Introduction
- FDF is the voice of the UK’s food and
drink industry, the UK’s largest manufacturing sector. FDF
represents and advises food and drink manufacturing firms across
the United Kingdom, including leading brands and home-grown
businesses, large and small. BSDA represents producers of soft
drinks, still and dilutable drinks, fruit juices and bottled
waters. In Wales, the food and drink industry accounts for
£4.3 billion in turnover – which has increased by 55
per cent over the last five years. This is significantly more than
Welsh manufacturing in general, which grew by 11 per cent. The
sector contributes almost £1.5 billion to the Welsh economy,
supports more than 22,100 jobs in Wales, contributes more than
£337 million in Welsh exports, and invests more than £4
million in innovation, research and development.
- As the sector that faces the greatest impacts
as a result of Brexit, Welsh food and farming has much at stake in
the negotiations. As the Welsh Government’s Brexit trade
paper highlights, food and drink is particularly vulnerable to both
tariffs and non-tariff barriers, with World Trade Organisation
(WTO) tariffs for sugars and confectionary, cereals and meats
reaching up to 50 per cent. The paper also outlined that falling
back onto WTO rules would mean higher commodity prices and so
higher food prices.
- We are ready to seize any new opportunities,
whether in exports, domestic sourcing or greater innovation.
However, to maintain the quality, choice, and value that consumers
and shoppers demand, we are looking for four key outcomes for our
industry:
-
- The right to remain for valued EU citizens,
and in the medium term, access to the skills and talent we need to
address our sector’s skills gap.
- Zero-tariff and frictionless trade across
borders.
- Recognition of the island of Ireland’s
special circumstances.
- Stable regulatory framework to maintain
consumer confidence in the safety and authenticity of UK food and
drink.
- Securing a status quo transition period is an
immediate priority for the sector and we hope swift agreement will
be reached by the March European Council. We cannot afford a
‘cliff edge’ scenario and businesses need to have
confidence in ‘day one’ readiness on both sides of the
Channel. Any transition period must maintain the ease of trading
currently enjoyed so that businesses have continued access to vital
imported ingredients and export markets, and avoid the need for two
points of change.
- The transition period should have a clearly
defined start and end point and the duration provided should not be
decided arbitrarily. The length of time required for importers and
exporters in UK food and drink manufacturing to adapt, change and
test their systems will vary significantly from business to
business. This will depend on a range of factors, including the
product sector, the complexity of value chains across the EU and
their existing experience of trading outside the EU. For some
businesses, this can be achieved relatively quickly, painlessly and
with minimal cost, however for others this will present a more
significant challenge.
- Crucially, this should avoid the need for two
points of change. This would create additional complexity,
necessitating further negotiation with the EU to put in place
implementation procedures and would generate additional costs for
businesses and Government alike.
Towards sustainable growth
- We are delighted that in the “Towards
Sustainable Growth: An Action Plan for the Food and Drink Industry
2014-2020”, the Welsh Government set out its aim to grow
output for the sector by 30 per cent to £7 billion by 2020
and increase the profile and reputation of Welsh food and
drink.
- We welcome the Cabinet Secretary’s most
recent Statement on the Welsh food and drink industry made on 23
January 2018, which highlighted the significant challenge to the
industry that is posed by Brexit. We agree with the Cabinet
Secretary that we should embrace change in mindset, processes and
structures, and we are eager to make the most of the potential
opportunities that could arise from the UK leaving the
EU.
- For example, we believe exports growth is a
key area of opportunity, building on the excellent reputation of
Welsh food and drink for quality and provenance. Looking to
individual markets, China, India and the UAE come out as the top
three targets for exporters, however businesses currently struggle
to enter these markets due to their complexity, cost and
unfamiliarity. In the case of China, FDF research shows that the UK
lags significantly behind EU competitors in terms of both market
share and export growth.
The right to remain for valued EU citizens, and in the medium
term, access to the skills and talent we need to address our
sector’s skills gap.
- Food and drink manufacturers in the UK, like
the rest of the agrifood supply chain, benefit from bringing in
skilled labour from outside the UK. Around 30 per cent of the
UK’s food and drink manufacturing workforce are non-UK EU
nationals – almost 117,000 workers. They bring with them
talent, spending power, flexibility and huge diversity.
- FDF leads an EU Exit workforce group, with
farming, food retail and hospitality bodies. Our joint August 2017
report ‘Breaking
the Chain’ revealed that an abrupt reduction in the
number of workers from the EU able to work in the UK after Brexit
would cause significant disruption to the whole food and drink
supply chain. Almost half (47%) of businesses surveyed said EU
nationals were considering leaving the UK due to uncertainty
surrounding their future, and over a third (36%) said they would
become unviable if they had no access to EU workers. The
report’s recommendations to Government included reviewing the
recording of immigration data, increasing efficiency through
adequate Home Office resourcing and investment in skills
provision.
- While companies are working hard to build
their pipeline of home grown talent, achieving this significant
step change will take time. Our sector’s growth potential was
already under pressure due to our ageing workforce, with the
industry needing to recruit a further 140,000 workers over the next
decade The UK Government and the Migration Advisory Committee must
work with industry to ensure practical and evidence-based
solutions. Automation does have a role to play in mitigating this
and improving the sector’s productivity, and we welcome the
UK Government’s Industrial Strategy and the formation of the
Food and Drink Sector Council, which will include this in their
forthcoming Sector Deal. However, we cannot afford a ‘cliff
edge’; which impacts on our ability to grow, produce and
serve the food we eat.
- With record high levels of employment in key
geographical locations, it is often a question of local labour
availability for the roles we are seeking to fill. Our sector
already faced a large skills gap due to demographic change. Across
the UK, we will need 140,000 new skilled workers by 2024. Future
migration policy must ensure that industry has access to the
workers it needs to address our skills gap, and that food and drink
gets its fair share.
- We welcome the reassurances from the UK
Government that EU workers will have the right to remain, but it is
vital that the registration system is simple, cost-efficient and
operational as swiftly as possible.
International trade: Continued tariff-free market access for
both UK food and drink exports and for vital imports of raw
materials
- The overwhelming majority of Welsh and UK
trade in food and non-alcoholic drink is with the EU – more
than 70 per cent of both exports and imports. On a UK level, 94 per
cent of exports and 97 per cent of imports of food and
non-alcoholic drink are with the EU or with countries that the EU
has signed or is negotiating a trade agreement. Data from the Value
of Welsh Food and Drink report shows that 88 per cent of all
exports in 2015 from Wales were to the EU, worth £264 million
in 2015. Our members are committed partners of our domestic
agriculture industry, however they also often need to import
ingredients that are not produced in the UK or are not produced in
sufficient quantity to supplement their use of UK ingredients (for
example in spices or oranges). To meet consumer demand for
food, our industry must have access to sufficient supplies of raw
materials that are safe, of high quality and competitively
priced.
- UK food and drink manufacturers operate in
increasingly open and competitive markets when selling their
products. Manufacturers operate highly integrated EU-wide supply
chains, both for sourcing raw materials and selling finished goods,
while the largest producers have factories in both the UK and the
EU. The success of the UK’s largest manufacturing sector is
inextricably linked to our ability to import and export raw
materials and finished goods across borders.
- It is vital that Welsh Government recognises
the strategic importance of food production, and works with UK
Government to make sure that essential imported ingredients and raw
materials from the EU and countries with which the EU has
preferential trade agreements do not face tariffs or costly
non-tariff barriers after we leave the EU. This access is essential
to enable continued growth of both UK food and drink production and
exports, and to avoid the very real risk of price rises and reduced
product choice for consumers.
- A no-deal scenario could pose a real threat
to UK food and drink and the trade in our industry’s
products. The EU’s WTO Most Favoured Nation (MFN) tariffs for
agrifood and drink are significantly higher than for other goods,
with peaks of more than 100 per cent on many products. For example,
tariffs on meat can reach a maximum level of 104 per cent, fruit
and vegetables 157 per cent, oilseeds 170 per cent, sugars and
confectionery 127 per cent, and beverages 152 per cent.
- Food is part of the UK’s Critical
National Infrastructure and ‘just in time’ (JIT) supply
chains mean empty shelves in four days or fewer if supply is
delayed or interrupted. Most food has a limited shelf life and some
is highly perishable. Many manufacturers form part of complex
European supply chains, developing local specialisations which help
to boost company competitiveness. The ability to import and export
goods and ingredients seamlessly across borders is critical to
business models.
- The UK Government should also ensure
continuity between existing EU-third country preferential trade
agreements and successor UK agreements. Any change to trading terms
with these fifty or more markets would be hugely disruptive and
unwelcome. Any loss of international competitiveness could have
implications for domestic production and ultimately for the choice
and affordability of products enjoyed by consumers.
- When negotiations start with the existing EU
Free Trade Agreements (FTAs) and other trade-related treaties, the
devolved nations should be consulted prior to any final
agreements.
- Most food and drink products crossing the
EU’s external border are subject to a range of sanitary
and/or veterinary certification and inspection requirements which
necessitate physical checks at point of entry, including for animal
and plant health. These simply cannot be resolved through the use
of technology. At present, most of these mandatory physical checks
do not apply to movements of products between the UK and the rest
of the EU.
- However, without explicit agreement in the
negotiations, food and drink will be treated by the EU on a par
with existing third country requirements, adding significant
logistical challenges and costs, as well as potentially increasing
food waste if delays lead to spoilage of goods in transit. EU rules
for imports of meat, fish and plant products from third countries
pose clear risks, e.g. physical checks needed on 62 per cent of
fresh produce and 50 per cent of poultry and 100 per cent
documentary and ID checks.
- Delays at border would also threaten our
industry’s exports to the EU, which currently total more than
£12 billion each year. We know from experience that European
retailers will not tolerate delayed deliveries. Avoiding a hard
border during the transition period will be vital if we are to
maintain strong export growth into the valuable EU market which is
currently growing at a faster rate than sales to the rest of the
world.
- Designing and negotiating a new customs model
to put in place beyond the transition period, that delivers the
same ease of trading that UK food and drink currently enjoys with
the EU27 will be a major challenge. Government will need to put in
place customs arrangements that are as frictionless as possible and
as a matter of priority avoid disruption to supply chains that rely
on unimpeded movements of perishable ingredients and sales of
limited shelf life consumer products.
- Continued close cooperation will be required
between UK-wide authorities and EU counterparts. Technical
challenges will arise that require solutions on the EU27 side to
ensure trade that is as frictionless as possible. Frontier
authorities need to communicate effectively and efficiently to
ensure continued interoperability after the UK’s new customs
system enters into force. FDF also participates in the Welsh
Government’s Trade and Supply Chain Working Group which
regularly discusses the potential challenges that may arise in this
area.
Recognition of the island of Ireland’s special
circumstances
- Our future trade arrangements are of
particular importance in the case of the Republic of Ireland, the
UK’s only land border with the EU. The UK is Ireland’s
largest trading partner in food and drink. It buys more from us
than the United States, China, Russia, Brazil, Canada and Japan
combined. Nearly a fifth of UK food and drink exports go to
Ireland, with more than a third of Ireland's reaching UK shores.
Many of those exports/imports come through the North and South
Wales ferry routes to Ireland.
- There are enormous practical challenges
facing us in food and drink. Most UK food businesses treat the
island of Ireland as a single territory. Workers, raw materials,
part-finished and finished goods cross the border, sometimes
several times. The UK and EU negotiating teams must swiftly agree
practical solutions which provide certainty for businesses around
the future of the seamless and highly valuable market in food and
drink that exists between Great Britain, Northern Ireland and the
Republic of Ireland. Agreement on mutual recognition of product
standards and regulations will be crucial to avoiding burdensome
health or veterinary checks.
- In the medium term, there will be an
opportunity for the UK Government to establish ambitious new Free
Trade Agreements (FTAs) with trade partners. We expect this will
provide new growth opportunities for manufacturers in terms of both
sourcing ingredients and raw materials, as well as opening export
markets to help fulfil our industry’s export growth
potential. At present, across the UK fewer than one in five food
and drink manufacturers actively exports their products
overseas.
Stable regulatory framework to maintain consumer confidence in
the safety and authenticity of UK food and drink.
- The safety and authenticity of our products
remains paramount for industry and continues to be the top priority
for FDF and BSDA members. The production, processing, distribution,
retail, packaging and labelling of food and drink is governed by a
wealth of laws, regulations, codes of practice, and guidance, the
majority of which are put in place at an EU level. Common
regulatory and legal requirements informed by sound science and
evidence allow companies to do business and trade on a level
playing field, while also protecting consumers. However, where EU
regulation creates barriers and burdens that limit
businesses’ ability to innovate we believe improvements can
be made where possible.
- FDF would want to continue to have access to
expertise and advice from existing European bodies, notably the
European Food Standards Agency (EFSA). Any proposed changes to food
and drink regulation as between the UK and EU – and across
the devolved administrations of the UK – should be subject to
detailed consultation with industry and we offer FDF’s
expertise for the task ahead.
- Agricultural and environmental policies are
fully devolved, so it is crucial that the UK develops a
comprehensive agricultural framework for the sector after Brexit.
It must be sensitive to needs of all the UK’s nations,
without creating new barriers for business across the UK’s
internal market.
- It will be vital to minimise regulatory
fragmentation across the nations of the UK, and to ensure
government has the right mechanisms to ensure mutual recognition
for seamless trade It is in no-one's interest to have, for example,
different composition or labelling rules in different parts of the
UK creating costs for business and confusion for consumers.
- How powers are devolved to the nations and
how the funding structure replacing CAP are crucial questions for
our sector. Ideally, these would be UK frameworks agreed equitably
between all the UK administrations as these are likely to provide
the strongest signals to business.