Brexit – all bets are off!
Brexit has been the subject on many people’s minds over the past few months and this is unlikely to change as the UK voted to leave the EU last week with a majority vote of 52%. As we take a very large step into the unknown, the IGD responded by holding a webinar to discuss what consequences this historic vote is likely to have on the food and drink industry. Everyone from shop floor workers to convenience store owners and manufacturer CEO’s will need to consider a range of possible outcomes over the coming months when looking at their post-Brexit strategy, as one thing is certain, the exit from the EU has created a period of uncertainty and risk for the industry. Regardless of the constant stream of media coverage that has bombarded us in the days following the result, it must be stressed that not all risk is negative. It is possible that this will provide local food companies with the opportunity to thrive, as trading for larger rivals becomes more difficult. The truth is, no one knows. If, like me, the impact of Brexit is making your mind buzz, here’s a handy summary from IGD:
Macro-economic sensitives & outcomes
The more people living in the UK, the more financial transactions carried out. An obvious statistic. Our growing population has always been a great thing for the industry, and before the result was declared, it had been predicted that due to this, the industry was on an upward trajectory for growth. So the question is, will immigration become more controlled and reduce our population? If so, this will have a massive effect on the industry. Not just for making profit, 3.3 million jobs in the UK are currently held by foreign nationals, which amounts to 11% of UK employment with 2/3 of these originating from the EU. No-one has yet suggested that existing migrants in the UK will have to leave but their legal status may change. New migrant workers will undoubtedly have new rules, which will make employment of non-UK nationals more difficult proving difficult for the market.
Food policy is applicable across the whole continent and it is one of the integral reasons that the EU was originally founded, meaning that the food supply chain will be on the front line of change. Farmers will continue to face competition from EU rivals going forward, but whether this change will make trading with the EU more or less efficient is once again, unknown. It appears that the amount of laws and regulations that need to be discussed, divided and redefined has caused the role of our Prime Minister to suddenly become an undesirable career move for many current members of parliament, who seem to be flailing due to lack of leadership – did anyone have a plan for what would happen if the UK voted out?
The truth is that the UK is not self-sufficient in food and drink, last year importing 39% of goods, but making use of overseas supply is not necessarily a negative thing as it doesn’t make sense to produce food that we can buy more cheaply from overseas. This makes it critical that the UK maintains inbound food trade on favourable terms. The UK food and drink industry is robust and flexible, it can absorb supply shocks e.g. foot and mouth, but the decision to leave the EU may be different as it will affect all grocery markets in the UK simultaneously, possibly making change harder to swallow.
Import to the UK exceeds export, which may seem obvious to many. However, our exports to the rest of the world outweigh exports to the EU. Many counties do business successfully outside of free market structures, so why can’t we?
Key Trading Stats
• Grocery import in the UK is worth £36 billion (2015) and £26 billion of this came from the EU
• Most of the UK’s food trade is made with five top parties within the EU (Netherlands, Ireland, France, Germany, Spain) which account for 76% of grocery exports to the EU from the UK, and 68% of grocery imports to the UK
• The UK’s most popular exports is skewed towards beverages, especially Whisky
• The UK’s most popular import is fresh produce, especially in the winter months
In the words of James Walton, Chief Economist at IGD, “All bets are now off!” and I would be inclined to agree.