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The Impact Of Brexit On The UK Food And Drink Industry

13/04/2017 11:48 BST | Updated 13/04/2017 11:49 BST

When most people think about the impact Brexit could have on the UK food and drink sector, labour seems to take the top spot. A third of the workforce are EU nationals, many of which are working in the UK to send remittances back to their families abroad. For these people the devaluation of the pound has been quite troubling, slashing their income by around 20%. If they were to leave the UK and seek more profitable opportunities elsewhere it could place a great deal of strain on the industry and drive up prices. And it's the consumers that would foot the bill - a problem we could all certainly do without.

But, since the referendum only a small number of EU nationals have left the UK. While that's not to say that the food and drink sector won't be deprived of its workforce in the future, at present there is a much greater risk that needs addressing...

The UK/Irish Border

The border between the UK and Ireland is far more of a concern than the loss of foreign labour. As the UK's only land border with another EU country, and with over 200 rural roads linking the north to the south, the implementation of major restrictions would be a mammoth undertaking.

Ireland is the UK's most important trade partner - and vice versa - in the food and drink industry for both imports and exports. To put it into perspective Ireland purchases nearly a fifth of the UK's food and drink exports, which is more than the United States, China, Russia, Brazil, Canada and Japan combined. As the British/Irish supply chain is currently, and completely integrated, the method by which border control is implemented will make a huge impact on the industry. Therefore, securing an early agreement with regards to how this will be handled is of paramount importance for both sides.

The Potential Economic Problems

A "hard Brexit" would be detrimental to the British economy. For example, dairy products have a 36% tariff, and 25% of all of the UK's milk is imported from the EU. Therefore, if Britain doesn't strike an agreement and becomes subject to tariffs, there would be a substantial rise in the price of dairy products.

In addition, most dairy suppliers operating on British soil are European companies that would have to make significant investments in resources, equipment and labour to bring production lines entirely to the UK. Many of them will simply regard it as too big a risk and would either move production to another EU country or cease operations entirely. This outcome would also increase demand and drive up prices.

The UK's Negotiating Hand

According to Simon Mills, owner of Dehum, "The food and drink industry is worth over £21.9bn to the UK economy - almost the same as the automotive and aerospace industries combined." But it's not just bad news for Britain if a decent deal cannot be negotiated - it works both ways. And fortunately, the UK does have a strong negotiating hand.

Meat crosses the Irish border several times throughout the butchering process, which would affect businesses on both sides of the border if there were restrictions and tariffs. The UK also supplies roughly 80% of Ireland's flour. Failure to reach a suitable agreement would, therefore, increase prices for EU countries within certain sub-sectors.

Additionally, some countries outside of the EU initially arranged agreements with the EU in order to gain access to the UK marketplace. If they were to lose this access they may demand a renegotiation altogether. Of course, this is another outcome that the EU will try to avoid. In short, both sides have good reason to seek a mutually beneficial trade deal.

Fortunately, Theresa May has stated on numerous occasions that she will be seeking a frictionless border between the UK and Ireland, and both sides seem to agree that the future arrangement should have a prompt resolution. Nevertheless, it's imperative that businesses have time to adapt to any new customs arrangements, even if they end up being quite lax. If not, we could be looking at some serious inflation in an industry that has - due to the competitive nature of the supermarket business - been built on deflation.