Most of us are accustomed to hearing about Brexit these days; rhetoric from the press and the politicians banding about a variety of terms and jargon. But if we’re honest, other than the occasional rant on social media, or across the dinner table regarding whether or not one was a ‘Remainer’ or a ‘Leaver’, most of us are probably going about our business, not really understanding the implications for us or the country and not really knowing much at all beyond 1) the negotiations don’t seem to be going very well and 2) we leave the EU in March 2019.
How do you want your Brexit cooked? Hard or Soft?
It became fairly clear early in the volatile period post-referendum, that a ‘soft Brexit’ was believed to be a position that would placate the Remainers (once they accepted that the decision was final and not to be overturned). But it was also clear that the terms were most likely going to hold the UK subject to most of the existing EU agreements and regulations, without having power to actually contribute to or change the decisions around those agreements and regulations. So, we would be in a political no-man’s land or the worst of both worlds.
A ‘hard Brexit’ will turn its back on all of this and make its own rules and trade treaties with the rest of the world, and independent countries in the EU.
But what of a no-deal Brexit?
Brexiters are still seemingly of the opinion that the UK can make deals with individual countries within the EU. After we have left, and in the event of a ‘no deal exit’, the existing trade deals in the EU will continue to apply to the UK until more long-standing deals can be struck that can keep all parties happy. But if we fail to negotiate a deal with the EU then at 11pm 29th March 2019 all existing umbrella agreements between EU and non-EU countries will cease to apply to the UK.
It has been made clear that existing trade deals will not simply roll over to the U.K, and the much-vaunted World Trade Organisation (WTO) fall-back position won’t apply to us either.
What can the UK do to mitigate this?
Unfortunately, we are unable to start any negotiations before that date because we are bound by the ruling that states that only the EU can strike trade deals.
And just as the UK are unable to set up trade deals with countries such as the USA or Canada, after we leave we will NOT be able to negotiate with any individual EU countries either, because they too are not allowed to make trade deals: only the EU as a unit can negotiate.
So, we must make deals with the EU as a whole, and ideally before we leave, or there will be uncertainty about what rules and tariffs will apply to which exports and imports. Whilst this will not stop the flow of trade, it will certainly slow it down considerably.
Delays at the Ports
Recent research completed by Bis Henderson Consulting looked into the likely impact of Brexit on the Grocery Supply Chain, and it seems that the outlook is looking far from rosy.
In 2012, long before Brexit was on the cards, DEFRA (Department for Environment Food & Rural Affairs) commissioned a study into the resilience of the food supply to port disruption, specifically the import corridor of Dover and the Channel Tunnel.
The report found that the UK food industry will suffer drastically if we did not make our supply chains more robust. In recent times, this was demonstrated by the shortage of carbon dioxide in June 2018, which had Booker rationing their supplies, and production at coca cola was interrupted. Meanwhile animal welfare was negatively affected, and concerns were raised about meat shortages due to the use of CO2 in food preservation. It probably didn’t even register on the radar of much of the UK public, but this interruption affected the UK food industry at several different levels, and fired a warning shot over the bows of what might come to pass in the months following Brexit.
Where currently almost no checks are carried out on products coming from the EU into and out of the UK, after the trade agreement ends in March; checks for the purposes of tariffs, duty and food safety will certainly have to be carried out on every single load leaving and entering the UK. Indeed, according to this article from The Guardian, the necessary checks on produce, plants and animals, (phytosanitary checks) will be highly disruptive because there is no provision for such checks in the ports of Dover or Felixstowe. As the majority of fresh food supplies enter or exit the country through these ports, we can only expect widespread backlogs and traffic at these locations.
They need us…Really, they do.
‘Europe needs us more than we need them…’ has become a familiar refrain from the ‘leave’ contingent, but reports suggest this isn’t entirely true. Full Fact, the UK’s independent fact checking charity, have stated that around 43% of our exports in goods and services go to the EU, whereas 8% or 18% -depending on whether you include trade between other EU countries and themselves or not-of the EU export market comes to us. So arguably these figures show we need them more than they need us.
We know that UK sales to the Rest of the World are slowly on the increase, so our need for support from the EU is on the decline, but not enough to consider ourselves self-reliant. And what about our imports? This 8-18% of their export market translates to 54% of our total imports again, further highlighting a reliance on our part.
A more recent government paper tells us that 50% of the food we use is UK sourced; 30% is EU sourced, and the RoW make up the other 20%. Of that 20%, 16% is subdivided into 4% for each of the continents Africa, North America, South America and Asia. Given that Africa has 54 countries and Asia 48 countries, that’s a lot of individual trade negotiations for not lot of gain.
Our key supermarket chains have all had their markets eroded in recent years by cut price chains Lidl and Aldi (both German Companies). Tesco, Sainsburys, Asda and Morrisons have been trying to hold ground on turnover and maintain a decent margin, whilst offering a vast range of goods in increasingly challenging circumstances. Through the rise in fuel prices, labour shortages and economic austerity, the ‘big four’ supermarket chains have seemingly held their own for the time being. More recently Tesco has announced a strategic alliance with French brand Carrefour, whilst launching new supermarket chain ‘Jack’s’ to directly compete with Lidl and Aldi. Alongside this, the proposed Sainsburys and Asda merger is still undergoing investigation by the competition and markets authority and we are eagerly awaiting their findings.
Could these actions be a way of planning for Brexit? Possibly – although, the Tesco CEO says that Jack’s has been more than three years in the making and is “absolutely nothing to do with Brexit.” No doubt it was a strategic decision to claw back market share in the first place, but the product sourcing and packaging is focussed on being known as British with the claim “eight out of ten products at Jack’s will be made, grown or reared in Britain”.
This is surely a clever marketing move in a time when British independence is all over the news, and it is a stroke of genius to reduce as much reliance as possible on imported product, given the effect that the inevitable delays at ports will have on short life products.
Peter Ward, CEO, United Kingdom Warehousing Association has raised several interesting points when he stated: “Irrespective of the final form of Brexit – ‘no deal’, ‘hard’ Brexit or ‘soft’ Brexit – we expect an interruption in food supply chains. Market forces will mitigate the risk of delays by holding more stock closer to consumers in the UK, which may be good news for the warehousing industry in the long term, but from March 2019 there is simply not sufficient capacity nor the infrastructure to cope.”
Planning for Brexit should be nothing to be ashamed of, or indeed denied. The forward-thinking companies who are putting in place measures to combat the post-Brexit uncertainty on trade flow will almost certainly be leading the markets come March-April 2019.
If you and your business need advice on how to prepare for Brexit, please call our team of consultants today.
Want to receive the latest news, insights and research papers from Bis Henderson Group?