Oliver Hall, Managing Director at allmanhall, independently owned food procurement experts, looks at the potential impact of Brexit on the foodservice sector with advice on how to become as agile as possible in these uncertain times.
Whilst Brexit negotiations continue in earnest, it is difficult for those of us on the outside to see what progress has been made. So, what can we assume? Well, Michel Barnier has tweeted a photograph of himself at a London sports field in search for a level playing field… so we can assume that the EU red line on workers’ rights, environmental standards and state aid is still a big point of contention.
The UK’s Chief Negotiator, Lord Frost maintains that good progress has been made but wide divergences remain and that businesses must prepare for the change from 31 December. We can therefore surmise that the UK still is looking for solutions that respect national sovereignty, including fishing.
Both sides seek solutions to the same unresolved sticking points, whilst we wait to see if time constraints can assist in achieving joint concessions and consensus. It is worth noting that if an agreement is reached it is unlikely to be comprehensive, and thus negotiations will continue into the New Year, come what may. Is it plausible that some on the UK side may even consider if an advantage can be gained from negotiating from a position of no deal in the New Year.
Brexit key dates
The key date remains 31 December 2020. So far, both sides have posted and missed key dates, so it is best to assume that the situation is very fluid, and anything is possible up until the 31 December. We do know that an agreement needs to be ratified in the European Parliament beforehand, but it has been mentioned that this could even sit after Christmas if necessary.
Risks and impacts
Arguably, the agri-food sector is the most heavily impacted sector in the event of a no deal outcome with the EU. In trade terms, food and agricultural products are the most heavily impacted by tariff’s and would therefore experience the highest cost increases. Other factors also play a significant role, such as the strength of Sterling, border disruption, regulatory standards, and access to seasonal workers which is impacted by the end of freedom of movement for European workers from 01 January 2021. The farming industry employs 70,000 seasonal workers a year, mainly from Eastern Europe, and urgently needs to understand the rules from January, which have yet to be announced.
Lack of clarity impacts advanced crop production planning, which includes, land rentals, seed procurement and labour scheduling. G’s Growers, one of the largest growers in Europe are considering moving up to half of their UK spring onion and radish production to Senegal, and some celery production to Poland due to lack of clarity. To highlight the scale of the challenge, a National Farmers Union survey found that UK residents only made up 11% of the workforce this year, despite the widely advertised Pick for Britain scheme. It is worth noting that the 2020 seasonal workers pilot scheme that allowed up to 10,000 workers from outside the EU on temporary visas was highly effective.
All the remaining realistic outcomes of the current negotiations will lead to some food supply disruption and cost increase.
Even in the event of a deal, allmanhall is forecasting in the region of a 3-5% weighted basket price increase, through non-tariff costs. If there is a no-deal scenario, then we head onto WTO terms and this could result in an excess of an 8% increase, depending on the specific mix of food purchases.
The WTO tariffs on food are, on average, significantly higher than most other imported categories. For food, the tariffs average at 18%. With 30-35% of UK consumed food imported from the EU, it means that a circa 6% impact on the weighted cost of food is likely. There are some food types that are hugely impacted by tariffs. Irish beef (R4L) would increase by 85%. Cheddar by 47% and canned tomatoes by 14%. Unfortunately, the list goes on. A schedule of the published tariffs can be found here: https://www.check-future-uk-trade-tariffs.service.gov.uk/tariff
Key Cost Forecasts:
Deal = 3-5% food cost increase
No Deal = 8%+ food cost increase
However, the initial supply disruption is more challenging to forecast and therefore may be even more problematic in the short term.
The NAO (National Audit Office), the UK’s independent public spending watchdog identified the following areas, in its recent report published on 06 November 2020, regarding the Government’s work in preparing for the EU exit:
· The Goods Vehicle Movement System (GVMS) for facilitating transit across the UK is still in development
· It is unlikely that inland Border Inspection Posts for processing vehicles and loads will be completed in time
· Trader readiness for EU border controls is forecasted to be low (between 40% and 70%)
· There is no confirmation that government and third-party IT will be integrated, tested, and live for 01 January 2021
· Customs and freight handlers; experts who facilitate the movement of goods across borders have insufficient capacity
· The Governments tool to provide advice on export documentation for vehicles over 7.5t ‘check an HGV IS ready to cross the border’, is still incomplete
· HMRC estimate that it will need to process 270 million annual customs declarations, an increase from its current level of 55 million
· 7,000 is the UK government reasonable worst-case scenario for the maximum number of lorries that may need to queue at the short channel crossings
· 60% to 80% of normal flow of lorries at the short channel crossings forecasted for the weeks following the end of the transition period.
This serves as rather stark analysis. Being prepared for disruption is critical. With the random nature of border crossing disruption that may unfold, even the most prepared suppliers could be adversely impacted… it only takes the lorry in front to be held up.
So, what can you do to prepare?
Ensuring that your food and catering operations are as agile as possible is paramount. There are 4 key actions foodservice and catering operations should consider:
- Stock up – although a challenging time of year for many organisations, consider increasing your stockholding. Increasing stock levels of ambient and frozen products may alleviate any initial challenges on fresh produce from the EU. Using frozen veg and tinned fruit may need to be an option.
- UK Product – consider using a higher proportion of UK product, which should reduce the chance of border disruption. However, do be aware that constituent ingredients used in UK food manufacture may be impacted.
- Flexibility – try to be as flexible as possible around your offering. Wholesalers are more likely to increase stocks of own-label products. Prepare to order own-label instead of branded goods where availability issues occur. There may be a need to be flexible on the quality of fresh produce. Increase your order lead time. It is not recommended to order day 1 for delivery on day 2 for use on day 2. Operational flexibility is key. Supply disruption may cause increased product substitutions, so it is imperative that your Allergen Management processes and best practice and followed.
- Communicate – ensure that you are regularly talking to your suppliers and advising your consumers and wider stakeholders to ensure that supply challenges are understood.
In a period of so much uncertainty these are a few small steps that can be undertaken now to make the transition easier once we know more in 2021