Brexit and the Food and Drink Supply Chain

There are many challenges ahead for those who deal with the logistics of food and drink. From food production through added value manufacturing to import and export, the entire food and supply chain in the UK will be affected by Brexit.

Workforce issues for food and drink logistics

At the blunt end of the food and drink industry – agricultural production, migrant employees are a significant proportion of both the skilled and unskilled workforce. In fact in the food and drink industry across the board, migrant staff make up 38% of the labour force. That’s nearly three times the rate of migrant employment in the UK economy as a whole. There is a significant skills gap which is likely to cause problems for the logistics industry; the ageing UK haulier workforce is currently bolstered by drivers from many countries; fewer people are going into road haulage as a career and already, qualified drivers from EU countries are moving out of the UK to locations where there skills are equally sought after but their employment status is both clear and secure.

Growing food – a growing problem

The UK labour force contains a disproportionate number of EU workers in certain sectors including a staggering 63% of the meat industry which the British Meat Processors Association, suggests is the percentage of personnel from EU countries. With the average age of British farmers being 59, and young people preferring to take on less intensive commitments than farming, there is profound uncertainty over the future of the primary food production of the UK.

Import and export uncertainty

The British climate means that the country is a long way from being able to produce all its own food and it has a substantial trade deficit, with fruit and vegetables being a huge import area. Logistics in the export arena are relatively straightforward: the UK exports over 50% of its total agri-food production to just four countries: Germany, France, Ireland and the Netherlands. Included in this export range is Scotch whisky which is the UK’s biggest export (25% of total, with sales of over £4 billion). If Brexit means that the UK loses access to the markets with which the European Union has negotiated Free Trade Agreements, whisky importers such as South Africa and South Korea may experience higher costs, causing a knock-on effect for warehousing and logistics.

Tariff-free trade under threat

The agricultural, food and drink industries are all hoping that part of the Brexit agreement will include a trade deal that allows tariff-free trade to continue. Currently tariffs on agricultural items tend to be amongst the steepest, internationally.  The current arrangements have a two-tier tariff for agricultural products: fixed quantities of the product have their tariff duties lowered or waived completely and then anything imported or exported above the agreed quantity is charged at the standard tariff. This allows, for example, the import of seasonal food when domestic production is slow. For the food warehousing and logistics industry, these Tariff Rate Quotas (TRQs) permit the rapid and cost-effective transport of bulky food goods from elsewhere in the EU. Without TRQs there is likely to be a substantial increase in the cost of routing food supplies both to the UK and even within national borders.

Integrated supply chains and Brexit’s impact

Food manufacturers with highly integrated supply chains – eg those who source food and drink supplies in one country, process them in another and sell them in yet other countries are bracing themselves for two different negative impacts:

• Increased tariffs, as described above, and potential double taxation issues
• Custom controls are a real concern: both physical (border crossing checks, customs search delays) and administrative (origination documentation, transfer documentation etc).

Simply the cost of adjusting to different regulations for inside EU and UK trade is likely to be considerable, if trade negotiations don’t go smoothly.

Potential benefits of Brexit outcomes 1 – regionality

Should it be that trade barriers are strengthened, regional food production is likely to become more important. This means that in areas of low productivity (whether geographically or seasonally) this may lead to price increases, while high productivity areas may experience ‘glut’ – where overproduction leads to decreased prices. Innovation in this area may mean that regional producers can obtain premium prices – either by adding value to their products or by achieving ‘first to market’ status such as is already accorded to new season’s asparagus, strawberries, Beaujolais Nouveau etc.

Potential benefits of Brexit outcomes 2 – value products and segmented propositions

In any situation of threat, the value end of any market (generic and own brand products etc) is likely to find its customer base increasing. For businesses that understand their customers well, this is an opportunity to exploit a weaker sterling rate and offer more attractive propositions. For example, consulting customers to find out how they see Brexit impacting them in the short, medium and long term can allow a business to offer a range of different logistics solutions which work for each client segment.

Potential benefits of Brexit outcomes 3 – non-EU importers may gain

For some companies, especially value added food and drink manufacturers, there may be good news on the horizon. There’s a possibility that the removal of EU import restrictions and tariffs will help them source products from non-EU markets more cost-effectively.

Food and drink supply chain priorities highlighted

This month a letter has been sent to the Brexit negotiation team by 26 representative bodies supporting all sectors of the UK’s food and drink supply chain. Of the ten key points agreed by those bodies, three have specific relevance to the logistics industry:

1. Acknowledge the special nature of the relationship between the UK and Ireland by creating a range of solutions on workforce and border regulations
2. Ensure continued no-tariff and seamless trade across borders in both directions
3. Maintain consumer confidence in UK food safety by ensuring a stable regulatory framework that is equivalent to the current EU food production, manufacture and supply legislation.