Last week a report from the Food and Drink Federation attempted to throw some light on the Brexit effect.
Although sales are at their highest for three years, 75% of FDF members have reported “soaring ingredient prices, plummeting product margins and concerns for the future raised by their EU workforce.”
This is not unexpected. There is no sector of industry that has experienced the current situation in the past and therefore, no-one can accurately forecast what will happen over the next two years before the Brexit departure is finalised.
Food and drink is the largest manufacturing sector in the UK. It accounts for 16% of total manufacturing by turnover (£83.7bn a year). The sector is also one of the highest employers, directly employing 400,000 people across 6,620 businesses.
3.9m jobs across the £108bn UK food chain are supported by the food and drink industry and every year, the British economy benefits from contributions of £21.5bn of gross value added (GVA). This makes the sector a formidable and influential player in the UK economy.
Unpleasant Taste from Brexit?
According to the survey of FDF members, about one in 12 (8.7%) businesses reported that their EU employees intend to leave the UK. It is estimated that around 130,000 of the industry’s 400,000 workforce are non-UK nationals (mainly eastern Europeans) with many employed to do seasonal work. Post-Brexit, one of the biggest worries is a decline in employees.
The solution may be to create more interest and more opportunities within the UK workforce. More apprenticeships are needed and recruitment should be more enticing to those who previously may not have considered a career in the food and drink sector.
The second fear is over trade barriers. Urgent action is required from the government to ensure that indispensable imports of ingredients and raw materials from the EU and EU Free Trade Agreement (FTA) countries are not subject to tariffs or costly non-tariff barriers.
Currently, a weaker pound is helping UK exports more competitive but this is dependent on tariff-free access to the single European market.
Hard or Soft Exit
“If the UK reverts back to something akin to WTO (World Trade Organisation) status, then tariffs – and in particular cascading tariffs – become a very relevant issue for the industry,” says Andersons’ senior agricultural consultant Michael Haverty. However, he goes on to say that it depends upon the government’s choice of a hard or soft Brexit route to exit the EU. “With the softer approach retaining access to the EU market and migrant labour, the impact on the food manufacturing sector and its agricultural suppliers could result in “not a huge amount of very real change”. The hard option involves trading without an EU deal and relying on WTO rules.
The final challenge is the availability of food ingredients. A hard Brexit could have significant implications for the volume of supply coming from UK agriculture. This may affect both food exports and imports leaving UK food and drink exports to the EU being subject to new tariffs, in line with the duties paid by non-EU countries, according to WTO rules.
Domestically, the buzzphrase for the past few years has been ‘local produce’. It may seem a simplistic solution but using local provenance will have an effect on the economy and the job market.
According to a government spokesman: “As a nation, we’ve sold over £10 billion worth of food and drink overseas in the first six months of this year, and exports are up almost 6% compared to 2015. We are building on that success and, through our Great British Food Unit, are working with industry to establish new trading relationships across the globe to help boost the sector.”
Brexit will undoubtedly provide further challenges and opportunities until it’s concluded. At AC Services Southern, we will periodically share objective views when they arise.