Interview: The impact of a 'no deal' Brexit on the European food supply chain
It would be a disaster for the food industry if the UK crashes out of the EU on March 29, with queues at the border, customs checks and a risk to food safety, FoodDrinkEurope Director General Mella Frewen told IEG Policy.
In an exclusive interview, Frewen explained why FoodDrinkEurope is calling on the EU to adopt contingency measures for a no deal Brexit specifically for the agri-foods sector.
FoodDrinkEurope wrote to several EU commissioners last week asking them to put in place 'no deal' Brexit contingency measures and the association’s Director General, Mella Frewen, told IEG Policy how worried the sector is by the prospect of ending up with much higher tariffs, increased checks and having to relabel products.
FoodDrinkEurope is seeking contingency measures for Europe’s €46 billion agri-food industry to stave off the worst effects of Britain leaving the EU on March 29 without a deal.
IEG Policy's Sara Lewis talks to FoodDrinkEurope Director General Mella Frewen about the feared impact of a cliff edge departure from the EU.
Can you put the costs of Brexit in figures? What will it cost the EU food industry? What will be the impact?
We’re very worried about the impact it will have on the agri-food chain and the food industry in general. Our trade with the UK, EU27 – UK is worth some €46 billion and a lot of people are employed in the industry. The food chain is a very complex chain. It’s highly integrated. We deal with just in time processes and all of these depend on free movement of ingredients and free movement of raw materials. So, what we have done is we have encouraged all our companies to prepare for a no-deal Brexit, still crossing our fingers of course that some sort of arrangement will be arrived at before the 29 March, but we’re really beginning to become very concerned that this will not be the case.
We have advised our companies to prepare for it, but many of them are [small and medium-sized enterprises - SMEs]. It will be difficult for everyone, but the big companies have the resources perhaps to deal with it better - 99% of the companies in the food and drink industry are SMEs and there are some 285,000 food and drink companies in the European Union, of the 28, so the SMEs we reckon will have a much more difficult time because they won’t have the resources to deal with this. Moreover, some of them will be facing exporting to a third country for the first time.
If the EU and the UK crash out, the UK will be a third country market and many SMEs have never exported to a third country. Their ‘exports’ are to the single market, so they don’t need export certification, they don’t need the controls, they don’t need all the things that we need when we export to the States or to Canada or to elsewhere in the world and this is a real problem, especially for the smaller guys.
You have written to the Commission asking for it to draw up contingency plans for Brexit. To which commissioners? Can you tell me a bit more about what the letter says?
The letter was sent to President Jean-Claude Juncker and other commissioners - Muscovici (economic and financial affairs, taxation and customs), Hogan (agriculture), Andriukaitis (health and food safety), and maybe one or two others. We sent it to the highest levels in the Commission. What we’re asking in the letter is for continency measures, which are specific to our industry. Some other industries have got these, and we have not yet and these contingency measures relate in particular to customs procedures, to labelling, to goods already on the market on 29 March, to food safety and certification of organic products, for example.
First of all, we need some sort of temporary facilitated procedures that will allow goods to be cleared on the premises of either the manufacturer, the exporter or the importer to take away the congestion at the border. Because food has a shelf life and cannot be treated like motor parts you know, a lot of people are stockpiling, they’re warehousing stuff. Well we can’t do that with food, most foods we cannot and even foods that have a long shelf-life, have a shelf-life. We need some sort of method to avoid them being parked along the motorways waiting to get through a border. So, we either need some sort of green lane where food products can have a more expedient delivery or some sort of controls that will not take place at the border.
It’s not just a question of the fact that the foods are perishable, it’s a question of safety. If you leave a food product sitting around for too long, it can, if it’s not stored in the right way, become unsafe, as you know. All you have to do is leave something out of the fridge for a couple of days and you’ll see what happens. It really is a very serious problem – for the consumer as well. From a safety point of view, also from an availability point of view. If the UK crashes out on most favoured nation tariff-basis of the WTO, we will see huge tariffs applied to foodstuffs that are coming and going from the UK. The UK imports half of its food, by the way. It’s very serious for the UK. It’s also very serious for the food industry in the EU27.
What sort of tariffs are there?
In agri-food products the tariffs are notoriously high. For things like beef they can be up to 85, 90%. Cheese is the same at 89%. French cheeses exported to the UK, Irish cheeses exported to the UK. These will be hit by most favoured nation tariffs, which as I say can be very, very high and I have here a figure which is 89%. Other products that are particularly sensitive because these are the typical products like Belgian chocolates, Italian pasta or French wine – all of these products will be hit by tariffs varying from 17% to 90%. And this of course will have an impact on the revenues because if the exports fall because there is no market any more, the market has decreased, the revenues from these exports will fall.
I have a couple of figures, for example Irish beef. The fall in revenue for the Irish beef exporters - there could be a loss of €732 million. It’s an example. We reckon things like French wine might be hit less because there will still be a market for French wine, given its prestige. This is a study we had commissioned quite some time ago by FTI consultancy, they’ve come up with these figures, so the lost revenue for wine might be less, but I have here a figure of €181 million. That of course will have another impact on jobs. Off the top of my head, I think in the German confectionary business, there’ll be like 3,600 jobs lost approximately according to this study. That’s just Germany and it’s just the confectionary industry, so it’s a very, very serious disruption. But this is just the tariffs. If you take into account also exchange rates, this could be hit even more. If the pound loses against the euro for example, this could actually have an even further effect.
It’s expected to hit parity.
Exactly, yes. It’s a very serious situation. And then on top of that there’s all the administration, the customs clearances, the sanitary and phytosanitary issues, food fraud – all of these things will be affected. It’s a disaster in the food industry. If there is a hard, no-deal Brexit, it really will be very, very challenging.
So, coming back to our letter, we’ve asked for these temporary facilitating procedures, that’s one thing. We’ve also asked for facilitation in the transition to new labels, if there are label changes, which no doubt there will be, we’ve asked that there be a grace period so that foods that are already on the market can be sold off even after the 29 March and so companies have the time to change the labels appropriately both in the UK, of course, but also in the EU27. In other words we’ve asked for the EU control authorities to be pragmatic so that we can avoid disruption and extra costs to the chain but also to the consumer, because at the end of this it’s the consumer that will be footing the bill.
Then we also would like to see the continuation of the recognition of EU certification bodies, especially for certification of things like organic products because the EU processing industry when we make organic products, we need organic raw materials and we import currently from the UK, a lot, not everything of course. So, we need this certification to continue to enable us to continue labelling our products as organic. It’s just an example.
I think equally important perhaps, is the coordination and information exchange between the EU and the UK on things like the Rapid Alert System for Food and Feed (RASFF). This is very important because if there is some sort of food safety issue. We’re a continent the UK is not going to sail off into the middle of the Atlantic. It’s going to remain there, and food safety issue and food safety issues are continental – look at the swine fever for example. No borders will stop that from travelling, so food safety issues are Europe-wide, and the UK is Europe. I really regret all of this, I really do. I was quoted yesterday as saying ‘I’m looking on in horrifying fascination’ - I am horrified by this is, but it is fascinating, there’s no doubt about it, because it’s a first. To see how this has upset politics in the UK, is extraordinary. The divisiveness that it’s created, is extraordinary as well. The whole thing is very sad.
We have a lot of difficulties trying to accept this and we’re hoping that we will have a transition period, but we will only have a transition period if we have some sort of deal. We think the withdrawal deal that has been agreed is for the moment the best deal. We don’t think any other deal could better it. With the withdrawal deal we would have a transition period as well to get our heads around everything that we need to do as an industry until the end of 2020. But if they crash out, we’ve no transition, if you think about it, so we’re just hoping that the current deal will do the trick. I know that Theresa May, the Prime Minister, has come back to reopen it and tweak it but the EU27 seems to be very united in rejecting that and they have said it over and over, from Tusk all the way down to Juncker to different prime ministers.
You’ve got people like the head of the Wetherspoons pub chain, Tim Martin, saying there are opportunities, but is there an upside? Are there other opportunities?
The kneejerk says ‘no, there are no upsides.’ Let’s take that question in two parts. Is there an upside? As I say, kneejerk is no, there’s absolutely not. Thinking about it, there’s an upside in that it demonstrates the huge value in our single market. And we are very, very supportive of the single market, we hate to see fragmentation, and we have some difficulties in bringing this point home to some people, but Brexit demonstrates how important the single market is, because once you leave it, you see what happens.
So, I think if there is an upside it actually brings home two things: first of all, the value of the single market and its importance and therefore its need to be protected, and the other thing, is what you said, solidarity of the 27. As an Irish person, I’m very honoured almost to see the backing that the Irish have had, take the border, the lack of border, the Good Friday Agreement between the North and the South - the Island of Ireland. People have been very supportive of the Irish in their wish to not recreate that border, that’s been very important.
What are the opportunities going to be for the UK? Of course, if the UK is not in the single market, is not in the customs union, it is of course a free agent and it can do what it wants with the other parts of the world. But there are, I think, 37 free trade agreements that the EU has with other parts of the world, and 60 countries in total. It’s going to take a long time for the British to negotiate a free trade agreement and it’s going to take a long time for the UK to renegotiate. It can be done of course, but they have to be careful when these deals are in place and they import from let’s say, Argentina, just to take an example, at lowered duties and they have exchanges, which are border free, any goods coming from the UK into the EU, which is their largest export market, would have to be taxed, and checked sanitary, phytosanitary, we cannot import. The rules of the EU will remain the same, so no hormone-fed beef, no GM, and they will remain the same. Same with chlorinated chicken. It’s not going to be all plain sailing. They’re going to be able to do everything they want, yes, but it will take time. And will it be better than the deal they have today? No. So I can’t understand the whole thing.
Do you think that food safety and standards will drop in the UK if they crash out? If they eventually have these trade deals do you think they’ll get hormone-fed beef forced on them and chlorinated chickens, the kind of food that people don’t want?
For me the consumer is king. We certainly in the EU27 will not force feed a consumer anything. As I say, the consumer is king and in the UK, I think that is also the case. Therefore, I don’t see it happening, frankly. Again, a kneejerk reaction I don’t see it happening because the consumer will not want it. If the consumer bends, however, if the consumer says ‘well hang on a minute this makes sense’ or for a whole load of other reasons, the goods will be cheaper, for example, or there will be more choice, or it’s part of a deal where they win something else on the other side, maybe, maybe, the consumers will change their minds, but I don’t think they will. I don’t think the British government will force it on the consumers. There could be quotas, imports of this sort of thing so limited in quantities, labelled, for those consumers who are prepared to eat GM or who don’t mind their poultry being disinfected by chlorine, whatever. There could be, but it really will be up to the consumer.
Are there any food and drink products that you think will be removed from the shelves, either here on the continent or over in Britain?
Physically removed, no, but we won’t see them on the shelves. This is one of our asks so that they won’t be physically removed, is this period of grace so that we can actually phase out those products, which are there, which might be mislabelled in a sense for the new situation. So that’s one part of it. But goods that will no longer arrive, yes I think there will be some. Because of the hassle of getting them from the UK to the EU27 and vice versa. The hassle, from the phytosanitary point of view, from the veterinary checks point of view, the hassle from the tariff point of view, because they will be so much more expensive that the market will be reduced enormously and therefore, if consumers aren’t willing to pay, are not willing to buy, then why would a retailer stock the product? Except perhaps in some very top market cordon bleu type of shops where you get an elitist coming to buy his foie gras or whatever it is … his really expensive bottle of some extraordinary French wine. But in ordinary supermarkets, I think that may well be some products that will no longer arrive because there will be no market for them.
They’ll be priced out?
They’ll be priced out, yes. Or price and other – just the difficulty in getting them to the shelves because of the increased admin, increased customs checks, controls, time. A lot of our goods travel in the cold chain and if these goods cannot be delivered rapidly … We have a just-in-time process, so if the goods cannot be delivered rapidly, we’ll have trucks parked in kilometres before crossing the border and they’ll have to keep their engines running because otherwise the cold chain could be broken. Forget about, well forget about no, but apart from what that is doing to the environment, which is another point, it’s just the time involved. Food products have a shelf-life, they’re perishable, they need to go where they’re going fast and that’s why I think some sort of green lane or rapid clearance or control system at the warehouses of the importer or of the exporter might be a more sensible way to deal with food.
How does it work with Norway and Turkey now? How long do lorries wait at those borders?
That’s a good question. I don’t know. But we do have a customs agreement with Norway, they’re part of the European Economic Area and I don’t think there’s any delay there as part of this customs agreement that we have. And with Turkey we have a customs agreement, not for all products but for many products. The answer is I don’t know. But I don’t think it would be that much of a difficulty especially compared to a hard Brexit, because there you have no customs agreement whatsoever, whereas Norway and Turkey we do have customs agreements. It’s the UK crashing out of the customs union – that’s the crux of the thing.
The backstop – that’s the big thing. I think isn’t it, 40% of Irish exports go through the UK going on through to the continent, because it’s a very long sea route isn’t it, if you go Cork to …
Rosslare to Roscoff, something like that, yes.
Eighteen hours is the quickest you can do it.
I know, I’ve often taken that with my car and I feel once I get my car on the ferry, I go into my cabin and I’m already on holidays, it’s a holiday actually, a mini-cruise.
But you don’t want perishables on a mini-cruise.
Exactly, exactly. The Backstop is linked obviously to the Good Friday Agreement, and this is an international agreement, which must be respected and in this agreement there should be no hard border between the six counties of the North, six of the eight counties of the North, and the 26 of the South. This is of the utmost importance to the island of Ireland, to the peace we have seen for the last couple of decades. If this border is to be re-erected in any form or shape, I feel like most of the Irish that this will create the problems that we’ve seen in the past.
So really, I am convinced that the backstop must remain in place. But I know the quandary that the UK is in because we have the only land border with the UK in Ireland and goods crisscross this island, the island of Ireland all the time and it’s been hugely beneficial for industry on the island of Ireland and the North also depends on the South, so they’re very interdependent. A lot of exports go also through Dublin from the North, through Dublin, crossing England and then onto the continent, or just to remain in England. So, the whole thing is a mystery how they can maintain, but not be in the customs union and not have a border, it’s not logical. I don’t know how this is going to end up.
The backstop seems to be the major problem for Westminster, we’ve seen that last Tuesday. What is the alternative? They’re looking for alternatives, but have you got an alternative? I can’t see how you can have a border without having a border because there will be a border. If they drop out of the customs union, there will be a border, logically. There’s no longer customs union so there is a border. How can you have a border without marking it somehow? People are talking about your very intelligent, smart ways of delivering this, but I don’t see them. The backstop to me – of course I’m biased I’m an Irish person – for me it’s an essential part of the whole thing and it won’t be permanent. We have to get the divorce over with and then we can start looking at what the future’s going to look like. When we start to look at what the future’s going to look like then maybe we can start coming up with some smart ideas. That will gain us a bit of time but in the meantime the backstop is necessary in my view.
Do you see any way that Brexit could be cancelled?
Gosh, I don’t think the UK will do that. I’d like to believe it, I really would. I think what might happen is we might gain time somehow. The 29th March deadline will be pushed back a bit, even though the EU27 has said there has to be a reason behind this, it’s not just kicking the can down the road and ending up in the same place in another year. But there may be a possibility of gaining some time, but I don’t think Brexit will be cancelled, it’s gone too far. In order for Brexit to be cancelled, I think you need a second referendum, if the UK was to come back and say ‘ok we’re going to do a second referendum’ that would automatically trigger an extension of article 50. They could gain time. They could do their referendum, but they might end up at the same result. I know that a lot of polls recently show that there’s a move perhaps towards a remain, but OK the polls …
It’s not overwhelming and if you get the same thing happening again with the Russians and the illegal money spent …
Exactly. So, it’s really a conundrum and it’s really an upsetting one, very upsetting. As I say horrified fascination. It’s horrifying. And it is a serious problem for the food industry and for the consumers. Some consumers also need some foods that may not be able to arrive. There are some foods which are necessary, like take foods for patients who need a specific diet, or for older people who need a specific diet. Babies who need a specific type of milk powders and stuff and that’s more serious because that’s not just a want, that’s a need.
What about multinational companies that have maybe a plant in one country and they finish the product in another?
A huge amount of foods depend on either products that transit through the UK, or products that come from the UK. Food companies in the UK depend on milk that comes from elsewhere, depend on wheat that comes from elsewhere, it’s a huge problem. As I say our food chains are very complex. You may have heard about a bottle of Bailey’s that travels something like five or six times across the border before it actually ends up on the shelf of the supermarket. I can’t remember the exact details, but I think the milk comes from the South, and goes over the border to the six counties or vice versa and it’s creamed in Ireland and goes back over the border anyway it’s about five or six times that the ingredients in a bottle of Baileys actually go North-South-North-South. That’s just a bottle of Bailey’s and that’s a luxury product. An important product for those that like to drink Bailey’s. But there are other products, basic products that rely on wheat that’s imported from elsewhere, meat that’s imported from elsewhere. The chain is very, very complex, very integrated and just in time.
Brexiteers would say ‘well there’s an opportunity for British farmers to fill the gap and produce the milk and produce the wheat.
Well certainly there will be, I think, an increase in local production in the UK simply because they won’t be able to get it elsewhere. But this just doesn’t happen overnight. You can’t just increase the number of farmers by whatever it is, 30% of whatever it is you need to fill the needs of the UK food industry and the UK consumer. The amount of land that will need to be used as well for planting those cereals or raising those cattle – it’s huge, it’s not something you can just click your fingers and say, ‘oh great good for UK farming.’
Currently, as I say, the UK imports half of what it eats and it’s not because of the lack of farmers, it’s because people chose not to farm. There’s a market for food in the UK and they’re importing it because the UK has specialised in services for example. That’s where the UK excellence is. I’m not saying the farmers aren’t excellent, they are, but to just beef up that number, to double it, they import half of their food, perhaps you need to double the amount of farmland or farmers. I’m inventing the numbers but it’s not going to happen overnight. Maybe there is some benefit at the end of the day for UK farms, yes, but they won’t be able to double what they’re producing overnight, that’s for sure.
The UK Food and Drink Federation FDF’s part of FoodDrinkEurope, but they’re going to have to, not be kicked out but have more of a status of say, the Turkish federation, which is also a member?
Yes, the Turkish Federation is also a member, so is Norway. FoodDrinkEurope actually covers Europe, it’s not just the European Union. But we do have a different class of member for those who are not part of the European Union, but which are European. We call these ‘observer members’ – their fees are cut by half actually so that’s nice for the FDF and they can take part in all the meetings, they get all the information, we listen to them equally with open ears, they’re welcome. In fact, I’m really glad that Ian Wright has already told me that they will be very pleased to remain members, but they will be in this category of observer members. The only thing observer members cannot do is vote. We very rarely vote in this organisation. We’re a consensus driven organisation and I’m glad to see that most times we find consensus, rarely we vote. I’ve been here for a long time and I think we’ve only voted twice, three times maybe. So, they will be treated like all the other members and as our friends, except when it comes to voting. That’s the only difference.
What about participation for FDF in EFSA stakeholder forums, working groups and things like that? They wouldn’t be able to do that then would they?
We’re hoping as I mentioned that the UK will still be able to play an important role in these bodies. EFSA can and does work with other countries that are not part of the EU. Their expertise is often called upon, so I don’t think they’ll be ‘kicked out’ but they will have a different status, yes, what exactly that will mean, I don’t know. But I think they will be able to participate with the new status in EFSA meetings, called upon as experts, yes.
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