24.In its Cross Whitehall Briefing, the Government has estimated that non-tariff barriers could have a disastrous impact on the food and drink sector by increasing costs by approximately 17 per cent in tariff equivalent. The evidence we received was likewise unanimous in arguing that any additional non-tariff barriers would be extremely costly and detrimental to just-in-time deliveries, customers’ experience of year-round choice, businesses’ costs and operations.
25.The Prime Minister said in her Florence speech on 22 September 2017 that the Government wanted “the freest and most frictionless trade possible in goods and services between the UK and the EU”. Michel Barnier, the EU’s chief negotiator, has already established that the UK’s access to the Customs Union could not exceed that of a member state of the Customs Union. A compromise will have to be found but it is likely to mean more friction at the border than currently enjoyed, as recently acknowledged by the Prime Minister. The Draft Agreement between the EU and the UK on 19 March 2018 provides welcome clarity on customs arrangements during the transition period but leaves great uncertainty regarding customs checks beyond December 2020.
26.Because of efficiencies developed over decades, food and drink products are often processed in several EU countries and sent back and forth between the UK and EU partners several times before they reach consumers—especially at the border between the UK and Ireland. The cost of adding even fifteen minutes of delays at key border points could run into millions of pounds for the biggest manufacturers and would be most consequential for SME suppliers. For instance, Diageo told us that a 15-minute wait for each truck at the border between Ireland and the UK would cost £1.3 million per year to Diageo alone—potentially more for suppliers.
27.From a logistical point of view, many doubts were raised by stakeholders about the capacity at UK border points to handle the additional volume of trade needed to be checked once we leave the Customs Union. Companies like Ferrero UK and Diageo transport their products across supply chains using thousands of trucks, adding to traffic at the UK’s border points. This could make it more challenging to import fresh products, “possibly having a disproportionate impact on [Food and Drink Sector] producers whose production and product lives are exceptionally time sensitive.” For instance, Diageo uses dairy on both sides of the border:
Baileys is manufactured in plants on both sides of the border. The dairy that we use in Baileys is sourced both sides of the border. We buy 11 per cent of Ireland’s cream output to make Baileys. We could manage a hard border, of course—we are a large company—but it would be very unwelcome. We move about 18,000 trucks a year over that border, so even small hold-ups to process those truck movements would be really unwelcome.
This could in turn have an impact on the availability of products all year round to consumers.
28.Some stakeholders stressed the need to negotiate new and preferential Rules of Origin with the EU in order to mitigate the impact of leaving the Customs Union on their sector. Others warned manufacturers and retailers may have to factor in the additional cost of increasing stock levels, depending on the availability of transport and warehousing. The Food and Drink Federation was concerned that technology could not replace the range of sanitary and veterinary checks required at the EU’s external border for non-EU countries and feared this would lead to food waste if delays at the border increased significantly. Divergence from EU labelling standards was also cited as an unwelcome non-tariff barrier.
29.The Government has set out its two negotiating positions regarding future customs arrangements:
30.The majority of witnesses asked for maintaining the status quo as much as possible and asked that the Government provide them with clarity on what “frictionless trade” means as soon as possible. Several witnesses made the point that uncertainty was already having a negative impact on businesses and needed to be remedied immediately. For instance the Association of Licensed Multiple Retailers (‘ALMR’) described the impact of uncertainty on their members as follows:
We have examples where investment decisions have been paused for particularly large capex and roll-out of new restaurants, pubs and hotels, because they really look to take a two-year planning cycle. That is tied up not just with Brexit, but with uncertainty to do with the UK economy and the FX issues that have arisen as a result of Brexit, so you cannot disentangle it. Some of the issues to do with consumer confidence and UK economic growth will also impact on foreign investment decisions. A large proportion of our eating-and-drinking-out market is foreign investment backed.
31.The Draft Withdrawal Agreement provided little further information regarding the future of the common regulatory area between Ireland and the UK. Everything still remains to be agreed. Witnesses were particularly concerned about non-tariff barriers at the border between Ireland and Northern Ireland as the UK processed food and drink sector is heavily integrated with Ireland. The lack of tariff and non-tariff barriers within the Single Market has allowed for production to be optimised to the extent that some products are processed in one country, then moved to another for final packaging and then potentially sold in another. For example, Nestlé told us:
Our company is Nestlé UK and Ireland. We treat it as one economic region, even though they are obviously two very separate countries. All the products we sell in Ireland—it may not be absolutely all, but very largely—are either manufactured in the UK or are imported into the UK and then sent by Nestlé UK into Ireland. That border, if you like, is extremely important. The fact that we can move things freely between the UK and Ireland in a frictionless way without tariffs is fundamental to our business model and our business in Ireland. We would absolutely have concerns and real issues if that frictionless border changed or if we started to see tariffs between the Republic of Ireland and the UK. It is an east-west border as well as a north-south border.
32.Diageo painted a similar picture:
Ireland is one of biggest priorities in the negotiation. We run the island as one business, and we manufacture our products on both sides of the border in a seamless supply chain.
33.Ferrero UK said that “80 per cent of the output from [their] tic tac factory in Cork, Ireland, is exported to the mainland of Europe through the UK” and therefore needed to be able to continue unimpeded.
In the words of the Food and Drink Federation: “Ireland is an integrated economy, so for economic purposes the border is meaningless”.
34.Diageo made it clear that although it could absorb the unwelcome additional cost arising from additional non-tariff (and tariff) barriers at the Irish border, its suppliers probably could not. All witnesses who mentioned Ireland were hopeful that a solution could be found to avoid a hard border and keep trade as frictionless as possible. The Food and Drink Federation said that they were worried that “nobody has yet offered a practical or technological solution that actually appears to work.” Diageo stressed that even technological solutions such as the one used at the American and Canadian border were not entirely frictionless and still involved delays and additional costs. The Northern Ireland Affairs Committee searched for an example of a frictionless border between countries and found none. However, as Tim Martin pointed out, even within the Customs Union, trade is never entirely frictionless:
It is not really frictionless now for the beer, wine and spirit trade, because when we take products over to southern Ireland, to the Republic, we have to put our beer in some sort of bonded warehouse, reclaim the duty from the UK and then head over to the Republic and go through phase 2—paying that duty.
35.The Government said in their evidence to us that they were committed “to find a solution that avoids any infrastructure at the Irish border, including in relation to Sanitary and Phytosanitary (SPS measures).” The Prime Minister has also reiterated that the Government would not accept a hard border between Northern Ireland and Ireland but that the UK, Ireland and the European Commission still needed to work together on finding a solution.
36.We did not hear any evidence suggesting that moving away from the current customs arrangements could be beneficial to UK manufacturers or consumers as it would inevitably incur some additional checks, delays and costs. If a solution that is as frictionless as possible is not agreed in time for after the transition, even a few additional non-tariff barriers could prove very challenging at UK border points and have a serious impact on small and medium suppliers, especially between Ireland and Northern Ireland. It will also affect the type and price of products available all year round to consumers.
37.We welcome the fact that the Government managed to negotiate preserving the status quo during the transition period but the sector needs certainty beyond that point. We urge the Government to end the uncertainty regarding future customs arrangements by negotiating a new partnership with the EU as soon as possible. In order to minimise potential increases in food costs, it should prioritise securing as few additional border requirements as can be negotiated.
38.The Government will have to put considerable resources into increasing customs capacity at UK border points and should put forward proposals on the type of support it will provide for SME and large suppliers in transitioning towards a new customs model.
39.In order to support trading communities on both sides of the border, the Government should prioritise developing proposals that provide businesses with clarity regarding future customs arrangements at the border between Ireland and the UK.
46 Exiting the European Union Committee, , 8 March 2018, p9
47 , para 11; Ferrero UK , para 17–18; Wine and Spirit Trade Association , para 1.4; ALMR
49 European Commission, , Brussels, 6 July 2017
50 Prime Minister’s Office, , 2 March 2018, accessed 17 March 2018
52 [Andrew Kuyk]; [Dan Mobley]; Environment, Food and Rural Affairs Committee, , HC 348, 18 February 2018, para 112; Tim Lang, Erik Millstone, Terry Marsden, , Science Policy Research Unit, July 2017, p56
53 Based on confidential evidence from UK businesses seen by the Committee
54 [Dan Mobley]
56 Written evidence from Port of Dover to Public Accounts Committee ; PAGB , para 2.1
57 Ferrero UK , para 17–18
58 PAGB , para 2.2
59 GMB para 12
60 [Dan Mobley]
61 Food and Drink Federation , para 7
62 Confederation of Paper Industries , para 9; Tate & Lyle Sugars , para 20; Food and Drink Federation
63 Wine and Spirit Trade Association , para 2.1
64 Food and Drink Federation , para 11
65 British Beer and Pub Association , para 7
66 HM Government, , 15 August 2017, para 4
67 [Andrew Kuyk]; [Kate Nicholls]; [Ian Wright]
68 [Kate Nicholls]
70 [Andrew Kuyk]; [Dan Mobley]; Environment, Food and Rural Affairs Committee, , HC 348, 18 February 2018, para 112; Tim Lang, Erik Millstone, Terry Marsden, , Science Policy Research Unit, July 2017, p56
71 [Ian Rayson]
72 [Dan Mobley]
73 Ferrero UK , para 20
74 [Ian Wright]
75 [Dan Mobley]
76 Unilever ; Ferrero UK ; Wine and Spirit Trade Association ; Food and Drink Federation ; British Beer and Pub Association ; USDAW ; PAGB ; British Specialist Nutrition Association
77 [Ian Wright]
78 [Dan Mobley]
79 Northern Ireland Affairs Committee, , HC 329, 16 March 2018
80 [Tim Martin]
81 Defra para 16
82 Prime Minister’s Office, , 2 March 2018, accessed 14 March 2018
Published: 22 April 2018