The consequences of “No Deal” for UK business Contents

4Food and farming

70.The National Farmers’ Union (NFU) told us that a no deal exit “would be disastrous” for the farming sector due to the integrated and frictionless trading relationship the UK has with the EU on agri-food products through which around two-thirds of UK exports go to the EU. Tariffs on UK exports are a major concern in the farming sector in a no deal scenario as they are generally much higher for agricultural products than for other goods.101 For the food industry and farming, perishable goods such as dairy and meat produce and live animal exports are particularly sensitive to delays at borders where additional checks and customs processes could lead to supply chain disruptions.

71.Nick von Westenholz, Director of EU Exit and International Trade for the NFU, told us that the ramping up of no deal preparations ahead of the 29 March 2019 deadline came very late, which meant farmers had a short lead-in period to prepare. He did note the positive work done by the Department for Environment, Food and Rural Affairs (Defra), for example, in working with the Commission to secure approval status for the UK as an exporter into the EU of animal products and products of animal origin prior to the end of March, without which there would have been a complete embargo on UK meat, eggs, dairy products into the EU. However, notwithstanding these positive achievements, “there still remain many more concerns and issues that would have damaged the sector if we had left with no deal.”102 Stockpiling to mitigate the impact of no deal was of limited use in the food and drink sectors given the short shelf life of many products.103

Tariffs

72.On 13 March 2019, the Government published details of the UK’s temporary import tariff regime for no deal.104 Tim Rycroft, Chief Operating Officer, Food and Drink Federation, told us that the no deal tariffs were “a curious mix of some products that retained their status, some products that moved to a hybrid status and some products that were tariff-free.” He added, “there was no clear logic to try to understand why some of those decisions had been made, because of course there was no prior consultation with the industry about the tariff regime.”105 Nick von Westenholz reiterated that the consultation leading up to the publication of the tariffs had been very limited. He did not expect the liberalisation of tariffs to be reciprocated by the EU:

While, in most instances other than sheep meat there was a reduction or a liberalisation of [UK] tariffs, with introductions of tariff-free quotas, we would of course be facing the [EU’s] common external tariff for all our exports into the EU. That tariff relationship is not reciprocated. As I said, most of our export trade is with the EU, so there would have been a significant imbalance because of the different treatment of imports and exports with the tariffs applied by the UK and by the EU.106

This situation was described to us as a “perfect storm” in which barriers would be erected for British exporters to their largest market while, at the same time, allowing tariff free entry for other countries’ produce into the UK market.107

73.This would be most evident on the island of Ireland where products moving south to north would not face tariffs while those travelling north to south would. Tim Rycroft told us that this would have “very significant impacts on the market.” He argued that a lot of domestic product in Northern Ireland would have to be diverted into Great Britain as a result, which would lead to “massive surpluses and market distortion.”108 We also heard from David Lidington MP, Chancellor of the Duchy of Lancaster, that Northern Ireland businesses had told him their trade would be at risk in a no deal scenario because the EU, from day one, would require businesses with customers and suppliers located in the Irish Republic to apply the obligations of the EU acquis.109 He gave the following example:

a milk producer in Northern Ireland that sold milk regularly to a processing plant in the south would suddenly find that it would be unlawful for its buyer in the south to continue receiving Northern Ireland milk because it could not be certificated as complying with the relevant EU law.110

74.Nick von Westenholz noted that the UK could see quite big surpluses coming into the marketplace, for example, around sheep and cereals. He pointed to potential problems this would cause for meat products as we would need to find appropriate storage facilities.111 He told us that a no deal would raise the question of whether sheep meat exports and products would be viable at all:

That is because of the very specific structure of that sector, where up to 30% of production is exported. I think around 95% of those exports are into the EU, tariff-free. They would suddenly face a tariff of approaching 50%. The modelling shows that would lead to a potential downward price pressure of around 30% on sheep meat [in the UK]. For an already marginal sector relying heavily on support, that really would be hugely damaging for the sector as a whole. At the same time, of course, we accept quite a lot of sheep meat imports, mostly from New Zealand, tariff-free. Those would continue to be imported into the UK tariff-free in a no-deal scenario.112

Food supply

75.In evidence to the Public Accounts Committee in February 2019, Clare Moriarty, then Permanent Secretary at Defra, said that the UK would not face a food shortage in the event of a no deal exit, given all the other places from which food comes. However, if there was significant disruption on the short straits between Calais and Dover as a result of the imposition of the EU external tariff and sanitary and phytosanitary checks on food and drink products, there would be a reduction in availability and choice, particularly of perishable goods.113 We heard that some 40% of fresh food and drink imported into the UK crosses the short straits and that the Defra assumption is that capacity may be reduced by 80% for quite a long period of time over that crossing.114

76.As Tim Rycroft explained to us, the containers that take UK exports to the EU are the same containers that bring our imports back to the UK so there would be “quite a significant disruptive effect in the first few weeks”:

We would expect to see some selective shortages and probably some quite surprising ones, as it became clear there were some things that we did not expect would be hard to get hold of. Most food and drink has a short shelf life or is perishable, so any friction in the process not only reduces the shelf life for consumers but also brings into jeopardy contracts between suppliers and retailers, which will stipulate a minimum shelf life.115

77.Mr Rycroft told us that the UK could start to see some shortages after the first two weeks following a no deal exit. He said these shortages would likely include fresh fruit and vegetables, particularly as the end of October marks the point when the UK moves away from domestic production and becomes more reliant on imports. He noted that even though the UK produces a lot of chickens, they are sent to the EU for processing and then reimported. We also heard that the UK does not have enough milk powder processing capability which will impact on availability of confectionary and infant formula. Neither does the UK grow enough high-protein wheat, relying on a lot of imported wheat for bread. Mr Rycroft concluded that we would see “selective shortages and probably quite unpredictably.”116

Food prices

78.The Environment Secretary, Michael Gove, told the Environmental Audit Committee in December 2018 that friction and disruption between Calais and Dover which would impede the UK’s ability to get food, particularly perishable items, into the market would likely drive some price increases. He added that the costs of finding alternative routes into the UK, for example, if Spanish produce were to be routed by sea from Spain rather than go through the short straits, would likely add to the costs of that produce.117

79.Mr Gove explained that the Government were designing a no deal tariff schedule which would minimise the impact on consumers, while also trying to protect particularly vulnerable and vital areas of agriculture, with livestock being one sector where we would have tariffs. He added:

One would think that in those circumstances there would be a degree of import substitution, but I do think that there is a real risk, not significant, in the event of no deal of price spikes in certain foodstuffs.118

Food safety

80.Tim Rycroft raised concerns about the impact of no deal on food safety and quality. He noted that it was unclear what the UK’s relationship with the European Food Safety Authority would be in a no deal scenario. Equally unclear was the UK’s access to the Rapid Alert System for Food and Feed, which acted as a network on risks enabling any food issues across Europe to be quickly identified and managed. It was not clear whether the UK would have access to these food safety mechanisms on 1 November.119

Working with Government

81.Both Nick von Westenholz and Tim Rycroft told us they had a very positive working relationship with Defra. They had been meeting weekly or fortnightly with Ministers and senior civil servants to talk about no deal. Tim Rycroft described “a good level of dialogue” and that Defra had “a good level of understanding of the challenges.”120 Mr von Westenholz explained to us that the NFU had made representations to Defra that, in the event of a no deal exit, farmers would almost certainly need the Government to put in place emergency mitigating measures, acknowledging that the sheep sector would likely require immediate support. He told us that Defra had been receptive to that suggestion and had given the sense that it was willing to move quickly and talk to HM Treasury about what measures could be put in place. He noted, however, that it was not clear under what legal basis such emergency assistance would be provided. This would require the EU regulations to be adequately transferred into UK law ahead of a no deal exit.121 He added:

It is clear that there are constrictions as to what the UK Government would be able to do, in terms of providing support. They would not simply be able to just write a blank cheque. We also got the impression that we would need to show significant damage to the industry for the Treasury to be willing to come forward with emergency assistance. For the reasons I set out, we were expecting that we would be able to show that for the sheep sector, for instance. It was made clear to us that small or even moderate drop-offs in returns, prices or profitability, or however you might look at it economically, were unlikely to be enough to justify emergency measures. That, in itself, was worrying.122

82.The Government’s provisional no deal tariff schedules would allow many agricultural products to enter the UK tariff-free while UK producers would face high tariffs exporting to the EU, currently the market for over two-thirds of UK agri-food exports. Sheep meat would face a tariff approaching 50%, bringing the viability of that sector into question. While on the island of Ireland, products moving from south to north would not face tariffs but those moving north to south would. Northern Irish milk products would no longer be certified to cross the border to be processed, putting the continued business of Northern Irish milk producers at risk.

83.Requirements for customs and sanitary and phyto-sanitary checks at the border are expected to create delays in agri-food supply chains, 40% of which currently pass through the short straits crossings to Dover and Folkestone, the busiest crossings most likely to be subject to delay. Delays at the short straits are likely to lead to selective and unpredictable shortages in certain foodstuffs, as well as price increases.

84.A no deal exit will also see the UK cut off from the European Food Safety Authority and Rapid Alert System for Food and Feed which ensures that food health risks can be quickly notified and managed. We call on the Government to clarify urgently what replacement provisions will be put in place to ensure the safety of the UK’s food.

85.The Department for Environment, Food and Rural Affairs has worked constructively with the food and farming sectors. However, we have no reason to doubt the concern that no deal would lead to some interruptions to food supplies in respect of certain products or to doubt the analysis of the NFU that no deal would be “disastrous” for UK farming.


101 According to the NFU’s “Why would a no deal be catastrophic for British farming?”, export tariffs to the EU would average 27% on chicken, 46% on lamb, 65% on beef, and range from €172 to €1,494 per tonne of pork.

103 Q4269 [Tim Rycroft]

107 Q4247 [Seamus Nevin]

109 The EU acquis is the entire body of EU law, including the Treaties, Charter, EU secondary and tertiary legislation and the case law of the Court of Justice of the EU.

113 Public Accounts Committee, Oral evidence: Brexit and the UK border: further progress review, HC 1942, 13 February 2019, Q199

114 Q4319 [Tim Rycroft]

117 Oral evidence taken before the Environmental Audit Committee on 19 December 2018, Q28

118 Ibid

121 Q4277; The existing EU power (Article 219 of Regulation 1308/2013) to respond to significant market disturbances has been incorporated into UK law as retained EU law and the Government has made an Exiting the EU Statutory Instrument (The Agriculture (Legislative Functions) (EU Exit) (No.2) Regulations 2019) to ensure that the power is operable in the UK post-Brexit. This is a broad power constrained only by “any obligations resulting from international agreements”.




Published: 19 July 2019