Brexit has had a transformative effect on business across the UK, however, the food industry has been hit the hardest, specifically SMEs, making up 97% of all food and drink businesses.
Post-Brexit, the food industry faces many trade barriers, including new administrative costs and burdens, export obstacles and staff shortages. Coupled with the challenges of Covid-19, the food industry is now really starting to feel the effects of the UK cutting ties with the EU.
So, what kind of trading relationship will the UK have with the EU going forward, and how is Brexit affecting the food industry?
Food standards and sustainability
Regulations around British food standards have been a contentious issue from the very beginning of Brexit. Once strictly regulated by Brussels, the UK is now free to pursue more liberalised trade in food and agriculture with other countries.
Although the UK introduced the Agriculture Bill when it left the EU, this failed to legislate the protection of high food standards. This means the UK is open to forming deals with non-EU countries with lower standards. Pesticide Action Network UK and Sustain have outlined that trade deals with such countries could mean that more toxic pesticides are approved for use in the UK, and the number of pesticides in imported food could increase too. Moreover, lower standard imports are more likely to encourage intensive farming, poor animal welfare and overuse of antibiotics.
This is concerning because not only will these deals compromise food standards, lower-standard imports could also undercut British produce. Ultimately, this could leave farmers who use ethical and sustainable practices struggling to compete, potentially encouraging some to lower their own standards and target exports to non-EU countries instead.
Although the Trade and Agriculture Commission made a number of recommendations to ensure there’s "international leadership by the UK on climate, environment, animal welfare and ethical trade," the government is yet to respond. It has, however, recently launched its Sustainable Farming Incentive in an attempt to bolster sustainability efforts in farming. That said, initial reactions suggest this initiative is unlikely to offset any damage done by new trade deals and has been seen as a "watering down" of environmental commitments.
Unfortunately for the food industry, Brexit has hiked food supply chain costs too. One of the main causes behind this is Brexit's red tape. New certification requirements, inspection rules and new labels have made things a whole lot pricier, meaning the food industry has already lost out on "significant business."
While the Brexit deal has been advertised as 'zero-tariff, zero-quota', this is misleading as the 'rules of origin' now apply. Food and drink businesses must prove that each item is produced locally to qualify for tariff-free access. As a result, if a product is finished in the EU and is not processed in the UK, it won't qualify, leading to increased fees.
Commenting on what Brexit's red tape means for food wholesalers, speaking to Speciality Food Magazine, Jimmy Nelson from Essential Trading said: "The complications of buying from the UK and any corresponding increases in pricing may well make the UK a less attractive country to trade with and trepidations can't be ignored."
Essential Trading, which imports a significant portion of its organic food from EU producers, has seen much of its imported goods "hindered at ports." The wholesaler has even suspended exports of organic products to the EU due to a health certificate requirement, which costs £150 a time.
Such certification requirements like COIs (Certificate of Inspection) on organic goods have introduced huge financial hurdles for businesses in the food industry. According to Politico, businesses now have to front between £400 to £500 per shipment in direct and indirect costs.
The UK is yet to create a digital certification system like the one used by the EU to certify organic products. This means everything must be done manually, and companies must file up to ten paper documents per item.
For many organic food businesses, this has been too much of a challenge. Food wholesaler Phoenix Organics, based in Hertfordshire, once made 10% of its sales from Northern Ireland, but Brexit red tape has meant that many of its buyers have started looking elsewhere for produce.
Ingredient sourcing has become more expensive, too, following increased manufacturing and production costs due to worker shortages and import/export challenges. One example of this is tinned tomatoes, where production costs rose dramatically (23%) between May 2020 and May 2021. Research from Mintec explains that this is because the cost of crushed tomatoes is up 30%, while tinplate and paper production for labels is up 21% and 8%, respectively, which negatively impacts the whole supply chain.
So far, Britain's discussions and deals with the EU have been strained and lacking in clarity, leading to a rocky relationship at best. Yet, recent months have seen this relationship worsen. Commentators say that a mini trade war between Britain and the EU is "inevitable" if the UK does not back down over rewriting the Northern Ireland (NI) protocol that was agreed to back in 2019.
This is bad news because EU officials have warned that if the UK continues to pursue this, not only will further legal action be taken, but retaliatory tariffs may also be implemented, impacting all UK exporters to the EU. This would have wide-ranging repercussions for the food industry as the British Retail Consortium (BRC) says the financial challenges it will create in sourcing "could force many retailers to move supply chains from GB to the EU."
Brexit has already introduced significant challenges for the food industry regarding exports. In the first quarter of 2021, trade barriers and Covid-19 meant that exports to the EU were almost halved (47%) in comparison to the same period in 2020. Across a two-year period, this was even more significant, down 55%. Exports to Italy and Germany were specifically hit hard, shrinking by 84% and 81%, respectively. SMEs have also reportedly been hit hardest by the "collapse in groupage movements" whereby different companies send goods in the same load.
That said, post-Brexit, the UK is seeing growth in exports to non-EU countries, and now sales to these nations account for more than half of all UK food and drink exports. This growth follows the UK's introduction of a new agri-mentoring scheme that matches experienced exporters with businesses looking to export for the first time.
One allergen-free SME brand, Creative Nature Superfoods, has decided to embrace these changes and altered its business strategy to target new markets, such as the Middle East, Australia and the USA. Speaking to Bakery and Snacks, founder Julianne Ponan encouraged other small food and drink businesses to take heed and adapt.
Supply chain disruptions
The food industry supply chain has also faced massive disruptions with the post-Brexit landscape seeing thousands of migrant workers leaving the UK. This results from the UK's new points-based immigration system, which restricts low-skilled workers' entry into the country. Before Brexit, a third of those working in food and drink manufacturing were EU nationals. So, this has had a significant knock-on effect.
For those farmers who produce British fruit and veg, a lack of seasonal workers is leading to huge losses. The British Summer Fruits Association, which represents 95% of all British-grown berries purchased by the UK's supermarkets and retailers, is facing big challenges. It says that 95% of its 29,000 seasonal workers are from elsewhere in the EU, and the government's cap of 30,000 on seasonal worker visas is too little. As a result, crops have been left to rot in fields.
There aren't just disruptions on the food manufacturing front either. The supply chain is also being affected by shortages in drivers. According to the Road Haulage Association (RHA), the end of free movement across borders has meant that thousands of drivers from the EU have returned home with no plans to come back to the UK.
Meanwhile, a study from the Haulage Exchange found 31% were avoiding the food and drinks industry altogether due to increased checks and administration. This is, of course, deeply concerning for the UK's food industry and has led to food businesses throwing away thousands of tonnes of food each week due to a lack of delivery drivers.
James Bielby from the federation of Wholesale Distributors says these driver shortages have also led to an aluminium supply issue meaning products such as soft drinks and beer are becoming increasingly scarce. All of these issues further hike prices for buyers in the food industry and cause delays.
Brexit means that the food industry faces undeniable challenges ahead, but it is resilient. At Artos Marketplace, we recognise that recent times have indeed been tough, especially for SMEs, and we're committed to getting fantastic food and drink companies the exposure they deserve and matching them with the right buyers.
Our recent partnership with the Vegan Trademark means that going forward, Artos will continue to help smaller food and drink brands get noticed and grow, shaking up deal discovery and financing for the food and drink industry as a whole.
If you have any questions regarding how Artos is helping brands tackle post-Brexit Britain, or you'd like to discuss a challenge faced by your food wholesaler business, schedule a quick call with us today.
If you have any questions regarding ethical products, or you'd like to try Artos Marketplace for yourself, schedule a quick call with us today.