that Government and industry are confident that food supplies are reaching consumers and the supply chain is operating effectively. This should only be a time limited measure, so sensible to renew the waiver every three months,” she concludes.

Bottlenecks in trade and commerce
Earlier this week, three UK government cabinet ministers visited the port of Dover – one of the key entrance points to the UK for European trade – to ensure Brexit-readiness. There is a high likelihood that bottlenecks at UK ports will lead to serious delays of perishable goods shipped from Europe. This poses a considerable concern and the disruption to supplies would have serious implications for product availability and consumer choice, notes Rycroft. Disruption to supplies would have serious implications for product availability and consumer choice.

“The shortages will occur randomly but short-shelf life products such as fresh produce, fresh meat and fish will be particularly susceptible, as will just-in-time deliveries of ingredients to UK manufacturers,” he adds. “When they fail to arrive on time, it will quickly lead to production lines being forced to shut down in the UK.”

“A no-deal scenario would see the current flows of goods into the UK being significantly reduced for a period of months at a minimum. Limited shelf life products are where impacts will be likely felt, such as fruit and vegetables, salads, certain meats and essential ingredients like processed egg,” he further stresses.

Rycroft emphasizes that reliance on importing is significantly higher around the looming October 31, 2019 exit date. “We are concerned about the impact on imports where government is not able to secure continuity deals for existing EU preferential trade agreements,” he says. “A no-deal scenario would see the current flows of goods into the UK be significantly reduced for a period of months at a minimum.”

Writing in The Lancet, Professor Tim Lang of the Centre for Food Policy at City, University of London, noted earlier this week that the majority of UK fresh food imports come from within the EU – and 9 percent of fruit and vegetables are from Spain alone. Even food imported from countries outside the EU, such as Morocco or Egypt, are sourced via EU trade deals. With a no-deal Brexit, the UK would effectively be classified as a “third country” under EU and World Trade Organization (WTO) legislation.

The need for a diversified supply chain in contingency planning for a potential no-deal Brexit has also been previously underlined by industry players. “There is no predictability around the types of goods that will get stuck in transit on their way into the UK, and therefore around the impacts for consumers and manufacturers due to delays,” stresses Rycroft.

Earlier this month, the FDF Chief Executive Ian Wright stated that a no-deal “will inflict serious and – in some cases mortal – damage on UK food and drink.”

Bracing for impact
Also earlier this month, a report from the Confederation of British Industry (CBI) highlighted that the UK has made many welcome proposals for reducing the impact of a no-deal. The Treasury has allocated £4 billion (US$4.8 billion) to prepare for negative impacts between 2016 and 2019/20; efforts to ensure the UK has a robust legal framework as it exits the EU have led to the laying of hundreds of Statutory Instruments; and government departments have published over 100 advisory statements for businesses, citizens, universities and local authorities.

However, not all of this advice has been communicated well, been understood or is yet trusted by business, underscores the CBI. As such, the consortium states that preparing for no-deal Brexit is “devilishly difficult.” Additionally, many of the government’s plans delay negative impacts but do not remove them, as it has tended towards prioritizing short-term stability and temporary measures, creating a gap for the long-term that feeds uncertainty.

By Benjamin Ferrer