Food and Drink

While reports suggest consumer confidence remains high, latest polling shows that confidence in the UK's largest manufacturing sector is fragile. Nearly 70% of food and drink businesses are less confident about the UK business environment following the vote to leave the EU [1] . While food and drink exports are more competitive, three quarters of businesses face increased ingredient costs as a result of the weak pound, with product margins falling for most businesses.
Manufacturers selling domestically are under significant pressure to keep prices as low as possible for the consumer, and – as over a quarter of food consumed in the UK is imported – the fall in the currency has increased this challenge.
Rising food and drink prices do not just effect profits for manufacturers and retailers, but may also result in reduced orders for equipment manufacturers and distribution firms. Lower levels of investment could also impact on efforts by food and drink companies to expand renewable energy production and R&D.

Key stats

  • 444,000 employees
  • £26 billion GVA (1.7% of total GVA)
  • £18.2 billion exports
  • £38.5 billion imports
EU Trade: It will be important to avoid prohibitively high tariffs and delays on food and drink trade

It will be vital to avoid tariffs on EU trade for the UK's food and drink sector, as agri-food products would face tariffs averaging 22.3% [2] . UK dairy exports would experience tariffs of 42%, sugars and confectionery more than 25%, beverages and tobacco over 20% and coffee and tea over 5%. However, there are some exports – such as Scotch whisky – which are zero-rated, and avoiding non-tariff barriers is particularly important to these industries. Delays and costs to food and drink sales can put perishable goods at risk and are estimated to add an additional 8% to the price of traded goods [3] . This is particularly important for the sizeable flow of agri-food products across the island of Ireland, and between the Republic ofIreland and the UK.

Regulation: There may be some opportunities for domestic flexibility, but not at the expense of market access or quality

The majority of food and drink regulations and codes of practice – including on labelling, food safety, genetically modified food, organic food, storage, contaminants and packaging – are harmonised across the EU. This creates a level playing field and makes exporting to the EU easier, particularly for SMEs. However, regulation can also create barriers and burdens – particularly at the implementation stage – so there is the possibility for improvement. The current EU regulatory framework for food law has been shown to be fit for purpose. The main elements and principles of this should be rolled over into UK legislation in order to apply as soon as the UK leaves the EU. At their core, EU food laws are well designed, have the principle of ensuring safety across the food chain and are founded on sound science, best practice and internationally recognised systems such as HACCP.

It is equally important that any legislation, particularly when based on global standards, is not over-implemented as this can result in distortions of competition. Leaving the EU provides the opportunity to develop a smarter and more risk based enforcement and inspection regime which is tailored to meet the needs of UK businesses, while upholding the high standards already in place. However, this cannot be at the expense of access or quality, and any change would need a sufficient period of transition for implementation.

Migration: EU workers play a vital part in the food and drink industry and that need will continue

The UK's future immigration system must recognise the essential role migrant workers play at all skill levels in the food and drink industry. 29% of the food and drink workforce are non-UK EU nationals [4] . The UK is supporting record high employment rates, and jobs in food and drink can be challenging to fill. EU workers can help fill that gap, from labourers in processing facilitates to researchers and food scientists. Businesses have also invested heavily in the skill sets of the workforce, including many current migrants, so retaining existing EU workers is critically important.

International: New international trade agreements could bring exciting benefits, but only if designed in close partnership with businesses

Negotiating international equivalence agreements and tariff-free, quota-free trade agreements is complex and food and drink is often the most politically controversial area. As 94% of exports and 97% of imports of food and non-alcoholic drinks are with the EU or with countries the EU has signed or is negotiating trade agreements [5] , preserving current preferential arrangements is crucial. Opportunities for future trade deals are exciting and can provide significant opportunities for importers and exporters alike, if they properly consider geographically protected brands, and tackle high tariffs – for example on alcohol – and restrictive quotas on raw materials.

Exit: A smooth exit is needed to ensure uninterrupted trade in food and drink products

If the UK leaves the EU without a deal, international law will oblige the EU to implement tariffs on the UK's food and drink products. UK goods would also be subject to EU quota rules, with effective upper limits on volumes. Many companies are likely to find these prohibitive to trade. This would be a very difficult situation for Northern Ireland in particular, given the integration of the food and drink industry across the island of Ireland. There would be considerable regulatory confusion and complication. This situation must be avoided, through temporary interim arrangements if necessary.

Our members say

"Ingredients bought from EU countries at the moment can be ordered as easily as from elsewhere in the UK. When we import from outside the EU, we have to pay larger suppliers who can cope with those complications." - small tea company

"British Gin is recognised for its quality the world over. High standards in food safety ensure consumers have confidence in our products around the world and will allow us to continue successfully growing." - A medium-sized distillery

"We want government to understand that we may hire people from the EU at low levels, but we train them up to be team leaders and managers. They're looking to us for assurances they'll be able to stay, and we're looking to the government in turn." - large fruit processor
Our partners have more information:
  • Food and Drink Federation
  • National Association of British & Irish Millers
  • National Farmers' Union
  • The Federation of Bakers
  • Wine and Spirit Trade Association

For food and drink at the CBI, contact: John Stevens on 0207 395 8218 or John.Stevens@cbi.org.uk


References

[1] FDF, October 2016 Survey

[2] Open Reason/Liberal Democrats, Food, Drink and Brexit

[3] Open Reason/Liberal Democrats, Food, Drink and Brexit

[4] Open Reason/Liberal Democrats, Food, Drink and Brexit

[5] FDF, A New UK-EU Relationship

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