Brexit - new trading rules now apply for exporters

Brexit - new trading rules now apply for exporters

Andy Coyne examines the impact of new post-Brexit trading rules agreed by the UK and the EU, which came into force on 1 January.

It was always too simplistic to suggest the lack of a post-Brexit trade deal between the UK and the EU would result in chaos and, at the same time, posit the signing of one would result in export businesses carrying on exactly as before.

However, the new regime which came into force on 1 January has still proved something of a shock to the system.

While some of the resulting issues can be put down to teething troubles or a lack of preparedness because the deal was signed so close to the 31 December deadline, food manufacturers – like their peers in other sectors – are this week waking up to the fact the agreement has thrown up some unforeseen consequences and some longer-lasting challenges.

Essentially, these come down to organisational issues, additional bureaucracy and the associated financial burden. Sector watchers suggest extra inspections, more paperwork and changes linked to labelling, packaging and shipping among other things will become normalised over time but warn higher costs are something the industry will have to endure.

Early problems include delays getting food products into retailers. The UK's Marks & Spencer seems to have been especially badly hit with reports of empty shelves in its overseas food halls in France and Ireland while UK grocer Sainsbury's has reportedly been selling products from rival Spar in Northern Ireland because of shortages.

There have been early hold-ups at customs – notably in Northern Ireland – because hauliers have not got the right post-Brexit paperwork to hand.

Scottish seafood exporters have also faced difficulties shipping to the EU due to having to adjust to what industry officials have called "new complex trading rules".

That said, we haven't yet seen the lengthy queues of trucks heading to the docks that we saw in the UK pre-Christmas when France temporarily suspended lorries from the UK crossing the Channel because of fears linked to the new variant of the Covid-19 virus.

However, what is clear is the weight of traffic has been much lighter than usual because many food manufacturers in the UK and the EU are playing a waiting game, having anticipated early New Year problems, perhaps fearing a no-deal scenario.

Anecdotal evidence suggests many manufacturers have been stockpiling produce, which amounts to a problem delayed rather than overcome. Early-stage, light-touch compliance at customs checkpoints – some of the new certification processes will be phased in over the next three months – could also be viewed as a problem postponed.

Richard Clothier, managing director of UK cheese maker Wyke Farms, describes the cross-border trading environment now as being "more rigid and difficult" than it was before 1 January.

"There is additional paperwork and complexity but in time we will work with government to streamline it and to embrace new technology to take some of the costs out," he tells just-food.

"Northern Ireland is treated slightly differently and there is more complexity and there's no way around that."

Northern Ireland has remained a part of the EU's single market for goods while the rest of the UK has left, which means checks on many goods entering the province from Great Britain at new border control posts (BCPs) at Northern Ireland's ports.

There are some fears food manufacturers may think such additional 'hassle' is not worth the bother.

"GB [Great Britain] suppliers will have to decide if shipping to Northern Ireland is worth their while," says Michael Bell, executive director of the local industry body Northern Ireland Food and Drink Association (NIFDA).

Problems on rules of origin

It is a question food exporters are asking themselves more generally. One specific problem that has emerged is businesses now face tariffs – at World Trade Organization rates – on goods from the bloc processed at UK distribution hubs that are re-exported to other EU member states.

The fear is the regulations covering so-called rules of origin are effectively hindering existing supply chain models.

Dominic Goudie, head of international trade for UK trade association The Food and Drink Federation (FDF), says Continental suppliers are being forced to cancel the delivery of products to customers in Ireland and that some businesses will have to adapt their operations to avoid the tariffs.

He tells just-food: "The issue is around businesses with factories in the EU and the UK which operate supply chain models whereby products from the EU facility arrive in the UK and come out of the lorry, some for the UK and some for other markets. They don't qualify for UK origin status. As soon as those doors open and the good are unloaded it's a massive problem.

"It's a big problem for EU suppliers and goods are being cancelled every day at the moment, As many as 25 to 30 lorries a week going to Dublin are being lost. Businesses may have to re-configure their supply chains at additional cost."

Goudie is among those suggesting the situation could get more difficult over the next few week as trade levels increase.

"We are at the point where movement of goods is just starting up again," he says. "This could be the first of many such issues. I hope that won't be the case. Some companies are not shipping until they have seen the full impact of this – how rigorous the checks will be on things like heat-treated pallets and having the right type of paperwork.

Amongst those not shipping are UK meatpackers, according to trade body The British Meat Processors Association (BMPA). Companies in that sector are wary of the number of hurdles they need to overcome to export their produce to the EU, including export health certificates signed off by a vet and sanitary and phytosanitary (SPS) checks.

A BMPA spokesperson says: "Thus far, our members have largely steered clear of sending goods to the EU in order to avoid the predicted disruption at ports. However, this cannot continue and we expect to see a fuller picture emerge of how the new system is working over the coming days and weeks as exports resume.

"It is worth noting that there are several complex issues that still remain unresolved and which have a major bearing on trade in products of animal origin with the EU going forward. BMPA is working closely with the relevant authorities to resolve these issues."

EU-based packaged food companies, too, are trying to work their way through the demands of the new regime.

Willem van Weede, CEO of Dutch plant-based products manufacturer Vivera, which exports to the UK, says: "During the period of uncertainty around a possible hard Brexit, Vivera prepared diligently with our local partner to minimise any possible unexpected negative impact like disruptions at the borders.

"We are working in detail with Vivera's UK distributor Winterbotham Darby and transport company Muller. The main impact expected is an additional administrative burden, which is, or has been, worked out to the degree of detail possible."

Yves Regniers, CFO of Ter Beke, a Belgian business with a UK subsidiary (KK Fine Foods) but which also exports including pâté to the country, says his business took early precautions against the cost implications of Brexit.

"We had agreed upfront with customers that they would pay for incremental costs in respect of Brexit. These will now be limited to some transportation increases due to the customs requirements but be far more limited compared to what they could have been in case of a real hard Brexit with WTO tariffs," he says.

Impact on costs

Industry bodies and manufacturers seem to be accepting increased costs are an issue companies are going to have to deal with.

Goudie at the FDF quotes research that he says suggests annual, non-tariff-based costs of 8% and this chimes with what food businesses themselves are saying.

Clothier at Wyke Farms says: "The hassle factor comes with a 5% drop in the business we are doing, a turnover drop based on the lack of flexibility.

"We could previously send the product to our importer in France from where it could be batched together with other manufacturers' products. There is a rigidity now in that we have to do full containers. There's a lack of flexibility and some of the efficiencies have been lost because it is now harder to work with other European people. It makes trade less fluid and efficient."

Ireland-based stuffing maker Mr Crumb, which counts the UK as a key export market, is also weighing up the cost of the new trading rules.

Managing director Bernard Coyle says: "This has been a huge drain for exporting companies on management time and resources. All this bureaucracy comes at a hell of a cost. Every company will have to get one or two people trained up but then you need the hardware to go with it. We reckon we will be facing additional costs of EUR100,000 (US$122,600) to EUR200,000."

Like other food companies Mr Crumb had taken measures to mitigate against a hard Brexit. "We built around 12 weeks' stock in cold store in the UK so as not to be caught out.

"Now we are just about to send over our first [post-Brexit] shipment and there is paperwork around rules of origin, which affects packaging, you need to have a customs clearing agent and heat-treated pallets and all the correct paperwork.

"I think there is still a lot of detail to be worked out and there could be more hurdles to overcome."

The building of inventories appears to be fairly widespread but, as Goudie at the FDF, says: "The challenge there is the shelf-life of the product."

Clothier at Wyke Farms reveals the cheese supplier took an even more radical step to mitigate against the challenges of post-Brexit trade by setting up a separate EU-based entity in Ireland.

Northern Ireland, meanwhile, faces very specific issues. Whether companies in Great Britain will bother to clear the additional administrative hurdles to sell their goods there is one concern but another is the impact of the changes on the province's food exporters.

Bell at NIFDA says: "The four nations of the UK are very different places when it comes to food. Northern Ireland is an 80% net exporter. Most of what we produce is fresh, relatively short-life food – meat, vegetables, bakery etc."

While inventories have been built up, the nature of the food that is exported makes this more difficult than for packaged food businesses and Bell is another to suggest we haven't reached the real pinch-point yet.

"Covid-19 looks like it is going to peak at the end of January. That's when I see peak problems in terms of the movement of goods," he said.

While suggesting Northern Ireland's exporters are "getting on with it", Bell has longer-term concerns.

"Brexit will drive increases in cost, reduction in choice and increased food waste if we are not careful. Who will pick up the cost of this is to be determined," he says.

"I'm sure our friends at the end of the food chain will try to push the costs back up the supply chain but there is only so much that supply chain can absorb."

Other issues remain to be resolved. Goudie is hopeful agreement can be reached between the UK and EU over rules of origin and their affect on existing supply chains. It is, as he points out, in no-one's interest to see food companies paying tariffs on exports.

There is also uncertainty over whether the agreement includes protection for UK geographical indications such as Cornish pasties and Blue Stilton cheese. These may be subject to subsequent talks.

All food manufacturers and industry bodies spoken to for this article agree that the situation would be a lot worse if no trade deal had been agreed. Some are trying to stay positive, even those who are just embarking on a launch into the UK.

"Obviously, we are really pleased that an agreement between the UK and EU was reached, as a no-deal Brexit would have had a significant impact on our ability to efficiently export our products to the UK," Marc Coloma, the CEO and co-founder of fledgling Spanish meat-free firm Heura Foods, says. "With the deal as it stands, there may be some initial hiccups as both the UK and EU adjust to the new arrangements, but as a company, it's not something that we are overly worried about. There's no getting around the fact that there will be more bureaucracy but it doesn't change the fact that we are thrilled that people in the UK can now experience our products, and hope to expand further."

In the UK, having seen the 'nasty' side of Brexit in terms of additional costs and bureaucracy, exporters now want to see the 'nice' in terms of new trade deals opening up access to hitherto untapped markets.

Clothier at Wyke Farms says: "We have been promised deals with other economies and there haven't really been any so far that we didn't already have access to.

"We need to get delivery on what was promised. There will be no lap of honour until we [the UK] have a deal with one of the big economies the EU doesn't have at the moment, such as the US, India or a big South American economy such as Brazil.

"Most manufacturers would think the US was a bloody good deal but it does seem pretty remote."