The end of the transitional period is coming to an end, and the effects of Brexit are almost upon the food industry. Leaving the EU has significant disruptive potential with labour shortages and an increased cost in ingredient sourcing likely to have an impact on the UK food supply chain.
The food sector is unprepared for even a soft Brexit. Food industry experts continue to show concern as a soft Brexit still looks uncertain, with negotiation continuing due to a lack of compromise from either side.
If a hard Brexit occurs, Britain will be considered a third country, which will mean severe trade barriers for the food industry as current trade deals expire in January 2021.
At present, British food exports to the EU make up more than 70% of our total food exports, totalling £18bn per year. This equates to 3.2bn litres of products shipped out to the EU each year.
UK farmers currently receive 3.1bn Euro in payments from the EU CAP scheme and have access to a further 5.2bn Euro pot of funding for rural development schemes. These two payments account for 55% of our farmer’s income.
Short term impact
The short term impact of Brexit on the food industry will result in food prices going up. If a soft Brexit and a trade deal do not come to fruition, then export fees will change to World Trade Organisation rates. A few of the most significant of these include cheddar cheese with a 57% rate and butter with a 48% rate. The Brexit impact on fees to the food industry is expected to result in £500m extra costs.
A second short term impact will be felt because of the lower value of the pound. This will raise the cost of raw materials. Unfortunately, switching to local supplies will not change the course of heading towards higher purchasing prices. Over the next 12 months, the rise in raw materials’ costs will be passed on to the consumer, and unprofitable items might disappear from supermarket shelves.
Consumer confidence is another short term concern of Brexit. However, the food industry might be somewhat reassured with past trends showing that spending during downturns will remain broadly the same. Shopping habits may change, and food manufacturers that can innovate may benefit from Brexit.
Long term impact
A Brexit impact that may be felt by the food industry over the long term is how food producers access labour under new constrictions of freedom of movement. This will affect the stability of factories.
Currently, one-third of food manufacturing workers and 98% of seasonal workers are from the EU. Relying on British workers would impact wage bills and ultimately result in food price inflation.
Pre-Brexit, the food industry, has a non-UK national workforce of 130,000 people. 25% of this workforce is expected to be lost in a market that already has a person skills gap of 100,000. The pound’s falling value causes the gap, and so far, 84% of workers from Romania and Bulgaria have left the UK and now work elsewhere.
There are many unknowns, including how the government will support the food industry as subsidies are lost, regulations change, and foreign investment declines. There has been growth in selling produce to non-EU countries, which is growing at twice previous rates. However, extreme weather conditions continue to impact yields and contribute to a rise in bread and cereal price. As prices rise, healthy food may be considered too expensive, which might affect the nation’s health.