UK food imports from EU face ‘£9b tariff bill’ under no-deal Brexit
UK government is expected next week to spell out its plan to mitigate a potential £9 billion foodprice shock from a no-deal Brexit, as analysts predict the cost of staples such as beef, cheddar cheese and tomatoes could soar.
With just over a month until the Brexit deadline, the Department for International Trade is expected on Monday to publish a list of new import taxes, or tariffs, that will apply to 5200 products, including food and clothing, should the UK crash out of the EU without a deal, according to theguardian.com.
The relationship with the EU is key to the price of food because nearly one third of the food eaten in the UK comes from the bloc. At this time of year the situation is more acute because, with UK produce out of season, 90 percent of lettuces, 80 percent of tomatoes and 70 percent of soft fruit is sourced from, or via, the EU.
“Food and drink tariff rates will be higher than those in any other supply chain,” said Richard Lim, the chief executive of consultancy firm Retail Economics.
“All stages within the food supply chain will experience increased costs, with retailers hit disproportionately as processed goods attract higher duties than raw materials and semi-processed goods.”
In 2017 the UK bought about £34 billion of groceries from the EU, which arrived on supermarket shelves and at factory gates without being hit by customs duties or other trade costs. But if the UK leaves the EU without a deal, both will fall back on the ‘most favored nation’ tariffs of WTO (World Trade Organization), which means they must pay import duties on each other’s trade.
On that basis the UK’S 2017 EU food imports would come with a hefty £9.3 billion tariff bill on top, according to Retail Economics’s analysis.
“The worst case scenario is most favored nation tariff rates for everything,” explained William Bain, a policy adviser at the British Retail Consortium, who said even if the plan now is to cut tariffs on some products, time was running out for retailers take action.
“We may see some movement on some products but this is with five weeks to go,” he said.
“Retailers’ cashflows are very sensitive and they have only got 35 days to make important IT changes and train staff. This is not a good place for retailers to be in at all.”
Tariffs are paid by the importer and can be levied in different ways. It can be a flat-rate tariff linked to weight — as is the case with cheddar cheese — or calculated as a proportion of the overall value of the goods. It can also be a mixture of both. A country can set a quota, enabling a certain volume of a product to flow in before a higher tariff rate kicks in.
The BRC said increased tariffs and new regulatory checks in the event of a no-deal Brexit could increase the cost of sourcing some everyday food items by up to 45 percent.
The retail organization said, however, that it is hard to predict exactly what the impact will be on shoppers’ pockets as a result of other factors, such as currency movements and commodity markets.
But the imposition of WTO tariffs on beef sourced from the EU could increase the price by anywhere between five percent and 29 percent, it estimates. Tomato prices could rise by nine percent to 18 percent and cheddar by between six percent and 32 percent.
“There isn’t a direct relationship between tariff costs and consumer prices,” said Bain, due to the fact not all the food we buy is imported and quantities vary depending on the time of year.
But the direction of travel for prices looks clear, as demonstrated by Britain’s favorite cheese: Cheddar. In 2016 the UK bought almost 93,000 tons of cheddar from Ireland tariff-free, but without a trade deal that cheese mountain would attract an import duty of €1671 (£1451) per ton. That adds up to a bill of €155 million (£134.6 million) according to a Dairy Industry Ireland (DI) study.
DI director, Conor Mulvihill, said that with the current market price of cheddar at around €3000 per ton, the imposition of tariffs would equate to a near 56-percent increase in sourcing costs for British food companies buying cheese from Ireland. “There will be a cheddar shortage unless retailers are willing to pay 50 percent more,” suggested Mulvihill.
“Prices for consumers will inevitably rise.”
There had been reports that Britain was considering a zero-tariff regime in a no-deal situation, but on Tuesday Michael Gove, the environment secretary, told the National Farmers’ Union annual conference that would not be the case. The tariff schedule would be published in the ‘next few days’ he said, promising “protections for sensitive sections of agriculture and food production”.
One source told the Guardian that the government was grouping foods into bands with ratcheting tariff levels. Foods such as oranges and bananas, which are not grown in the UK, could be zero-rated, but ‘sensitive’ products — such as beef and cheese — would be managed with a combination of WTO tariffs and a quota.
Lim said if tariffs stoked food price inflation it would hit the less affluent hardest because they spend a bigger percentage of their income on food.
“Will retailers be able to pass on higher sourcing costs to consumers in this fiercely competitive market?” he asked.
“Retailers will have to look at sourcing from other countries ... whether that leads to poorer quality, less choice and higher prices will depend on a product by product basis.”