July 23, 2020

UK summer tour: Brexit in focus

Brexit (photo: Sabine Schulze)
As part of Lebensmittel Zeitung's annual summer tour, our intrepid feature page editor Mathias Himberg has visited Blighty in its last year as an EU member.

Undaunted by the many irksome restrictions imposed by the coronavirus pandemic, he has talked to a fair sprinkling of the great and good within UK retailing and the consumer goods industry. It is a sign of the times that most contacts had to be made by video conference.

His first virtual meeting was with former Labour M.P. William Bain. The canny Scotsman has since gone on to more sensible things and is a Trade Policy Advisor and Brexit expert at the British Retail Consortium in London...

"That would be a disaster"

William Bain, British Retail Consortium (photo: BRC)
Is the grass really greener on the Brexit side? William Bain seems doubtful
Mr Bain, how has the corona crisis affected UK retailing?
Footfall and sales have declined. But in grocery, as in Germany, there has been a significant expansion in demand. Meanwhile online shopping, including grocery, has accelerated as much as it normally would have done in five years. 15 percent of all shopping in Britain is now done online.

Therefore those retailers who already had an online shop did much better in the crisis than those who didn't. Tesco, our country's biggest grocer, is now not far away from 1.5m online transactions per week.

At first German grocers only cared about keeping staff and customers safe while ensuring supplies. But they have now gone back to their old price wars again. Were developments the same in the UK?

Yes and no. We haven't seen a supply shock. The domestic and European supply chains have worked quite efficiently. But that will be totally different once Brexit is in place.

Why is that?

It looks inevitable to me, whether there is a deal between the UK and the EU, or not. There are going to be major barriers in the supply chain, especially for meat, wine, fruit and vegetables. This will diminish the supply chain's efficiency, which is currently frictionless.

Where will these barriers come from?

There will be extra barriers, controls, checks, tests and documentation required. In the end there will be extra costs and delays. Goods, drivers and vehicles entering and leaving the UK will be controlled, which we haven't seen for 47 years. If we have a deal, though, we might at least avoid tariffs.

How is this likely to affect British customers?

The UK is heavily dependent on the EU for food. Roughly 40 per cent of our food comes from outside the UK, and about 80 per cent of that is from Europe. What's more, we Brits have grown to love European food. If I look at my own fridge, I see German sausages and Italian mozzarella, grapes from Spain and blueberries from Poland.

These goods have moved into our everyday diet over the last 30 years. We don't want to go back to the times when they were rare, special treats. We want to keep our choice of wonderful fresh European produce.

But why couldn't a deal keep it that way?

Former premier Theresa May's ideas at least had some potential to take some friction out of the trade with the EU. But Prime Minister Johnson has removed any chance of that by drawing red lines. Now we don't even have enough time to negotiate a deal with tariffs. That would take years. Our only hope is a deal with zero tariffs.

What would a no-deal Brexit mean on the High Street?

In a no-deal scenario, imports will face high tariffs, for example 47 per cent on beef and 43 per cent on mozzarella. And it will be similar for European customers buying cheddar or smoked salmon from the UK. That would be disastrous. Everybody would be worse off than before: producers, importers, retailers, and consumers.

So will the UK and the EU make a deal in the end?

The negotiations will continue and intensify during summer. And, yes, it is so important for both sides to reach an agreement that I think in the end there will be a deal. Probably it will be even be one with zero tariffs and access to the Single Market, which would be more than the EU has done for any other country.

What advice can your organisation give to retailers?

In April, the European Commission issued a lot of documents to help European businesses prepare. That was not the case in the UK, although we have been lobbying the government to do so. And even if there is a deal, hopefully in October, that will leave the UK retailers with only two months to prepare.

This is not only overly ambitious, perhaps it's not doable at all. Therefore we want to know from the government whether there will be some adjustment time.

How much will prices rise after Brexit?

This is a complex calculation. We used the World Bank's model which assumes that half of the price increases will come from tariffs and the other half from other barriers. In this calculation, the average price for agri-food products will rise by 22 per cent. The next question will be how much of this retailers will meet themselves and how much they will pass on to their customers.

Hasn't Brexit come at precisely the wrong time, i.e., when Corona is already leading the UK into a major recession?

Absolutely. In this difficult economic situation, the last thing you want are price rises of that scale. Corona and Brexit together could lead to a massive decline in GDP and consumer demand. 

What other implications will Brexit have for British retail?

Staff will be a problem, at least in some areas. In London and Southern England, 30 per cent of the staff in retail are from the EU, especially from Eastern Europe.

It is very unclear where retailers should get replacements from, given the low salaries on offer and the high cost of living in the London area. We at the British Retail Consortium have put a lot of energy into promoting retail as a career, but that doesn't pay any dividend in the short term. The same problem will occur in logistics, too.

But the UK government still keeps talking about the advantages of Brexit. Isn't there any grain of truth in these claims?

The government says that Brexit would allow us to negotiate more favourable trade deals with other countries, making tariffs shrink and choice grow. But, as we say in Britain, the proof of the pudding is in the eating. 

Meaning?

We still have to see if a free trade agreement emerges from the negotiations with the US. And even if, agreements with the US, Japan, Australia and New Zealand couldn't make up for the sales volume that will be lost by leaving the EU. We would either have to try and make further trade agreements or do a lot more for our export promotion.


Read in German: 'Das wäre katastrophal' by Mathias Himberg on page 19 of Lebensmittel Zeitung, no. 30, 24.07.2020


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1 Comment (Write a comment)

  1. Tim
    Created 11 August, 2020 10:24 | Permanent link

    The idiocy of Blue Stilton

    There are a great number of synonyms for idiocy in the dictionary, and I expect Brexit will need to join that lexicon.

    Today's farrago over blue cheese in the UK-Japan Free Trade Agreement talks is a case in point. In 2010 the UK exported 14 metric tonnes of Blue Stilton to Japan. In 2019 it was 13 metric tonnes. Over that period the EU almost doubled their exports of blue cheese to Japan from 332 to 631 metric tonnes.

    "Liz" Truss, the UK Secretary of State for International Trade, is the British Don Quixote tilting at windmills.

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