BREXIT: A Big Yes or a Resounding No?

Inward investment

The UK has been very effective at attracting inward investment in the food and drink sector. Many companies based outside of the EU choose to locate in the UK as a gateway into the EU market, making it the world’s third highest inward investment destination in this sector. Following a Brexit vote, it is unlikely that the flow of inward investment would be as great, especially from North America and Asia. It is, however, possible that some companies would see the advantages of a UK that is outside the EU, but still trading with it.

Food Safety

Those encouraging exit cite the fact that the UK could make its own food standards. It could also relax certain food safety rules, for instance, within the meat industry, and on hygiene and environmental standards. This would lower the cost of production and potentially give competitive advantage to UK-produced food when exporting outside of the EU or producing for the UK market.

It’s unlikely, however, that EU countries will accept this behaviour in the medium term and there is the danger of retaliatory tariffs being erected. In addition, any goods produced for export to the EU would need to meet EU standards. For simplicity of operation, it’s likely that factory standards would be held to EU levels as different standards within one company’s production facilities would create confusion and cost.

Impact On UK Agriculture Food Policy

Brexiteers like to cite the example of ‘bendy’ cucumbers and bananas as examples of where Brussels has unnecessarily interfered in the UK food and drink market. The recent Nutrient Profiles, a well meaning but counter intuitive attempt to stop high fat/salt/sugar foods making health claims never got off the starting blocks.

Most would agree, however, that fairly sensible legislation on limiting trans fats (hydrogenated fats) is coming, There is even an argument that the EU has been too timid.  For instance, laws on alcohol unit labelling and mandatory country of origin labelling on dairy and meat products have all been left to wither on the vine.

Trade Policy

Potential restrictions on immigration to alleviate social and economic pressures, could leave parts of the food industry, especially primary agriculture, very short of labour. This could well result in higher labour costs, scarcity of labour and therefore low or no profits for growers and packers . It could even result in crops rotting in fields and of course consumers paying higher prices. After exit the UK would need to negotiate new access agreements to the EU and other major markets with bodies like the EU, WTO in an incredibly short timeframe.

However, it’s worth noting that the UK did trade successfully with Europe in the post war period before entering the EEC in 1970s. Aside from what the terms of access would be, special concern must relate to the trade in services as well as physical food products. The UK runs a trade surplus in Food and Drink services such as market research, development and research, food product consultancy etc. and these would prove harder to agree open access.

Exchange Rates

It’s highly likely that in the period after a ‘Brexit’ vote the UK will enter a phase of economic turmoil. In the short term at least it is likely that Sterling will devalue for a sustained period. This is good news for exporters of food and drink, bad news for those importing into the UK as their prices will be higher. As the UK runs a net food and drink product deficit, the impact will be to raise food and drink prices in the UK.

This may be a benign dynamic, but given the intensity of competition in the supermarket sector it is not clear that rises in wholesale food prices will find their way into increases in retail prices. In this scenario, consumers would be protected by retailers’ pricing, but supplier’s margins would be squeezed further. However, a material devaluation would overall be good for UK food and drink exports and domestic producers for the UK market.

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