As the UK’s withdrawal from the EU gets closer (less than five (5) months until B(rexit)-Day) it is important that food and drink businesses put contingency plans in place, to ensure minimal disruption. In this respect, time is very much of the essence.
There has been widespread concern about the lack of contingency planning in the food and drink sector perhaps due to the fact that SMEs constitute a large proportion of the sector and with a lack of resources such organisations are not able to proactively consider Brexit contingency plans. Nevertheless, it is crucial that all organisations put arrangements in place to try and manage significant obstacles to the continuation of trade.
The impact of a “no-deal Brexit” on the food and drink sector
In the event of a “no-deal Brexit”, there will be serious disruption to the food and drink supply chain resulting in significant additional costs estimated between £300,000 to £60 million.
A “no-deal Brexit” may also hinder or prevent imports of ingredients and raw materials into the UK with significant delays being a definite. This would be problematic for both food and drink organisations and consumers. There are also concerns about tariffs being imposed on imports and exports after the UK’s departure from the EU.
What measures could organisations adopt to minimise disruption?
One possible measure which could be employed is “stockpiling” goods. Stockpiling is being done by organisations such as Mondelēz International (owner of Cadbury), as part of its contingency plans in anticipation of Brexit. Since it is likely that UK Sterling will be devalued in the event of a “no-deal Brexit”, stockpiling goods pre-Brexit will assist if the price of ingredients subsequently increases.
However, stockpiling does not come without problems – there are difficulties associated with storing products with a short shelf-life which cannot be stored for long periods e.g. fresh produce. Stockpiling also requires suitable warehousing which is a cost and may not be available.
Another measure is to agree a pricing mechanism with suppliers which takes into account a variation in costs associated with importing goods to the UK from the EU, ensuring that suppliers continue to receive payment for goods. It can give both parties additional comfort about how price fluctuations and import and export charges may be dealt with under the agreement.
Another means of avoiding obstacles post-Brexit is for businesses to apply for Trusted Trade Status by obtaining an AEO Certificate. If your business has AEO status, it demonstrates that your customs controls and procedures are deemed to be efficient and comply with EU standards. By obtaining AEO status, administrative burdens can be reduced and, in certain situations, this will enable shipments to be ‘fast-tracked’ through customs post-Brexit. To benefit from this, businesses must be organised and take action as soon as possible.
Steps for food and drink organisations to take now
- If your business has not started to consider measures which could be put in place to ensure continued trade it is not too late but time is running out. In order to begin the process of implementing arrangements in anticipation of Brexit, your organisation should:
- Identify which parts of the supply chain the UK’s exit from the EU will affect the most.
- Consider what alternative arrangements could be made to simplify matters. For example, could products which are imported from outwith the UK be sourced elsewhere within the UK?
- Consider what contingency measures are most appropriate to your organisation’s specific circumstances. For example, obtaining additional storage in order to stockpile goods might be suitable for some businesses, but not others. Businesses should also consider what its cash flow needs will be in order to make suitable arrangements with suppliers and customers.
- Adopt “scenario modelling” in order to identify various potential consequences for your business post-Brexit. This will assist businesses in identifying areas where there may be problems and in ascertaining arrangements which could be put in place to overcome these problems.
- Review supply, manufacturing and distribution agreements to (i) insert appropriate “Brexit” clauses and (ii) address any anomalies. For example, if a distribution agreement defines the “Territory” as the EU ensure it is amended to cover the EU and UK post-Brexit.