Tag Archives: Brexit
If, like me, you struggle to get your head around the plot of Doctor Who, then you’ll have your work cut out understanding Brexit. It’s not entirely sure whether the politicians themselves fully comprehend the process but in an attempt to bring you up to date with the latest events, here’s a brief Brexit update.
What do we know so far? The EU began after the Second World War to foster economic co-operation. The reasoning was that countries that trade together are less likely to fight each other. It evolved into a single market where goods and people are able to move around as if the member states were one country.
The UK has voted to leave the European Union with a scheduled departure of 11pm on Friday 29 March, 2019. There are three key “divorce” issues:
- how much the UK owes the EU,
- what happens to the border in Northern Ireland and
- what happens to UK citizens living elsewhere in the EU and vice versa.
Agreement on these issues was reached on 8 December: the so-called Breakthrough Deal. There is also a plan to be finalised for a two-year transition period.
Should I Stay or Should I Go?
Prime Minister Theresa May was initially against Brexit, but now has no choice but to acquiesce to the British people. The day after the referendum, the pound slumped but it is now regaining its losses against the dollar, while remaining 15% down against the Euro. Indeed, the UK’s economy was estimated to have grown 1.8% in 2016, second only to Germany’s 1.9%.
The negotiating teams from both the UK and EU meet face-to-face for one week each month with the aim of getting the transition agreed in March, with a deal on permanent future relations hopefully agreed in the Autumn.
We hear a lot about Article 50. Basically this is merely a plan for any country that wishes to exit the EU. It stipulates that any member state deciding to withdraw must notify the European Council and negotiate its withdrawal with the EU, with two years to reach an agreement. It also states that the state wishing to leave cannot take part in EU internal discussions about its departure.
The Food Industry
According to a report issued last week, “Brexit risks increasing food prices, lowering safety and welfare standards, causing food shortages and worsening a public health crisis in the UK.”
A third of the food Britons eat currently comes from the EU. The UK already has a “catastrophic” £22.5bn trade deficit in food. The warning was issued to UK producers who will be under pressure to produce cheaper food after Brexit. The fear is that leaving the EU will lead to higher prices and a reduction in choice.
Named items that could increase significantly in price are beef, cheddar, tomatoes and broccoli but National Farmers Union director general, Terry Jones, called for a “well-regulated industry with short supply chains rather than adopting an ‘all-comers’ approach”. He believes this could act as a safeguard for standards and prevent food fraud.
The politicians have just over a year to smooth out the wrinkles in the deal. The same applies to British food manufacturers. They have the opportunity to take the bull by the horns and dictate the industry to their own high standards.
Finally, and for many people, most importantly, we will still be able to enter the Eurovision Song Contest. Participant countries need only to be a member of the European Broadcasting Union (which we are) which is independent of the EU.
Recent research has suggested that the sector’s workforce could begin to drop by 2021. Given that the industry employs almost 10% of the entire UK workforce and since the economic crisis has grown its contribution to the economy faster than any other sector, it is a valid concern.
Currently, hospitality is the sixth largest contributor to export earnings and fourth largest employer, accounting for 4.49 million people or 10% of the workforce and over 180,000 businesses.
EU Workers and a Booming Market
The sector’s economic contribution could now decrease due to cost pressures from wages and business rates together with the labour squeeze. Figures show that around 65,000 hospitality staff come from EU workers. If this workforce is unavailable then labour productivity will cease to improve and will remain at 2016 levels. The report suggests a “1% fall in the number of people directly employed in the sector compared to 2016 to 3.17m, with the economic contribution the sector makes also starting to fall from its current level of £73bn.”
It’s not all bad news: the hotel industry has been booming . London is predicted to be at 80% occupancy by the end of the year, with average room prices reaching £142 and 8,000 new rooms in the pipeline. ‘Staycationers’ are being credited with a rise in regional travel, with more domestic visitors travelling around the UK.
To fill the potential labour force gap, plans are already in place. According to Ufi Ibrahim, Chief Executive of the British Hospitality Association, “over 700,000 Europeans work in hospitality and tourism and although we are determined to rely less on EU service workers over the coming years it will take time. The industry would need to recruit an additional 65,000 UK workers each year in addition to the ongoing recruitment of 200,000 workers to replace churn and to power growth.”
Filling the Void
The BHA is calling for a detailed study by the Migration Advisory Committee on behalf of the government on the number of visas. This should cover “all strategically important sectors including hospitality and tourism, the fourth largest industry in the UK. Britain needs services workers as well as scientists and engineers.”
However, the Office for National Statistics reported an increase of 13.6% since last year in the number of 16-24 year-olds not in education, employment or training (NEET). This, according to the BHA is a labour force! And it’s not the only sector of society that has potential. “[Our] strategy focuses on three main sections of the populations – the unemployed, returners to the labour market such as older people, and the next generation. So far our industry has delivered 67,000 apprenticeships, work experiences, and career opportunities through the BHA’s Big Hospitality Conversation for Britain’s young people,” continues Ufi Ibrahim.
The hotel and hospitality industry offers a massive opportunity for those who are unemployed, looking to enter the workplace or who want a career change, from front of house to backroom staff to kitchen operatives. Calls for government to enhance and promote those opportunities are welcomed by all to ensure we have the hospitality staff we need.
While for the food industry, there is grave concern over the final negotiations and the impact on this sector of industry.
Food and drink is the UK’s largest manufacturing sector. It contributes over £28bn a year to the economy. As a nation, we produce just over half of what we eat and we depend on European imports for 25% of our consumption. These are uncomfortable figures for the government when trying to negotiate a fair deal for everyone.
Under the terms of Article 50, a divorce deal has to be reached by the end of March 2019. There is no deadline for a longer-term trade and partnership deal so there are indications that the latter will be thrashed out endlessly.
One of the most important issues for the food industry is that of harmonisation. There are over 4,500 EU regulations regarding farming, food and environmental standards that the Department of Environment, Food and Rural Affairs (Defra) have to deal with.
UK exports currently depend on this sort of harmonisation of rules. These range from the size of tins to the amount of sugar in a jam. The latter was introduced to respond to market trends for less sugary food. It was initiated to bring the UK in line with Europe so it could develop export markets in Europe.
Another major cause for concern is migrant workers. Currently, farmers, food processors and food manufacturers employ 500,000 foreign workers. The government has already made clear its commitment to curb immigration but the food industry recognises that the end of the freedom of movement created by Brexit will lead to the requirement for UK permits and visas. If workers cannot afford these permits, the traditional seasonal workforce is under threat.
Defra, Agriculture and Food Legislation
And then we come to the role of Mr Gove, the new secretary of state at Defra. One of his first tasks is drafting the agriculture bill promised in last week’s Queen’s speech. This bill will take the UK out of the common agricultural policy, which the UK has been part of for the last 40 years.
The bill gives £3 billion subsidies to farmers to keep them sustainable and competitive to compete in globalised commodity markets. However, the problem is the replacement policy as 40% of all European legislation relates to food and agriculture and 80% of all UK food legislation has been negotiated in the EU. Mr Gove has promised better trade deals and cheaper food when Brexit occurs. Only time will tell.
Finally, there is the issue of the European Union’s single market. This is different from the EU. This is what Norway, Iceland and Liechtenstein belong to. As well as eliminating tariffs, quotas or taxes on trade, it includes the free movement of goods, services, capital and people. It also aims to remove “non-tariff barriers” which include differing rules on packaging, safety and standards.
Whatever happens, there are unchartered waters ahead. The food industry and the catering businesses closely allied to it must be prepared for any changes. So look out for our next Brexit update.
Here’s a little known fact. The great British pub actually started life as an Italian wine bar dating back almost 2,000 years! The invading Roman army in 43 AD brought us Roman pubs known as tabernae. Initially selling wine, these tabernae were built alongside Roman roads and in towns to help quench the thirst of the legionary troops.
Local people however, started to stock tabernae with ale, the native British brew and tabernae quickly became taverns. And taverns became inns, inns became public houses and the pub was born.
Today the British pub sector is huge with over 80% of pubs (nearly 50,000 outlets) independent small businesses. According to a recent report, the industry employs almost 900,000 people. While the number of jobs has increased by 29,000 from the previous year. Investment in the industry is 40% higher. Up from £1.2 billion in 2015 to £2 billion in 2016. Brewing alone sustains over 100,000 jobs.
Conditions have improved slightly over the past five years. This is driven by a stronger consumer backdrop and one-off sporting events which have accelerated sales. However, high operating costs and legislative barriers are constantly holding many operators back. Industry value added, which measures the industry’s contribution to the overall economy, is anticipated to grow at a compound annual rate of just 0.7% over the 10 years through 2021-22. The pub industry is determined to increase these figures.
Unless it has escaped everyone’s notice there is an election coming up. The British Beer & Pub Association (BBPA) has therefore decided to publish its own manifesto for the brewing and pub industry. The manifesto outlines its priorities for the beer and pub sector to thrive over the next five years.
The BBPA calls for urgent yet sensible measures to ensure the future of the pub industry, which has been battling for a number of years. To tackle high rates of UK beer taxation, there should be a freeze in beer duty over the course of the next Parliament.
In the wake of Brexit, the manifesto calls for a free trade deal with the EU without additional paperwork! It has been reported that the beer and pub industry forks out £12.6b in tax each year. While Britons pay 40% of all EU beer duties, we drink just 12% of the beer.
A key proposal is more investment in training and skills, and access to those with the right skills including an immigration system that supports the necessary staffing levels for the sector. BBPA Chief Executive Brigid Simmonds comments:
“Our manifesto sets out the key priorities for our sector for the general election. As a vital industry employing around 900,000 people, we will be using it to engage with serving politicians and candidates throughout the campaign.”
British pubs are surviving despite the odds and have diversified into other areas, notably the serving of food. If you are a pub owner or manager with a kitchen that is constantly in use and looking to upgrade to a more reliable oven, consider a Rational oven. Then contact us to install and maintain it cost efficiently.
Nobody enjoys bad weather. We have experienced storms, snow and gales over the past month and for the majority of people, spring cannot come soon enough. However, spare a thought for the farmers and importers of fruit and vegetables not only in the UK but all over the world.
According to a recent report from the BBC, bad weather including flooding, poor light levels and cold has created a ‘perfect storm’ of poor growing conditions.
Heavy rainfall in Spain’s south-eastern Murcia region has led to intense flooding. Italy has experienced extreme cold weather. The combined result is a number of field crops such as peppers, aubergines, lettuce, courgette and broccoli failing!
Putting this into context, Murcia is estimated to supply about 80% of Europe’s fresh produce during the winter months. With the heaviest rainfall in 30 years, this now threatens its production ability. Hence supermarket shortages of lettuce and courgettes.
“The situation has got so bad that some fruit and vegetables suppliers have taken to importing lettuces from the US, a development that up until now has been pretty much unheard of,” said Nationwide Produce food marketing company managing director, Mr O’Malley. He continues saying that both the price and availability of vegetable crops is likely to be affected, with poor planting conditions meaning that some crops planted before Christmas for harvest in 2017 are also likely to suffer.
According to the report, “the yield of courgettes, aubergines, tomatoes, broccoli and peppers from Spain are down by about 25%, while prices had risen between 25% and 40%”.
This is particularly worrying for Britain which imports 50% of its vegetables and 90% of its fruit. In 2015, the UK exported £18 billion worth of food and drink, which is dwarfed by the £38.5 billion it spent on importing food and drink.
So what can the UK do in terms of damage limitation? We have already realised that prices have risen after Brexit: whether temporarily or permanently is yet to be determined.
Tony Howard works for a large independent fruit and vegetable wholesaler and cites tomatoes from the Netherlands as an example. “Before Brexit the average price of a box of tomatoes was around £4 and now it is around £6,” he says.”We try to work for a gross profit of around 10%. Secondary wholesalers and catering people have to work for a larger margin because they don’t do the volume that we do. So by the time it gets to somebody’s plate that box of tomatoes could cost £10.”
Do we invest in technology, such as in Japan, where the world’s first entirely automated lettuce farm is due for launch next year? We already have driverless tractors following pre-programmed routes and drones over fields assessing crop health and soil conditions. The Hands Free Hectare project in Shropshire is attempting to farm a field without a human setting foot in it at all.
Or do we capitalise on the shortcomings and adapt the cost and the choice of menus to reflect more seasonal, more local produce? Can local market gardens re-emerge with greater crop offerings?
It appears that to divert a crisis, UK food growers need to come together to devise a solution. The market is already changing regardless of the weather so this must be seized upon as an opportunity to change methods.
A Sliver of Sunshine?
Not all is doom and gloom however. The British Retail Consortium (BRC) states that 75% of fresh food sold in UK stores is raised or grown in the UK. UK supermarkets also sell 75% of the organic food bought in the UK, compared with the 1.7% sold in farmers’ markets.
For organic food, 88% of the carrots, 67% beef, 93% lamb, 100% milk and 100% of eggs are produced in the UK. It could be the same with fruit and vegetables if the food chain works together for the longer term.
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.