Impact of Brexit on the Food Industry

"This is the best possible agreement and the only one possible", president of the European Commision, Jean-Claude Juncker, said at a press conference afterwards. The deal has yet to be approved by the European and British parliaments. 

Summary:

• 27 EU leaders agreed with Brexit deal
• The status of Gibraltar was removed from the agreement
• Provisional agreement is still to be reached by both the European and British parliaments

The United Kingdom shall leave the Union on 29 March 2019. So what does this agreement mean to food companies? The agreement in principle, which was reached earlier this month after a marathon session of negotiations, regulates the British withdrawal. There is also a declaration of intent on the future relationship between the UK and the EU, which also reaches the commitment between borders and, implicitly, the transportation of food between the two parties. Theresa May, UK Prime Minister, announced at another press conference on Sunday afternoon that the British Parliament would vote on the agreement before Christmas. Opposition leader Jeremy Corbyn (Labour) has already announced that he will vote against the May agreement. He said it was a 'worthless outcome of the negotiations'. The most sensitive issue is Northern Ireland. If the UK leaves the European Union, there will be a hard border on the island of Ireland. After years of unrest and violence, both parties want to prevent this from happening, so first of all agreements have been made about the transition period. It can be extended until 2022, provided both parties agree.  The food industry will feel the consequences of the Brexit, whether we’ll deal with a hard or a soft Brexit. At the moment, the transportation trucks can easily reach the UK, but this will change when the UK is not part of the EU anymore. 

Backstop' acts as an emergency solution

40% of UK foods are being imported and thus food supply chains, especially fresh produce ones coming from Ireland, are becoming more fragile. If the negotiators do not agree on the Irish border during the transition period, the so-called 'backstop' will take effect. It was agreed that the United Kingdom would temporarily remain in a customs union with the EU. The customs union applies to all products, except those from the fishing industry.

The food industry will feel the consequences of the Brexit, whether we’ll deal with a hard or a soft Brexit. At the moment, the transportation trucks can easily reach the UK, but this will change when the UK is not part of the EU anymore. The agreement states that the United Kingdom cannot leave the backstop independently. As long as they are not out of it, the government of May cannot independently conclude trade agreements with other countries. 

Spain threatened to disrupt summit meeting

Spain is UK's nr. 1 cauliflower importer. But until one day before the Brexit summit in Brussels, it was uncertain whether the meeting would take place. Spain was in danger of not coming if it did not receive guarantees about Gibraltar. That peninsula, completely enclosed by Spain, has been in British hands since 1704. Madrid wanted the right of veto in future negotiations on the status of that British territory.

After intense negotiations between Madrid, Brussels and London, Spain was given that guarantee, as was the UK's promise that the southern European country would be involved in all talks on Gibraltar. Life in the British territory is closely interwoven with life in Spain, with a busy movement of goods and people at the (still) loosely guarded border. The status of Gibraltar has been completely removed from the agreement in principle on British withdrawal. According to connoisseurs this is a big victory for Spain and a defeat for the British: on the unity of the countries in the United Kingdom, considered holy by May and her hair, it turns out that under pressure some things can be denied.

Financial markets
 
British banks' access to the European Union is also restricted. The terms of the agreement provide that authorities in Brussels will have the power to block British financial institutions' access to the European market. This happens when there is a so-called level playing field. It has been agreed that the UK should not deviate from the EU in the areas of competition, taxation, state aid and labour and environmental standards during the backstop period.

Fisheries are the centre point

The UK exported 442,000 metric tons of fish in 2017 and four of its top buyers are in the EU. Fishermen are worried the UK government will oblige British-flagged vessels to land UK quota at British ports. With Britain in the EU, the fishermen can simply shift quotas from one ship to another. After Brexit, however, the UK will likely fall under a similar quota regime to Norway, meaning it is the European Commission that will negotiate quota shares. According to the draft agreement, import duties will be charged on British fish until a final agreement is reached on access to British waters. A decision on this has been postponed. 

Food companies should consider how to position their business in these times of turmoil. Time is of the essence in the food industry and transportation times will increase this time, leading to loss in revenue. Stay tuned to our channels and find out more about the Brexit developments.

 
Sources:
The Guardian
BBC
Politico