Brexit Blog 4: Food & Beverages
Brexit – How Brexit will change the food industry
In our fourth Brexit Blog, we will focus on the food industry, which causes one of the biggest trade flows between the United Kingdom (UK) and the ‘mainland’ of the EU (EU). We will discuss some of the consequences of Brexit, which can be already felt, so that food business operators know what to expect.
The UK currently imports 30% of the food it consumes from the EU, but all of that will be impacted by Brexit. Also, considerate amounts of products (e.g. meat, dairy and other agricultural products) are shipped from the UK to the EU. In total about EUR 46 billion of food products exchange the EU/UK borders annually. The food industry will therefore (and for other reasons) be one of the industries most affected by Brexit.
As the UK is currently a member of the customs union of the EU, generally custom duties, tariffs or quota are prohibited on the trade of food within the (current) EU-market. With the UK leaving the customs union (under a no deal Brexit), this prohibition will no longer apply to the EU/UK-trade and other rules come into force, the World Trade Organization-rules. These WTO-rules, in short, prescribe that a country cannot discriminate between trade partners (unless a bilateral trade agreement is concluded). As all trade partners must face the same trade tariffs under the WTO-rules, the currently applicable tariffs for ‘third countries’ will apply to the EU/UK trade until a trade agreement is concluded. These tariffs (from the UK to EU) are especially high for food products, as they vary from 12 % for fish products, to 23,6 % on sugar and confectionary, to 35% on dairy products, to even higher for specific products (up to 87 % (!) for frozen beef).
Obviously it is possible to conclude a free trade agreement between the EU and the UK, but generally trade agreements can easily take up to 5 years to conclude (provided both countries have enough trade negotiators). As the UK did not (and is not allowed to) negotiate a trade agreement since their accession to the EU – and therefore probably won’t be able to act swiftly, a full free trade agreement will not be (expected to be) in force any time soon. EU food operators will therefore have to take into account that food products, such as livestock, ingredients and actual groceries will face considerable trade tariffs in case of a no-deal Brexit. Adding to these tariffs will be further pricing issues such as amending VAT-regimes (for exporting to a third country) as well as price instability caused by a turbulent GBP-EUR rate the coming months.
Another impact for food companies relate to the logistical structure of the food chain. Billions worth of food products cross the Channel each year, mostly at Calais-Dover or via the port of Rotterdam. At these border crossings currently no border control points are operational, nor is much paperwork required to cross. After Brexit however, this may radically change, with severe consequences for supply chains and (further) administrative burdens.
Where traffic currently flows easily on and of the ferries at Calais and Rotterdam, after Brexit trucks will have to fulfill certain requirements in order to be able to cross the Channel. The amount of paperwork will increase and also product checks, such as veterinary checks, will be put in place. This will increase the time it takes to cross the border to up to 45 minutes per truck. However, as not all trucks can be checked at the same time, this will lead to massive congestion on the roads to the British ports. In the UK tests are run with scenarios where traffic jams of up to more than 20 kilometers lead up to the port of Dover. Specific food products such as certain fruits and vegetables will be checked and live animals and animal products will have to be imported into the EU through designated Border Inspection Posts where they are checked by veterinaries. It can therefore take quite a bit longer for products to reach a location in the EU or the UK.
These measures lead to massive logistical difficulties, especially where perishable goods are involved or where supply chains are very tight. Also, according to government officials the government expects that in the first weeks after a no-deal Brexit the delays will lead to a diminishing of the flow of imports to a mere 13% of current imports (with supply deficits/empty shelves as a consequence). For this reason many (UK) companies in the food industry have been stockpiling (at the request of the British Department of Health) to be able to survive the first months after Brexit (no matter what scenario is chosen by the politicians).
Besides the time delays, further administrative burdens will apply. For the import or export of food products from and to the UK, additional administrative actions are required. First of all, filings will have to be made with the relevant customs offices and possible duties must be paid. Also – depending on the arrangement post Brexit – additional controls or (origin) certificates may be required before a product can cross the Channel. This might require further administrative custom skills from employees, skills that currently may not (and do not have to) be present with many food business operators.
As if the financial and logistical consequences are not enough, several regulatory consequences that might be of importance to food business operators can also occur. Obviously, UK producers will have to ensure that their product complies with EU-labelling law (including the indication of a EU-representative/importer that is responsible for the food and food information). As the UK will adopt its own rules, the labels may have different requirements for EU-products compared to for UK-products. As a consequence, UK-products, for example, can no longer be sold in Ireland without amending the label. Topics for which the post Brexit situation may require further amendments to the product and/or the administration are origin indications, traceability, hygiene, front-of-pack schemes, biological products and specific products such as honey, meat, spirits etc.
The future requirements of labelling for food products in the UK are uncertain, but the UK has historically been in favor of mandatory ‘traffic light’ labelling front-of-pack, indicating nutritional values of products. Such indications are not mandatory (and in some cases not allowed) under current EU-legislation, so this would already be a big difference. Also, in the UK pleas are made to introduce new health warnings and animal welfare indications. All these measures may potentially widen the gap between EU-requirements and UK-requirements and as such hinder fluent trade between the two markets.
What kind of Brexit will be likely, is – with seven weeks to go – still unclear. This will prove quite the challenge for (amongst others) food business operators to efficiently prepare for (the right type of) Brexit. One thing however is certain and that is that any Brexit will require changes to the operation, production and financing of food products and production.
If you have questions about the consequences of Brexit for you as a food business operator, please feel free to contact our Regulatory department or the Benelux Food & Beverages Team.