How would a no-deal Brexit impact the fresh produce industry?

 

So the Brexit saga rolls on.

It’s been almost three-and-a-half years since the UK voted to leave the EU. In that period we’ve seen changes of prime-minister, deadline extensions, deals struck, deals rejected, Supreme Court challenges and two General Elections. After the deadline for October 31st was missed and extended to January 31st, who would bet against a third extension?

Meanwhile, the uncertainty is costing the fresh produce industry as companies scramble to ready themselves for a post-Brexit future. It’s impossible for companies to predict how the goings-on in Westminster and Brussels will affect their profitability.

The Conservatives’ victory in December’s election has provided clarity. Brexit in one form or another is now a certainty, while the deal Boris Johnson struck with the EU in October looks set to be passed by Parliament. Despite this, a no-deal exit is still a possibility, with the complexities of a free-trade arrangement yet to be negotiated.

Tariffs

In September, The Times reported Sainsbury’s had contacted their suppliers informing them of their responsibility to pay any tariffs applied to goods entering the UK if a no-deal Brexit materialises. The news will have further worried the fresh produce industry. It is the norm for suppliers to bear the brunt of import tariffs, but the message nonetheless acted as a pointed reminder of the impact no-deal would have on profit margins.

Sainsbury’s passed this information onto their suppliers a month before the UK was set to leave, on October 31st. However, despite a deadline extension, the prospect still stands. The expectation is that the UK would revert to World Trade Organisation (WTO) rules on day one of a no-deal Brexit. This means while many products would see no or limited tariffs, others would be hit with considerable new duties. This is because, without a deal, the UK would be bound to apply the same tariffs to the EU as to every other country or trading bloc in the world.

To confuse matters further, the last deal agreed by the UK government and the EU would leave Northern Ireland inside the customs union. This would result in no changes to the tariff arrangements with the EU for Northern Irish companies but could have implications for trading with the British mainland.

In the future, fresh produce businesses could reap some rewards of a no-deal Brexit. It would certainly benefit some companies, depending on their operations and goals, to open up their trading options with the rest of the world. In the near future, though, it’s more likely the new tariff arrangements caused by no-deal would lead to difficulties and loss of profit.

Having said this, most fruits and vegetables would be tariff-less even under WTO rules. Products like bananas and fresh beans would be the exception but animal products would have more widespread tariffs. The Times reported that “tariffs could rise to 46 per cent on cheese and 40 per cent on beef” in the event of no-deal. European suppliers would obviously continue to export these items to the UK but their profitability on them would suffer. What’s more, in the event of shortages, they could prioritise trading within the EU - leaving UK consumers at risk.

UK suppliers would suffer as they’d have to pay more for some of their imports - for instance fertilisers which could see a duty of 6.5%. Meanwhile, EU retailers could reduce the amount of produce they import from UK suppliers due to the tariffs they would have to pay. No-deal would likely mean the British fresh produce sector experiences somewhat of a squeeze at both ends. However, it wouldn't lead to as many tariff hikes as some other industries would see.

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Borders

One of the biggest questions surrounding Brexit is how it will affect the movement of goods at the UK’s borders. Currently the UK are bound by single market rules regarding the freedom of movement of goods (as well as capital and people), but Brexit will end this. No-one is sure what the border situation will be once the UK has left, but additional red tape, delays and congestion are possibilities. A no-deal Brexit would make these outcomes even more likely.

Checks on goods entering the UK from the EU would be costly for fresh produce because of the importance of rapid delivery. Even if fresh food was not subject to checks, the hold-up created by inspection of other goods at Calais could reduce the shelf life of these products. Speaking in September, the director of food and sustainability at the British Retail Consortium, Andrew Opie, said: “[A no-deal Brexit] will affect fresh food in various ways, availability, shelf life and potentially cost.”

This would harm the ability of fresh produce companies on both sides of the channel to trade across it. Additionally, many suppliers in the UK rely on importing certain items, especially during the winter months. Because of this, border delays would mean disruption to domestic operations as well as international.

At the root of much of the fear about delays is an expectation of additional paperwork. The UK has traded freely with Europe for decades and as such lacks the infrastructure to process red tape quickly at its borders. The level of documentation that will be required for goods entering and exiting the UK should there be a no-deal Brexit is currently unknown.

Many companies will turn to technology to find solutions. ERP software will become even more useful for fresh food suppliers after Brexit due to increased regulation of UK-EU trading. Extra checks and paperwork, and a divergence of standards, will make compliance more challenging. It will therefore be more important than ever for businesses to take a joined-up approach.

As well as the UK’s border with mainland Europe, the border on the island of Ireland has also been the subject of much debate. The current deal on the table wouldn’t lead to border checks between Northern Ireland and the Republic of Ireland. This is because it keeps the North in the customs union.

This is good news for companies trading across the border. However, it has been argued the arrangement creates a new de-facto border between Northern Ireland and Great Britain. The government’s own analysis estimates administrative fees of between £15 and £56 per declaration could be charged on products travelling from Great Britain to Northern Ireland.

Labour

Freedom of movement of people is one of the cornerstones of the EU project. Contrary to what some may believe, this will not finish the second the UK leaves but there could still be big changes to immigration.

These will be determined by legal wrangling which will continue long after Brexit, but future policy will depend on who is in government. The Conservatives are keen to reduce overall immigration and will use their sizeable new majority to err towards an Australian-style points system based on admitting more skilled workers.

As for how immigration policy after a no-deal Brexit could affect fresh produce companies, there is again uncertainty. The industry relies on a workforce of seasonal labour, mainly for the tasks of crop picking and packing, as it cannot employ enough UK natives to fill these roles. All EU nationals currently living in the UK will probably have the right to remain. But this doesn’t particularly help industries like fresh produce that need people who only work in the UK seasonally.

We may already be seeing the effects of this before Brexit has even happened. The Guardian report that in September farmers had to contend with at least 30% fewer workers picking crops. The reason for this is likely to be uncertainty on the part of the overseas seasonal workforce over their immigration status in light of Brexit. If the UK takes a harder line to lower-skilled immigration from the EU post-Brexit, this would undoubtedly further hurt the industry’s capacity to harvest.

Other factors such as the ending of the Seasonal Agricultural Workers Scheme and competition from abroad are also affecting the number of people fresh produce businesses can attract from abroad. But it is the chance of a no-deal Brexit that poses the biggest threat to their capability to recruit the workers they need. Automation is possible for picking and packing crops but is still in its infancy; the industry needs to be ready to find solutions quickly.

What has the General Election told us?

A combination of growing EU impatience, the exhaustion of negotiating options and the result of the recent election means a resolution to Brexit could be close - perhaps in the early months of 2020. The terms of the departure remain unclear, though.

The 80-seat Conservative majority means Boris Johnson’s withdrawal deal will surely finally be passed, but the terms of the UK’s future trading relationship with the EU will likely take over a year to agree. Johnson has also indicated that he would be willing to see us leave without such a deal if negotiations stall.

The withdrawal agreement will see Great Britain leave the customs union, allowing them to negotiate their own trade deals with non-EU countries. This will allow fresh produce companies to trade more freely outside the EU but lead to problems with their current European operations. However, Northern Ireland will remain in the customs union under this deal and the potential fallout from this is unclear.

Most fresh produce businesses will want to see the government avoid leaving without a deal. The problems that are likely to be brought about by no-deal represent the worst case scenario for the industry. Keeping the UK in the customs union or even a complete U-turn to remain would have been welcomed by many businesses; this is now off the table but the fresh produce industry has a slightly clearer picture of the future. However, the way businesses will be able to trade with the rest of the world after Brexit won’t be known for some time.

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