Hidden cost of a no-deal Brexit will reveal itself in the price of your weekly shop
David Thomson outlines the effect of the EU’S ‘rules of origin’
Food and drink is a vital part of our daily lives. There is no sector with more at stake in the Brexit negotiations than food and drink – in Scotland the full food chain has an annual turnover of over £14bn and employs around 114,000 people.
Everyone is feeling the impact of Brexit already. But most people don’t know that one of the key challenges for food and drink businesses in future trade negotiations could be ‘rules of origin’. You may not even understand what they are. I don’t blame you – it’s not something that has been talked about much and it is very complicated!
Rules of origin are effectively the small print in an international trade agreement which determines whether an exported product faces a tariff (essentially a type of tax). In the event of a UK-EU free trade agreement, these detailed rules will decide if manufactured products exported from Scotland to the EU are sufficiently ‘‘British” so that customs officials can apply the correct tariff or duty to the product.
At the moment, food and drink products move freely between the UK and the EU without facing tariffs or origin requirements. The UK Government has set out its intention to negotiate an ambitious free trade deal with the EU and the Chequers Agreement talks vaguely about avoiding ‘routine requirements’ for rules of origin between the UK and EU.
We hope they are successful in
avoiding any tariffs on food and drink traded between the UK and the EU. My concern is that businesses on both sides may still face a hidden hard Brexit because of rules of origin.
Food products could face strict limits on the weight or value of essential non-british imported ingredients such as high-quality wheat, rice or cane sugar. This is a hugely important issue for manufacturers in both the EU and across the UK. Scotland is a major producer and exporter of high-quality food and drink, with export sales worth over £6 billion.
Our manufacturers are committed to using local ingredients, but this is not always possible. Many food and drink products we enjoy every day contain a mix of ingredients originating from the UK and further afield. This is because certain ingredients cannot be produced in the UK, or not in sufficient quantities to meet the needs of producers and demands of customers throughout the year.
Take, for example, a product most of us enjoy every day, a loaf of bread. An everyday wholemeal loaf is made
in the UK and exported to the EU and the Republic of Ireland. The flour is milled in the UK from a blend of grains that varies throughout the year – sourced from a range of growers from the UK, France, Canada and the US – chosen because of their premium quality and their availability.
At the moment, this baker doesn’t need to comply with EU origin requirements or documentation checks when exporting to valued customers in Ireland and elsewhere in the EU. If existing EU models of rules of origin were to be applied to UK exports, flour that has been milled in the UK using even a small amount of non-uk grain would prevent our baker from exporting under a preferential tariff.
What would this mean for your weekly shopping basket? Some UK manufacturers could face difficulties accessing sufficient volumes of ingredients at competitive prices that allow them to supply domestic and export markets. In fact, they may lose valuable export deals to the EU because of these costly tariffs.
EU products containing non-eu ingredients could similarly face high import tariffs on entering the UK. This could all lead to the price of your weekly shop increasing, or even worse, a reduction in the choice of products available on the shelves at your local supermarket.
If the outcome of Brexit is a free trade agreement, these complex rules of origin for food and drink products will be set during negotiations to determine our future trading relationship with the EU. Scottish, UK and EU Governments need to ensure that any new agreement avoids disruption to established supply chains that are central to the economy and to our food security. The EU and UK must continue to provide shoppers with the fantastic array of safe, affordable and nutritious food and drink that they expect to enjoy every day.
David Thomson, CEO, Food and Drink Federation Scotland.