September 23, 2020

Brexit – what now for the UK food and drink sector?

As the nation struggles to get its head around the implications of today’s EU Referendum result, leading industry figures are already weighing up the potential implications for the UK food and drink sector. So just what does the future hold? We gauge a cross-section of the immediate reaction, from the positive to the downright pessimistic.

 

Jon Copestake, Chief Retail and Consumer Goods Analyst, Lead Analyst – Data and Research at the Economist Intelligence Unit:

“Brexit has already caused a significant shock in retail markets with the share prices of retailers such as M&S, Tesco and Sainsbury’s initially falling by more than ten per cent before recovering slightly.

“While the market panic will be relatively short-lived there will follow a period of sustained uncertainty which has been exacerbated by David Cameron’s resignation. From a demand point of view this means that retail sales will decline in the short term. The sales growth already achieved in 2016 will be pegged back for the rest of the year as consumers retrench and consolidate their expenditure. A weaker pound will push up prices while uncertainty during the negotiating period will weigh on household spending and retailer balance sheets.

“Worse is likely to come in 2017 when retail sales volumes could decline by over three per cent as the economy falls into recession and uncertainty mounts, especially as higher import prices also act to depress demand. A weak sales environment will only be one of a number of challenges for retailers though. As consumers rein in spending retailers will be scrambling to renegotiate agreements with suppliers and reassess the regulatory environment in which they operate. Other factors such as exclusion from the Common Agricultural Policy and Digital Single Market will have both ramifications for retail supply and for cross-border trade with EU markets.

“Finally there are workforce implications which may prove difficult for retailers to navigate. Oxford University’s Migration Observatory there are 442,000 EU citizens employed by the UK retail, hotel and restaurant sector making up almost eight per cent of its workforce. If visa requirements come into force then many may have to leave. Although the leave campaign can argue that this will create jobs for UK citizens the scale of switching staff would be costly and difficult to manage.

“For retailers all of these complications will add to their cost base, during a period when revenue streams are curtailed by weak consumer sentiment. Something will have to give, meaning a combination of rising prices, lower profitability, corporate austerity, job cuts and, in some cases, bankruptcy. While 52 per cent of the British electorate will be jubilant today there are likely to be few in retail that share this view.”

 

Neil McDonnell, General Manager of FTA Ireland:

“It now falls to the Irish Government to ensure that Ireland maintains the free movement, commercial, legal and social arrangements with Northern Ireland and Great Britain that it has enjoyed since 1922.

“The UK is Ireland’s largest mutual trading partner and FTA Ireland will do all it can to support this objective. Nothing will change immediately, despite the current market turmoil, and we will be working hard in the coming months to make the transition as smooth as possible for our members.”

 

Phil Storer, UK country director for Pooling Partners, the parent company of Dutch-owned IPP Logipal

“Businesses have never liked the portmanteaus or linguistic blend of words such as Brexit and Bremain.

“There are more poetic European words that reflect the reality. The Italians say Que Sera Sera while the French would say Cest Le Vie. Both mean the same things – life goes on and businesses are very much of that mind set as they continue to trade with their European partners, now and in the future.

“We are a pan-European company with operations right across the Continent including the Netherlands, France, Germany, Spain and Poland, as well as our buoyant UK market,” said Storer, whose office is based in Meriden, West Midlands – close to Birmingham International Airport.

“We move hundreds of millions of products every year on our pallets and we pride ourselves on being close to our customers. This means we have a unique cross border perspective of the facts.

“If they had to blend two terms, firms have been business agnostic – or ‘Bragnostic’. Business requires economic stability to thrive. In the run up to the vote there was a lot of nervousness and now uncertainty continues to breed as the UK enters two years of protracted negotiations to unpick our European alignments as part of the ‘divorce’ settlement.

“As a European company with a strong foothold in the UK, we cannot afford to wait as we have customers to service here and in Europe,” said Storer, who has more than 30 years’ experience of working in European supply chains.

“If there are financial consequences to our leaving, we will discuss those with our customers as and when we know, but for the time being it has to be business as usual.

“In our own manufacturing and retail sector, the business is constantly evolving, so we rely upon facts to base our commercial decisions and all businesses must do the same. We are used to change and market dynamics.

“Examples of this fluidity can be seen in the changing consumer habits which impact upon how many pallets are required in the UK from Europe and repatriated back for repair and re-use through cross border ‘pooling’ into France and Benelux – all of which requires careful planning to make optimum use of spare capacity transport, including trains utilising the Daventry International Rail Freight Terminal (DIRFT).

“As consumers, we all now spend less time on so-called big shops and buy little and often. This is borne out by the fact that 40 per cent of adults do not know at 4 pm what they are going to eat that evening. This will impact our manufacturing and retail customers when they are deciding how many of the 20 million pallets we produce in Europe every year, they are going to need.

“Economically, we have also seen 18 months of deflated food and fuel prices, yet we will see inflated wage rises across the board with the introduction of the living wage. As a business, we are already addressing these factors and factor them into our own future plans.

“We will continue to trade profitably in Europe and the UK, albeit that relationship will be different moving forward. As the map of Europe has now changed forever – and will continue to morph – we, like millions of other businesses, will be holding discussions with all of our customers to map a course forward, but business life will and must go on as normal.”

 

David Frost, Chief Executive of the Scotch Whisky Association:

“Voters have spoken and decided that the UK should leave the European Union.  All must now get behind the government as it faces the challenges, and the opportunities, this decision brings.

“The process of leaving the EU will inevitably generate significant uncertainty.  Of course, we are confident Scotch Whisky will remain the pre-eminent international spirit drink.  But equally, there are serious issues to resolve in areas of major importance to our industry and which require urgent attention, notably the nature of future trade arrangements with both the single market and the wider world.

“The government will now need to consult as it prepares its negotiating approach.  We look forward to working closely with them on that.  We urge thoughtful and serious consideration by all parties so that we can secure the best possible continued access to the EU and other export markets on which Scotch Whisky’s success has been built, whilst minimising costs and complexity.”

 

David Wells, Chief Executive of FTA:

“Even though we are coming out of Europe politically, it remains our biggest export market and the supplier of a high proportion of our imports. We cannot allow new bureaucratic burdens to hamper the efficient movement of exports heading for customers and imported goods destined for British consumers.

“The Government has two years to ensure the conditions currently imposed on other non-EU member states such as Albania and Serbia are not imposed on UK freight flows. Norway and Switzerland have better arrangements but have accepted tough conditions including the free movement of people, so this will be a difficult negotiation.

“Britain may be out of Europe but it’s not out of business and FTA will be leading the campaign on behalf of exporters and importers to keep trade procedures simple and the costs of international transport down.”