How will Brexit affect the UK food manufacturing industry?
With a deal now agreed with the EU, UK food manufacturers are facing major changes to the way they operate. Here we outline some of the key issues and changes the industry faces.
Importing and exporting
One of the key areas Brexit reporting has focused on is the impact it will have on the UK’s imports and exports.
There were concerns that if Brexit talks ended in no deal, imports and exports between the UK and EU would be subject to WTO tariff rates. This was likely to make some UK exports more expensive in the EU market, and vice versa.
For food manufacturers, this may have resulted in squeezed profit margins as a result of EU-imported ingredients becoming more expensive, and a potential loss of profits if their products became less appealing to EU customers as a result of higher prices.
However, the free trade agreement establishes there no tariffs to pay on trade between the UK and EU, where goods meet the relevant rules of origin.
Despite the deal, businesses are currently reporting delays at ports, which are having a knock-on effect for food manufacturers waiting on ingredients. This is thought to be a result of the additional paperwork required. Although these are likely to be “teething problems” that will be resolved long-term as companies get used to the new requirements, it’s expected that the delays will continue for a few months.
Time sensitive fresh food exports such as seafood are the main problem and there are concerns that ports are not sufficiently prepared for the checkpoints required for the import and export of live animals and animal products.
What about Northern Ireland?
Northern Ireland is subject to slightly different rules. The UK and EU have agreed that there will be no border checks between Northern Ireland and the Republic of Ireland, and Northern Ireland is still required to follow many of the EU’s rules.
However, there is a new “regulatory” border between Great Britain and Northern Ireland, which means goods moving between them are being checked and commercial goods arriving in Northern Ireland from Great Britain require a customs declaration. There are concerns the added “red tape” will cause potential food shortages in Northern Irish supermarkets.
There is currently a three-month grace period allowing food retailers to bypass the usual requirements, but Tesco, Sainsbury’s, Asda, Iceland, Co-Op and Marks & Spencer bosses have all warned of major problems when this expires in April.
The pallet problem
It might come as a surprise, but a very real threat to post-Brexit trade is the demand for ISPM15 certified wooden pallets.
Any goods arriving in the EU from non-EU countries must comply with ISPM15 standards. This means they must have undertaken heat treatment and marking to certify they are free from pests and fungus.
As a member of the EU, previously the UK was exempt from this requirement and could use and re-use any pallet. From 1 January, the demand for heat-treated pallets is expected to at least double and there are real concerns that suppliers will be unable to keep up.
There is a temporary rule in place which will allow members of the UK Wood Packaging Material Marking Program and their approved sites to use heat-treated wooden components to repair pallets, rather than requiring pallets to receive total retreatment after repair. This is currently in place until 31 July 2021.
The alternative is to use plastic pallets, which are exempt from ISPM15 rules, however this raises its own questions about the ethics of plastic production and use.
Labour shortages
The UK agricultural sector relies heavily on seasonal migrant workers and there are concerns that the removal of freedom of movement rights will result in labour shortages and increased costs.
We got a flavour of the potential impact this summer, when the global pandemic prevented travel for many of the approximately 70,000 – 80,000 seasonal workers UK farms rely on to pick crops. Farms struggled to recruit UK workers to replace them, despite many being furloughed or unemployed.
Evidence suggests the situation could be even worse under normal circumstances and it’s likely that farmers will be competing with other sectors, such as construction, where wages can be up to 50% higher.
It’s hoped that seasonal labour will be available under a Seasonal Agricultural Workers Scheme (SAWS), however the industry has expressed doubts that it will be sufficient to cover longer picking seasons and will not solve the issue of permanent vacancies which will be hard to fill with UK workers.
Food standards
The UK is no longer part of the European Food Safety Authority (EFSA) and other EU food safety bodies, however the Food Standards Agency (FCA) has retained EU law Regulation (EC) 178/2002, ‘General Food Law’.
We’ve all seen media reports about fears that the UK will be forced to import chlorinated chicken and hormone-fed beef under conditions of a potential trade deal with the US. The government has vowed not to allow these products to be sold in the UK, however post-Brexit food standards remain uncertain after proposed amendments to the UK’s new Agriculture Bill, which were intended to enshrine existing UK food standards as a minimum threshold for future trade deals, were rejected by parliament.
Consumers are likely to be worried about things like increased use of pesticides and food additives, the EU-outlawed drug ractopamine (used to reduce fat in pigs), chicken litter in animal feed, chlorinated water washing of more foodstuffs, and lower standards of food labelling.
For UK food manufacturers, this could be considered both a threat and a potential opportunity. Less stringent production and compliance standards could open doors to markets such as the US, while closing them to EU countries.
Labelling
Businesses which produce and sell food within the UK will be able to continue using existing ‘origin EU’ wording on labels until September 2022.
However, exporters are subject to new labelling rules as of 1 January 2021. Any food exported from the UK must not be labelled as ‘origin EU’. There will also be additional requirements for organic food producers, until the EU approves the UK’s organic food regulatory regime. Unless this happens, exporters of organic food will be effectively banned from exporting organic-labelled food or feed to the EU.
Fishing
Fishing was a key sticking point in the Brexit trade talks.
As a member of the EU, the UK was bound by the Common Fisheries Policy (CFP). This allowed fishing fleets of every country involved to have full access to each other’s waters – with the exception of the first 12 nautical miles from the coast.
However, they were only permitted to catch the volume of fish laid out in national quotas. Fishing communities were significant supporters of Brexit, claiming the quota system gave the UK an unfair deal. For example, more than 60% of the tonnage landed from English waters is caught by foreign fleets.
New quotas have been agreed under the Brexit trade deal:
The Agreement provides for a significant uplift in quota for UK fishers, equal to 25% of the value the EU catch in UK waters. This is worth £146m for the UK fleet phased in over five years. It ends the dependence of the UK fleet on the unfair ‘relative stability’ mechanism enshrined in the EU’s Common Fisheries Policy, and increases the share of the total catch taken in UK waters taken by UK vessels to circa two thirds.
The new quotas are to be phased in over a five-year period, to allow fleets to adapt to the changes. There will be also be a five and a half year “adjustment period” for access to a limited part of UK waters for vessels which have traditionally fished in those areas.
However, it remains to be seen the impact the new quotas will have on fish exports. The majority of fish caught by UK fleets is exported, whereas the majority of fish actually eaten in the UK is imported.
Roughly three quarters of UK fish exports are sold within the UK, with some parts of the industry, such as shellfish, relying completely on exports.
CE Marking
The EU’s CE marking scheme has now been replaced by UKCA (UK Conformity Assessed) marking. The new scheme came into effect on 1 January 2021, however for most goods there is a transition period of 12 months where CE marks will continue to be valid unless the equipment is modified to the extent it requires re-assessment.
The new rules pose a challenge to exporters as CE marking assessments must be carried out by a legal entity in the EU, requiring any UK company exporting equipment to the EU that requires CE marking to engage an EU based third party or have a physical base there (a virtual office doesn’t count). Similarly, EU based equipment suppliers will have to have a legal entity in the UK or engage a UK based third party (sometimes the importer) to undertake CA marking of the equipment
A product can be both CA and CE marked and for the moment the standards are the same, however, over time the standards will diverge which could pose certification issues in some cases. This will impact both EU-imported food manufacturing equipment and UK companies exporting equipment to the EU.
UKCA marking cannot be used alone for goods placed on the Northern Irish market, these are covered under the separate UKNI scheme and will also continue to require CE marking.
Our years of experience has led to our status as a proven and trusted consultant for the food processing industry. If you’re considering adapting your food manufacturing facility in the wake of Brexit, get in touch with our expert team to find out how we can help.