UK – A recent study conducted by the London School of Economics on behalf of Arla Foods has laid bare the challenges that food manufactures in both the UK and European Union will face once the transition period is over.
According to a report by LSE, the Supply chains between the UK and the EU are closely interlinked with intermediary and final products and inputs, relying on tariff-free, barrier-free flow between the two parties.
Cross-linked UK-EU food supply chain
Data from LSE paints a good picture of how cross-linked the supply chains between the two regions are.
According to LSE, 40% of agricultural and food products consumed by households and businesses in the UK are imported from the EU while the agricultural and manufacturing sector imports 9% and 11% of its intermediate inputs from the EU.
When it comes to dairy, over 15% of inputs used in the UK industry are imported and, of those, 99% come from the EU.
Meat industry is another highly connected sector with some 85% of Danish and 53% of Dutch exports of certain meat products going to the UK.
UK’s food industry also heavily relies on the EU for labour with approximately 25% of workers in the manufacture of food products industry coming from the EU.
Warehousing and support which is an important downstream industry for the distribution of food and beverages is also heavily reliant on EU labour with some 19% of workers coming from the region.
Impact of Brexit
According to the LSE, the impact of Brexit will disproportionately affect the food and beverage sector, particularly fresh produce.
LSE projects that the average reduction in UK food exports to the EU will be 63.2% in a no deal scenario and 22.5% under a Free Trade Agreement.
On the EU side, LSE says that the average reduction in food exports to the UK will be 61.7% in a no deal scenario and 22.6% under a Free Trade Agreement.
Either way, there is an expected reduction in the number of products freely moving between the two countries, a factor which will affect supply of certain products with additional costs arising from the barriers being transferred to the consumer.
LSE notes that potential tariffs and administrative and regulatory costs will represent the highest cost for operators from both the UK and the EU.
Moving forward
As tariffs present the highest potential cost for operators, a tariff-free trade is crucial to avoid the most negative effects of Brexit on the food supply chain and consumer choice.
Tariff-free trade between the UK and EU must thus be maintained which, due to World Trade Organisation rules, is only possible if a trade agreement is secured.
A no deal Brexit would be devastating for the UK food sector and there is therefore an urgent need for the two sides to reach a deal to cushion consumers for high food prices and scarcity of essential food items.
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