How post-Brexit duties could stack up for UK food exporters

How post-Brexit duties could stack up for UK food exporters

Branded food manufacturers based in the UK face a risk that their exports to the European Union will attract duties now the UK government has confirmed it will push ahead with plans to leave the EU following the Brexit referendum result. These could be imposed after the two years of mandated talks on a future relationship with the EU following a UK decision to trigger Article 50 under the Treaty on European Union. just-food examines what the most likely duty scenarios are for UK food companies exporting to the country's largest overseas market.

The EEA model?

If Britain then refuses to allow free movement of EU workers into its economy following talks with the EU on a future relationship, it will almost certainly be barred from the European Economic Area (EEA). This is a halfway house EU membership used by Norway and Iceland. It involves duty free trade in industrial goods, such as food manufacturing equipment and packaging materials, but not food and drink exports, which are can attract EU tariffs. These are levied on Norwegian and Icelandic products such as cheese, meats, shellfish, fruit and vegetables, for instance. Examples include 2.4% duties on smoked crab products; and 4.2% and 12% on shrimps and prawns.

But with the new UK government of Prime Minister Theresa May saying she recognises that a key force behind the referendum vote was a dislike of unrestricted immigration from the EU, Britain will probably have to forge a new bilateral trade deal with the EU that could be looser than the EEA and maybe involve additional duties being charged on British exports.

The Swiss arrangement

Such an agreement could look like the relationship Switzerland currently has with the EU. The Swiss remain outside the EU and the EEA, but have extensive free trade with the EU for industrial goods, as with Norway. There are, however, some significant duties on Swiss food exports to the EU. For instance, regarding butter, EUR94.80 per 100kg is charged on some exports, and EUR231.30 per 100kg on others. There are 20% and 12.8% plus EUR176.80 per 100kg duties imposed on Swiss frozen high quality beef and veal; 23% on preserved cooked mushroom exports; a 2% duty imposed on Swiss salmon product exports.

The reality is, however, is that even this preferential agreement might be out of reach for Britain, Switzerland's special EU market access has also been based on accepting that EU citizens can live in Switzerland and this deal could unravel - the country is preparing to implement its own immigration caps by 2017, following its own referendum in 2014. As a result, talks on giving Swiss exporters even better access to EU markets have been frozen – and some of the existing Swiss EU trading rights might ultimately be lost. The same fate could face a UK government determined to impose EU immigration caps.

The WTO option

If the EU played hard ball, Britain might have to accept the basic World Trade Organisation (WTO) member state standards for trade with the EU, and then more duties could be applied. This could include, for instance, 8.8% duties on processed potato products; or EUR71.90 per 100kg on British cheese exports; 9% on biscuits and cakes; and 43% on chocolate exports, for instance.

What would duties mean for UK food makers?

Obviously, any new duties could be damaging to British food exporters who rely heavily on EU markets. As an example of how EU sales are important to the branded food sector, Agriculture and Horticulture Development Board figures showed that in 2015, EU-bound exports accounted for 84% of UK potato crisps exports. Indeed, the annual EU-bound export volume of UK crisps surpassed 25,000 tonnes for the first time in 2015, growing 7% year-on-year.

Meanwhile, according to the UK's Department for Environment, Food and Rural Affairs (DEFRA), 85% of all UK shellfish exports, generating GBP360m (US$471m) in sales, went to the EU in 2015. British salmon exports to the EU generated GBP22m of sales in 2015, with exports of all UK fish and fish products to the EU creating GBP900m in 2015. The UK exported GBP140m-worth of butter to the EU in 2013.

Commenting on the potential problems facing the UK food industry regarding its market access to the EU post-Brexit, the Food and Drink Federation's director general Ian Wright told just-food: "Government must prioritise tariff-free market access via a comprehensive UK-EU trade deal before proceeding with the Article 50 exit negotiation process."

A major concern for Wright, given that the UK has not negotiated its own trade deal since joining the EU in 1973, is its government ability to strike such agreements: "As a matter of urgency, government must address the lack of capacity and capability for conducting trade negotiations," he said. "The loss of tariff-free access to imports from the EU would pose a grave threat as many manufacturers would struggle to secure alternative sources," he added.

Wright suggested that a particular priority was beginning discussions with the Republic of Ireland on the long-term future of cross-border trade with Britain's closest neighbour and a remaining EU member state.

One possible source of help for the government would be the UK's Agriculture and Horticulture Development Board (AHDB), said its chief executive Jane King. She said: "AHDB has the skills and expertise to contribute to this work in areas such as market prioritisation, market access negotiations and facilitating relationships between UK exporters and overseas buyers. We stand ready to support the industry in identifying how it can best compete outside the EU.

"These issues will take time to resolve, but AHDB will play a full part in ensuring UK agriculture is a leading player on the global stage.

"Amongst other issues, the decision to leave brings to the fore the need for UK government to target the best new trading relationships we can for UK food and agriculture both with the EU and other countries."

The tariff issue will especially be a point of concern for major corporations, who have used the UK as an access point to the EU single market. A spokesperson for Yildiz Holding-owned United Biscuits, explained: "Britain is the central export hub for the UB business globally, with some 60,000 tonnes of product to be shipped from the UK across 2015, worth a total of GBP250m in retail sales for the year."

But he stressed that if EU access can be assured, then the post-Brexit future of companies such as UB – already being integrated into Pladis, a global food business by Yildiz - can still be bright. Two-thirds UB export sales were composed of the "iconic McVitie's Digestives range, with the quintessentially British brand experiencing a worldwide boom in popularity. Exports for the original McVitie's Digestive alone have increased by 20% year-on-year in 2015," he said.