Brexit and the UK food and beverage industry

The UK exit from the European Union will lead to immediate questions for the food industry in terms of tariffs, quotas and farmers’ support. Any ‘divorce’ from EU systems will take time, of course — at least 2 years. However, the impact on investment, should this decision be confirmed and ratified, will be immediate.

The effect on the exchange rate (£ to $ as well as Euro) can already be seen. The pound has already dropped 8% since it became clear that a Brexit vote would occur, with the value at its lowest rate since 1985.

“Overall it is clear that since the UK food industry is a large exporter to Europe, a lower exchange rate will be beneficial short-term. However, this also means that dollar-denominated raw materials will be that much more expensive, as will imports — and the UK is one of the biggest import markets in Europe,” noted Innova Market Insights London-based analyst Heather Johnston.

“Tariffs and quotas will not change immediately but any negotiation is highly unlikely to bring better terms than previously as a member of the EU, and of course if the UK wants to sell within the EU, CE standards and all the other food safety, quality and nomenclature rules will still apply,” she added.

“Farmers are well aware of their dependence on the Common Agricultural Policy (CAP) so the results in Scotland and Northern Ireland were undoubtedly influenced. Global pricing is bad news for dairy, and not very good news for anyone else. There are many places that can produce food more cheaply than the UK and it would take the erection of some very stiff trade barriers (and a big increase in food prices) to prevent imports doing to British agriculture what they did in the 1930s. There’s a reason so many UK houses were built then — agricultural land had no value,” she noted.

The Brexit impact in the food industry is likely to be profound. According to the UK trade body Food and Drink Federation (FDF), 71% of its members wanted to remain part of the Union. Overall most believed it is preferable to remain with the status quo, due to concerns that should the UK exit the EU then they will have to agree to EU food regulations should they want to export to the EU, but will have no role to play themselves in how regulation is formed.

Ian Wright CBE, director general FDF, responded to the vote to leave by stating: “In March we released the results of a poll of our members which showed 70% support for Britain to remain in the EU. It’s inevitable in the light of those results that the majority of FDF members will regard this as a disappointing result for the food and drink industry.

“Now FDF will work on behalf of our members and all those across our industry to find a way through this very challenging period that we face. We’ll focus on working with the government to understand what this means for trading, market access and regulation to secure the best outcome for British food and drink manufacturing businesses and their customers.”

The business of food employs approximately 400,000 people in the UK and is Britain’s largest manufacturing sector, according to The Guardian. Of those workers, around 38% are foreign-born immigrants, a key point being raised by supporters of the Brexit who would like to see much stricter immigration policies throughout their nation.

Since joining the EU, the common policies held for agriculture, trade and movement of goods have been key to the UK’s food system. The Common Agriculture Policy itself swallows up 40% of the total EU budget. In turn, the other nations of the European Union have been integral trade partners for Britain and have been the UK’s primary export market. Additionally, the British people depend on their fellow European states to provide a quarter of what they consume every year.

Because of these deep economic ties, many British leaders who oppose the Brexit fear the trade repercussions the food industry could face. Elizabeth Truss, the Secretary of State for environment, food, and rural affairs, has warned that a leave vote would be a risky “leap in the dark” that could endanger the livelihood and success of the nations’ farmers and food distributors.

Last month Truss said that the food and farming industry could benefit from an extra €360 billion in EU funding to help SMEs and larger processors grow their businesses. She pointed out that between 2011 and 2015, dairy companies in the UK invested just €468m in their businesses, compared to €1.4bn in Germany and €785m in Ireland — highlighting the opportunities that additional funding could bring to the UK industry.

Environment Secretary Elizabeth Truss said: “Unlocking access to our share of €360 billion of European funding will help unleash the talent and ambition across our world-leading food and farming industry, from supporting punchy start-ups to developing the very latest technology in production methods.

“Last year our dairy exports hit £1.4 billion so we know there’s a growing appetite for quality British dairy products. The funding will help innovative businesses produce more high-demand products such as yoghurts and cheeses in the UK, creating more jobs, increasing productivity and making the sector more resilient.”

Few fellow EU markets will be more impacted by the decision than the Republic of Ireland. According to Bord Bia (the Irish Food Board), the decision by the UK to exit the EU represents a significant challenge to Ireland’s agri-food industry.  Aidan Cotter, chief executive of Bord Bia, has pledged that Bord Bia would continue to support and work with industry to maintain and build on this vital trading relationship against the background of any new trading arrangements that will be negotiated.

“The UK is Ireland’s largest customer for food and drink. Despite its continuing and expanding global reach, the UK has continued to represent a growth opportunity for the Irish food and drink industry, driven by a strong economy and an increasing population. The UK is a net importer of food and Ireland as an exporter is considered a perfect match. The immediate focus of food and drink exporters concerns the development in the sterling versus euro relationship and how to manage the increased volatility that has emerged following the vote. The resilience of the Irish food sector, the longstanding and strong trading relationship between Ireland and the UK, and the close ties between both countries will help the Irish food industry navigate through these uncertain times.

“Our London office is in close engagement with Ireland’s leading customers across the UK and we will work closely with industry and with the Department of Agriculture, Food and the Marine as negotiations commence,” concluded Cotter.

Finally, the fallout from the UK’s exit from the EU will also be felt in the product development space. “Other EU markets are the leading destination for UK food products and uncertainty about potential tariffs returning could impact exports,” noted Lu Ann Williams, director of innovation at Netherlands-headquartered Innova Market Insights. “But the UK has traditionally also been a leading beacon for new product innovation in the food industry, often driving trends in convenience and premiumisation, through its highly developed on-the-go market,” she added. “With more isolationism occurring as the result of the Brexit and potentially reduced exports, it’s possible that we will see less creativity spread through to the continent too.”