WABEL NEWS

Quick overview of Brexit's impact on the Grocery Industry

July 1st, 2016 Grocery Market Trends

Part of the EU since 1973, The Uk's business structures and processes have, up to now, been shaped by decades of membership. This is particularly true in the grocery industry : a key objective of the EU since the beginning being the provision of sustainable food supplies. As the UK begins Brexit procedures, the grocery industry will be at the forefront of change.

The Treaty of Lisbon allows for two years of negotiations for member states who wish to exit the EU. Needless to say extricating itself from the EU may require the UK more than the two years provided. The deadline may be extended, but it is likely that all parties will wish to conclude negotiations quickly and extension is not assured.

The IGD's report on the 2016 referendum looks at a range of possible outcomes for the period after negotiations are completed. The topics chosen are four areas which highly impact the grocery industry, although these are not the only ones :

Food production policy

Regulation

Labour movement

Trade terms

Food production policy

The Common Agricultural Policy (CAP) and Common Fisheries Policy (CFP) were put in place to encourage maximisation of food production continent-wide. Subsidies represent about 40% of EU spending and have historically made up a large part of UK farm income.

With public finances most likely to be under intense pressure in the post - Brexit period, farm subsidies, if available, could be less generous than before. If this is the case, important structural shifts may be expected within UK farming. Speaking long term, this will have a significant impact on UK food security, consumer pricing and the range of goods available in-store.

This is probably the most critical variable for shoppers, especially since the UK is not self-sufficient in food. In 2015, about 39% of all UK food was imported, most of it from the EU!

Regulation

Trade benefits from harmonisation of laws and business regulations, which is a key role of the EU. Up to now EU law was automatically taken into account when passing UK law, so much so that "tedious legal “unpicking” will be required".

UK businesses may benefit from a reduction or refinement of regulation following Brexit, however some “divergence” of legal and regulatory regimes is certainly inevitable, creating new costs and obstacles for businesses that wish to continue trading with the EU.

Labour movement

Post-brexit trade scenario

Free movement is a key principle of the EU and so, pre-Brexit, UK companies could recruit from anywhere inside the EU. In Q4 2015, UK businesses employe

d just over 3.2m foreign-born workers, two-thirds of which coming from the EU, many of them working in the grocery supply chain.

Brexit will not necessarily prevent UK businesses from recruiting from the EU – in fact, options for recruitment might expand, depending on how government policy evolves.

However, a UK which is outside the EU is likely to be much less attractive to european workers, which might create significant recruitment challenges for businesses.

Trade terms

In 2015, the EU accounts for 59% of UK grocery exports and 71% of UK grocery imports.

Given the scale of UK’s food trading, terms of trade will be a key factor determining long-term outcomes for businesses and shoppers. Leaving the EU could lead to reduced access to markets and exclusion from special arrangements, current and future (eg: TTIP).

Negotiating terms of trade will be high on UK's diplomatic “to-do list” for a viable post-Brexit.

Several outcomes are feasible, both over the short and long term. Unless another agreement is reached, the default position would be WTO standard trading terms, which would cause high tariffs on many foodstuffs, "a change that would be inflationary". Much will depend on the attitude of remaining EU members.

 

All in all, on the positive side, new barriers to trade could mean new opportunities for UK businesses to serve domestic demand. On the downside, reduced trade may mean less choice and higher prices for shoppers. The long term impacts of Brexit will play out slowly and, "good or bad, they will be profound."