SPECIAL REPORT: Brexit – The Food Industry Impact

05 Jul 2016 --- The positive noises emanating from a broad span of stakeholders in the food industry-such as Arla Foods, Kerry Group, the Danish trade body, General Mills and Mondelez-following the UK’s decision to exit the EU will have been welcomed by Brexiters who argue the UK can now transform itself into a tiger economy.

Each of the respective stakeholders put out statements after the UK voted to leave the EU effectively stating that it was business as usual and the UK would continue to be a key market for them.

Peter Giørtz-Carlsen, head of Europe, Arla Foods, which generates 80 percent sales in the EU and more than 25 percent in the UK, said: “The UK may have decided to leave the EU, but it will remain a key market for Arla.”

That said, the UK’s exit from the EU will have undoubted consequences for the UK food industry and the industry globally.

On the one hand, food companies have stressed concerns about currency volatility post-Brexit, impacting investment into the UK as well as trading, while the UK now also faces the threat of the EU raising tariffs on British exports to Europe.

Concurrently, the anticipated end to free movement of labor could have fundamental implications for the food industry, as around 38 percent of the UK’s food manufacturing industry is made up of foreign-born labor.

While the implications of Brexit will have implications for all the food industry, UK farmers, who have long-enjoyed vital subsidies under the EU, arguably face the most uncertainty.

What happens next?
As it will take two years for the UK to formally extricate itself from the EU after activating Article 50, the formal mechanism detaching a country from the EU, the long-term impact on the food industry is likely to be largely dependent on what kind of new trading relationship it intends to forge with the rest of the EU.

One option would be to mirror the Norway model and join the European Economic Area (EEA), which would mean that the UK would stay within the internal market and maintain trade ties. 

By doing so, it would provide some freedom from Brussels bureaucracy. But such a move seems unlikely, as the UK would still have to adhere to some EU laws, including the free movement of people, which was a pivotal reason why the country voted out of the EU.

Another option would be to ape Switzerland, which has around 120 bilateral deals with the EU, but the drawback is that it has only partial access to the EU’s Single Market. Furthermore, there is no indication that the EU would want to undergo such a time-consuming and complex arrangement with another country.

A third option would be for the UK to thrash out an entirely new deal with the EU, which without any template could be complex and time-consuming. However, the UK is the fourth biggest economy in the world and there is little doubt that the EU will want to continue to trade with the UK.

Some facts and figures 
The EU is by far the UK food and drink industry’s biggest export market. In 2014, $12.3 billion worth of British food and drinks products were exported to EU countries, representing nearly two thirds of total UK exports.

The UK also depends on imports from the rest of the EU for many food and drink products.

One country which is expected to take a hit from Brexit is France. 

According to the insurance company Euler Hermes, France’s food exports could be reduced by nearly $450m between 2017 and 2019 due to Brexit.

According to the French food trade association ANIA, new tariffs imposed could impact key French food sectors.

It said: “Despite the great uncertainty of exit politics of the United Kingdom from the European Union, the sectors that could be most affected are naturally those that most significantly contribute to the French trade balance: wines and dairy products in particular.”

Case study: Arla Foods
Like many, Arla-the pan-European farmer owned company owned by 12,700 farmers, including 2,77 British – has emphasized the importance that any new trade deals the UK strikes are not hindered by high tariffs or quotas.

Speaking to FoodIngredientsFirst, Peter Giørtz-Carlsen, head of Europe, Arla Foods, said: “We are disappointed by the outcome of the referendum. However, we respect the decision by those in the UK and, ultimately, it is their choice to leave.”

“We have continually supported a well-functioning and strong EU, which focuses on ensuring the continued free movement of goods, services, people and finances. However, we will work with the UK government and other relevant stakeholders to maintain that in so far as we are able to, in the post-Brexit environment.”

“The consequences of the Brexit vote will depend on the subsequent negotiations between the EU and the UK that are expected to take up to two years to complete.”

“For Arla, it is important that a trade agreement is reached without import and export quotas or tariffs that will limit the free movement of goods. We will be following these negotiations closely, and mitigation plans are underway by Arla but it’s too early to comment on the many different scenarios that could arise.”

“Most of our business in the UK is based on local production within the country, however, to utilise Arla’s European pool of 13 billion kilos of milk in an optimal way, it remains critical that our products can move freely across the markets in which we operate.”
 
“The UK may have decided to leave the EU, but it will remain a key market for Arla.”

Case study: Kerry Group
Kerry Group is a global food business selling to over 140 countries, which has a significant presence in the UK market, producing foods for UK supermarkets along with selling its own brands, such as Wall’s meat and Richmond sausages.

According to its Director of Communications Frank Hayes, the impact of Brexit is “largely neutral,” though the business could be impacted by “currency volatility.”

Speaking to FoodingreidntsFirst, Hayes said: “We are a well-established global company. We sell to over 140 countries. In terms of the UK market, we have been established since the early 1980s. Some of the output is to mainland Europe.”

“The impact is largely neutral. Obviously the currency volatility does have some impact but because of the balance of our business it is not as material as could be expected.”

“There isn’t any direct implication for our workforce, as our workforce are domiciled in the country that we operate.”

Case study: Danish Agriculture & Food Council (DAFC)
The DAFC, which represents Denmark’s farming and food industry, said it was confident that “Brits will continue to import Danish products,” but has urged the UK to quickly thrash out new deals.

Speaking to FoodIngredientsFirst, Karen Hakkerup, CEO of the DAFC said: “As one of the world’s biggest exporter of pig meat the Danish pig meat industry is used to handling different challenges to our export globally.”

“In general, the best framework for business is stability and open markets. The result of the British referendum has naturally brought a lot of instability and uncertainty to the market. Until we know how the future of relations between UK and the EU will develop, we will continue to meet the demand for Danish bacon in the UK.”
 
“There has been a tradition of more than 100 years of export of Danish bacon to British consumers and whatever the ‘new’ relation between the UK and the EU will be like, we expect our relation and export to the UK to continue. However it is obvious that an introduction of duty, more paperwork etc. could have a negative impact on trade.”

“In short, an ideal scenario would be a status quo in trade relations between the EU and the UK. To continue free trade between EU and the UK seems to be a high priority on both sides of the Channel.”

Case study: multinational response
Unlike their European counterparts, US food giants have largely stayed out of the debate around Brexit, perhaps judging that a Brexit result would have minimum impact on their businesses.

Mondelez and General Mills reacted to Brexit with positive statements.

A spokesman for Mondelez said: “We have prepared our business appropriately for the outcome of the referendum in the UK.”

“We are confident that we are well positioned as a business to navigate the consequences of the vote. As a business that sells products across the EU, we are closely monitoring the situation in terms of next steps. Our brands are much-loved by UK consumers and we remain committed to manufacturing in Great Britain.”

A General Mills statement read: “General Mills has a strong track record of trading in the UK and we have been selling our products here since the 1960s. Together with our talented and dedicated employees we remain committed to the UK and will to continue to serve British consumers with foods they love, to innovate our product offering and to invest in the local communities in which we operate.”

European food heavyweights Nestlé and Unilever – which had been a firm advocate of the UK remaining in the EU – were less forthcoming.

Unilever chief executive Paul Polman tweeted: “The most important thing to have long term prosperity is to accept the will of the people and respect democracy. Now we all need to unite.”

A Nestlé statement read: “The practical consequences of this decision will become clearer in the coming months. Nestlé will continue to operate in the normal course and will follow developments closely.”

The vote to leave the EU will no doubt have big implications for the UK – and global – food industry but it will be largely hamstrung until the details of new trade deals are known.

by John Reynolds