What does Brexit mean for the fresh produce industry?
At the time of writing… the outcome of Brexit is still unsure. The UK Government is in chaos, and we could be facing an election, a second referendum, a hard Brexit, a negotiated deal or a ‘No Deal’. “The EU leaders think a ‘no deal’ Brexit is an increasingly likely prospect,” said Emmanuel Macron in a press statement.
Short of a 2nd referendum and staying in Europe (which would undoubtedly be the outcome of a 2nd referendum!) the fresh produce sector is facing changes and challenges, and the purpose of this article is to examine what these might be.
So what is the current trade position? “At present the EU exports €45bn of ‘agrifood’ products to the UK, and the UK exports €15bn. So the EU is a net exporter in agrifood” confirmed Phillipe Binard of the EU commission “so, there’s a lot of interest in keeping trading conditions as good as they can be with the UK".
Customs Union? Free Trade Agreements?
If the UK does reach an agreement with the EU, what kind of agreement might it be?
A Customs Union is one option, but it will preclude ‘free trade agreements’ with other countries, and if we go with a ‘free trade agreement’, there is the complication of Northern Ireland to iron out.
You could have relaxation, but the border will still exist. Even in a customs union, there is still a need for regulatory checks. In any case it doesn’t solve the issue of a hard border.
The EU is saying “The main problem for the UK will be logistics and extra costs, because tariffs will certainly apply with an additional potential implication due to the change in value of the pound.'' With that said, the UK Government are talking of waiving tariffs ‘in the short term’, so that might be less of an immediate problem.
The UK was taking around 10 per cent of intra-EU trade movement and will probably maintain the same demand for produce. However, for UK customers problems might occur if there is a shortage, as producers and shippers would then favour trading within the single market rather than exporting to a third country. The UK could be positively discriminated against.
Sant Mehta Chairman of fresh produce distributor Minor Weir and Willis comments “Tariffs will only be an issue for a few products (beans and bananas). Customers will simply have to pay more. On exports, we will go to the EU’s tariff rates and this will have an impact on pricing”.
EU commentators speculate that once out of the EU, the UK will have to re-negotiate any, and all special deals. Tariffs, where they apply, will be in the range 10-20%.
Borders are another potential challenge implicated by a ‘no deal’ Brexit. The UK hasn’t had to operate with borders for many years, and this is going to demand more paperwork, accurate paperwork, and the possibility of delays in a time-sensitive supply chain.
What paperwork? Well we really don’t know how complex these processes will be – is it just a certificate of origin, does it need to include phytosanitary documents or other safety documents – and what will the UK require?
Phillipe Binard of the EU explained it this way “Imagine a truck coming from Spain where you have five suppliers with ten different products and five customers in the UK; if you have to start producing paperwork truck by truck, it will be a nightmare. You need to actually produce the paperwork and make sure the documents are issued and verified. This will be a major problem for EU shipments, in particular with countries with bigger volumes like Spain, which represents 50 per cent of the volume exported. It will be a problem in the Netherlands as well, the second main EU supplier to the UK. Besides, most of those supplying the UK do not have that competence”.
Jimmy Russo of Valley Grown Salads, added to the commentary “Out of season we import nearly all our product from Spain. Any hold up at the borders would be a disaster, we are talking salad stuffs, these products ‘go over’ quickly, any delay and the shipment could be ruined”.
Others comment, “The big issue is admin- everything will have to be cleared into the UK, so paperwork at source. We have this for non-EU countries, but our Dutch operation will need to prepare some 10000- 30000 customs docs! Getting product through the ports will be a big issue. We have some assurances that checks in UK will be light touch; but on the continent it will be harder as Holland already demands 100% checks by the authorities”.
The need for good computer-based administration systems will be paramount!
Others believe that one resulting outcome could be a reduction in the availability of hauliers. “Much of the haulage in the UK is now undertaken by European hauliers who rely on bringing a full load into the UK and returning with a full load” commented Jonathan Tole, Director of Allium Alliance, “and that simply won’t be the case in future. There will be the complexity of borders, and likely less product exported to the EU, so the availability of return loads is diminished. Why would a haulier bother coming to the UK when they can choose other borderless EU countries?“
Indeed last winter (2018/19), there was a shortage of vegetables due to frosts across the whole of southern Europe, and most producers decided to remain in the eurozone instead of supplying the UK market due to the weaker pound.
The impact of Brexit has already hit the UK fresh produce sector, with widespread shortages of temporary workers.
“We used to have c35 people enquiring about work every month, since the referendum, that has dropped to c5.” says Jimmy Russo. “We employ around 160 full-time workers of whom 2 are British. I am having to invent work to keep them on over the winter, so as I can be sure I have a workforce for the next season. They now have the upper hand. They are in demand, so they will move for an extra 20p an hour. We need answers to BREXIT and quickly as we will be in full production soon and without good labour we will all fail in the growing sector. ”
William Burgess, Chairman of Burgess Farms (formerly Produce World) has a clear strategy to reduce his dependence “Our aim is simple; we are seeking to halve the number of temporary workers we employ, and we aim to do that by investing in more technology.”
Winners and losers?
For some, the issues are less critical.
Aubrey Day of Lincolnshire Field Produce commented “We export little on a regular basis. We used to import more than we do now, but the retailers started going direct and we found we were just providing packing/repacking services… so in truth imports are less now. As regards to labour, we have product that requires ‘work’ 52 weeks a year, so the majority of our workforce are more permanent than many other fresh produce companies. 75% of the workers stay for 12 months or more. But we are making some preparations; we have taken out an EORI number so that we can move goods into and out of the EU – and hopefully produce will get waived across borders!”
Others will potentially be in a better place in the new world.
“In the case of a hard Brexit, the position of stockists will be strengthened. Direct deals for multiples will be more difficult as will direct deals for markets. Smaller businesses will find it harder to compete, so consolidation will increase and business will migrate to larger players who will all go through some pain to start with as they start to hold more stocks, move prices up and sort out admin systems.” commented a major fresh distribution company CEO.