A recipe for growth: House of Commons select committee issues recommendations for preserving the UK processed food and drink sector
On 22 April 2018, the Business, Energy and Industrial Strategy Committee (BEISC) published a report detailing recommended measures to mitigate the impact of Brexit on the processed food and drink sector (the “Report”).
The Report addressed a range of topics including: regulatory alignment with the EU; import dependency; mechanisms to boost UK exports; driving innovation; and the reliance on access to EU nationals to satisfy increasing workforce demands. Following input from a range of stakeholders, the Report details a number of recommendations based on these general themes. However, a recurring tone of the Report is the emphasis placed on the urgency of securing free trade deals and concludes by urging the UK Government to deliver ‘certainty and clarity’ to enable the food sector to adapt to the terms of a post Brexit future relationship with the EU.
No deal: “unviable and unacceptable”
UK food and drink exports reached £20bn for the first time in 2016. At face value, this is an impressive statistic. However, the global share of the export market held by the UK is considerably behind France and Germany. Further, the UK is heavily dependent upon the EU as an export destination and it is estimated that approximately 60% of UK exports are shipped to the EU. This is an important issue because a ‘no deal’ scenario would see the UK reverting to WTO ‘Most Favoured Nation’ tariffs, which are significantly higher compared to other products. For instance, tariffs on dairy products can peak at 96% and 127% for sugar and confectionary. According to the BEISC, reverting to the WTO tariffs would have a seismic and detrimental impact on the competiveness of UK exports and would also directly impact the choice and availability of products.
The Report acknowledges that the food and drink sector is a rapidly evolving growth industry that has benefitted from 93% export growth in the ten-year period from 2007 to 2017 with annual growth rates of 7%. It also represents the largest manufacturing sector generating £28.8 billion annually to the UK economy. In citing these statistics, the Report identifies the real dangers presented by a ‘no-deal’ scenario and urges the Government to prioritise free trade deals to facilitate the continued growth of this sector.
Industry feedback has warned of the commercial risks that would materialise if import tariffs were introduced. The Report acknowledges this feedback and notes that the UK is heavily reliant on EU member states for sourcing raw materials with up to 30% of UK food imports coming from the EU. In addition, the UK only produces 61% of its food usage and operates at a trade deficit of £24 billion. For this reason, the potential threat of imposing import tariffs presents a major commercial risk to food business operators. However, there is a delicate balance to tread here because abolishing import tariffs could serve to undermine the competitiveness of products manufactured in the UK. Based on feedback from the National Farmers Union, de-regulating import tariffs in a no-deal scenario could severely damage British farming as it would permit cheaper imports into the UK whilst British exports would be subject to higher tariffs abroad. On this issue, the Report adopts a measured tone and cautions the Government to “carefully balance the impact that non-EU imports could have on the competitiveness of UK businesses and the cost of timely deliveries with the merits of continuing to rely primarily on EU imports.”
The Report considers the current uncertainty regarding the border between Ireland and Northern Ireland as being of major concern given that the food and drink sector is highly integrated across the two countries. The Report takes into account the feedback from key stakeholders whose business operations would be severely impacted by non-tariff barriers such as delays at border controls. For example, Diageo have estimated that a 15-minute wait for each truck at the border between the UK and Ireland would cost £1.3 million per year. The BEISC has accepted stakeholder feedback on these issues and calls upon the UK Government to end the uncertainty on customs arrangements and to support UK businesses by developing proposals that clarify this issue.
The food and drink industry is governed by a myriad of EU law and is one the most heavily regulated sectors. A broad range of subject areas such as: food hygiene; food labelling; and nutrition and health claims are covered by EU regulations which have direct effect and confer greater harmonisation. However, there is a major concern that Brexit could lead to a system of dual regulation or regulatory divergence between the EU and UK, which would create a significant compliance burden for food manufacturers. The BEISC accepts the need to ensure continued regulatory alignment with EU standards after the Brexit transition period and concludes that EU law is widely appreciated as a positive force within the processed food and drink sector.
According to the Food and Drink Federation, EU workers make up 32.5% of the workforce in the food and drink sector. However, the industry is already facing a workforce shortage caused by an aging workforce and this issue could be compounded by restrictions to the free movement of persons once the Brexit transition period ends. The Report calls upon the Government to ensure that the sector can satisfy the multi-faceted workforce demands.
The Report takes into consideration the detailed representations from a range of industry stakeholders and reinforces the important economic contribution made by this sector to the economy in terms of employment opportunities as well as the direct commercial benefits through exports. It is hoped that the recommendations contained therein will assist the Government in delivering much needed certainty and clarity to ensure the ongoing success of this vibrant sector.