Like a rogue sock in the laundry Brexit has coloured every commercial conversation for the last two years and it will have a massive impact on the food and agri sector for decades to come.
Preparing for the seismic change that Brexit entails is extraordinarily difficult, especially when details are thin on the ground.
At the time of writing, Theresa May had secured a Brexit deal with the EU that came in two parts. First is the legally-binding, 585-page withdrawal agreement that sets out the terms of the divorce.
Second is the statement on future relations – which is not legally binding – outlining the type of relationship the EU and UK want to have in the years ahead.
If the deal wins approval in parliament then the UK will progress along the lines detailed in the two documents. If it does not, then it becomes more likely the UK will leave the EU without a deal, while other scenarios include a second referendum, a general election, and/or extending – if possible – the exit date of 29 March 2019.
The food and agri sector already faces many challenges, ranging from plastic waste and recent CO2 shortages, to cyber security and retail market consolidation. But Brexit has taken up a huge amount of bandwidth, preventing companies from focusing as much resource as they would like on these other issues.
The leave result in the 2016 referendum was a bitter pill to swallow for the 71% of the Food and Drink Federation’s (FDF) members who were in favour of remaining in the EU.
It is little wonder so many wanted to remain, given the GBP 11 billion of UK food and non-alcoholic drinks exported to the EU annually. We also import 30% of the food we consume from the EU – the European market is literally our meat and drink.
Companies in the food and agri sector have spent a long time assessing the potential impact of Brexit on their businesses. In the first quarter of 2019 they will have to validate these assessments and ensure remodelled strategies are ready to deal with the changes ahead.
The UK food and drink manufacturing sector employs 117,000 EU workers – accounting for almost a third of the total workforce. Forecasts from the FDF suggest the industry will need an additional 140,000 recruits by 2024.
Individual companies must assess their current and future reliance on EU workers and for many finding the future staff they need will be difficult.
It is, therefore, more important than ever to keep hold of existing staff and Brexit demands that you and your EU employees understand the Settlement Scheme and negotiate it as needed to ensure staff secure the appropriate status. This is an area where employers could provide practical guidance and support to EU staff.
The need to reduce churn and attract new workers makes it important for companies to consider the Employment Value Proposition (EVP) they offer.
Research from CEB Gartner shows that strong EVPs can reduce the compensation premium needed to hire these employees by 50%, while enabling companies to reach 50% deeper into the recruitment market to attract passive candidates.
CEB Gartner says strong EVPs also enable organisations to decrease annual employee turnover by 69% and increase new hire commitment by 29%.
An effective EVP will improve HR performance and position companies well to meet the labour market challenges that Brexit will exacerbate. JLT Employee Benefits are already helping a number of businesses achieve these attraction and retention improvements.
The EU seeks to deliver frictionless trade and coming out of that system will throw up barriers to work around.
UK companies, for example, can use currently constituent raw materials from any of the EU’s member states and trade within the EU or worldwide under deals agreed between the EU and its trading partners.
After Brexit the raw materials used by UK companies from EU suppliers will have a different classification. This will likely create significant administration and carry financial, legal and regulatory implications.
Similarly, supply chains running through the UK and EU will need to be de-coupled and reconnected in accordance with the Brexit deal.
Maintaining business-as-usual relationships during this transition will be difficult. It will necessitate close and detailed communication between stakeholders, and likely result in short-term and potentially ongoing increases in transit times.
As the UK steps out from underneath the EU’s regulatory umbrella, companies will have to assess how this affects their ongoing relationships with suppliers, customers and market regulators.
The lion’s share of labelling rules that UK companies have to meet are currently set out in EU Regulation 1169/2011 on the provision of Food Information to Consumers, and the related Implementing Regulation 1337/2013 on the country of origin of certain meats.
This will no longer be the case after Brexit, although most of the rules will be rolled over and incorporated into UK legislation. However, labels will need to change. For example, the use of the term ‘EU’ in origin labelling will no longer be correct for food or ingredients from the UK.
Companies will have to understand the required edits to labels, the timeframe in which they must make changes and the implications for products with old labelling already in circulation.
Getting plans nailed down now will mean they can be enacted in tandem with the UK’s transition out of the EU, in whatever form it ultimately takes.
But companies may also find themselves creating new liabilities and exposures as they prepare themselves for Brexit.
For example, one contingency plan that has made the headlines is stockpiling. This applies both to the amount of raw materials UK companies are gathering on this side of the future EU border and the number of completed export units they are storing on the other.
This stockpiling will buy companies time to deal with possible delays, but it also changes the risk profile of their business.
Theft, fire, and transport exposures will all be affected by stockpiling. Existing sums insured may be rendered insufficient (by volume and exchange rate adjusted values), breaching policy terms and conditions.
In seeking solutions for Brexit companies must not inadvertently increase their liabilities and exposures. Working closely with your broker throughout the process will let you manage your corporate risks profile effectively and avoid unintended outcomes.
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For further information, please contact Joyce Leo, Senior Executive of Food & Agribusiness at Joyce_Leo@jltasia.com .