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The UK Food System & Brexit – What Could Possibly Go Wrong...? Analysis

By Steve Wynne-Jones
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The UK Food System & Brexit – What Could Possibly Go Wrong...? Analysis

While newly-appointed UK Prime Minister Boris Johnson is bullish about the UK's chances in the event of a no-deal Brexit, stockpiling, 'panic buying' and even rationing could be on the cards in the event of a seismic shock to the food sector. Clive Black, director, head of research at Shore Capital.

Walking through Liverpool on a warm, sunny (surprisingly) afternoon, the buskers are in full swing, with one singing The Monkees', I'm a Believer (or is that I'm a Leaver?). People are sitting listening, children are holding balloons and eating ice cream and, frankly, few folks have a care in the world. As a jazz enthusiast might put it... 'nice'.

However, beneath this calm characterisation of Merseyside there is an uncertain subtext, one that has been a festering wound for the British economy for over three years, leading to much uncertainty and growing concern.

Despite near full employment and rising real living standards, remarkably in the wider circumstances, the heat around the UK's ongoing relationship with the EU has been notably raised following Boris Johnson's victory in the Conservative leadership campaign.

Remarkably, no one knows how the relationship between the EU and its currently second largest economy is going to pan-out in a little over two months. More to the point, life is too short to go through the machinations as to what 'will' or 'will not' happen; suffice to say that in the UK, 'fed up' would be a polite expression of what most people and businesses feel about the domestic political class and the current situation.

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Preparing For No Deal

What is becoming clear under the Johnson regime, by default or design, however, is that the possibility of the UK leaving the EU without a deal is rising.

The British Government has materially increased preparations and resources for the UK to leave the EU on the 31st October – Halloween, remarkably – despite its new Prime Minister prophesising about a "million to one chance" of such an outcome on the steps of 10 Downing Street in July.

It remains to be seen if the British Parliament, the opposition parties and those against a 'No Deal' within the Conservative party will stop the present trajectory or not.

If not, what should investors be thinking about with respect to the UK food system, if on 1 November the country has left the EU with No Deal?

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Well, preparations for a No Deal position are not the sole preserve of the British, with the French Ministry of Agriculture outlining three steps to maintain sanitary and phytosanitary controls with respect to UK agri-food exports (as is the case for 'Third Country' imports it should be said); steps that are bound to lead to vehicle delays from the UK to France.

Depending on how other countries approach matters (notably Belgium, Spain and The Netherlands), some product destined for the EU could remain within the UK, with potential implications for local wholesale markets.

Should such barriers emerge across the board then it may be very difficult for the British to allow the free movement of goods from Ireland through Great Britain, which may lead to knock-on implications for costs and lead exporters to seek direct routes to Continental Europe from the Emerald Isle, whilst in time import controls may also come in, with corresponding implications, again, for wholesale markets.

The situation with respect to the export of foodstuffs from Northern Ireland to the Republic of Ireland could also be acute, it should be said, and play into the hands of smugglers. Indeed, in general, the scope for a step up in criminality and fraud in the UK food system feels like an obvious outcome of liberated and complicated port controls.

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More broadly, as time goes by, a UK food system trading under WTO rules is likely to attract materially more foodstuffs from the Rest of the World. Chilean wine producers, South African top fruits growers and Uruguayan beef farmers, amongst others, will be queuing to gain access to the large British market, potentially leading to medium-term adjustments to the present supply patterns. Currently, the UK imports the majority of the 40% of total food consumed by its people from the EU.

Food Security

Whilst all of these technical machinations work themselves through in a No Deal situation, the runway to an exit could be particularly troublesome. Whilst the burghers of Liverpool enjoy their burgers, chips and beers with few cares in the world today, as the fog clears around the road for the UK to exit the EU, we sense noise around the availability and security of food supplies, and so behaviours, will change.

Most people are gracious and generous most of the time but some are self-centred all of the time. As such, as it becomes seemingly clearer that the 1 November will be exit day, it is not unreasonable to anticipate a growing possibility of a change in shopper behaviour.

Stockpiling longer life necessities and freezing applicable fresh foods are likely to be the first indications of what could become panic, whilst post exit day, procedural and logistical issues may also lead to unavoidable voids on supermarket shelves. Additionally, in terms of food security, the British Government will need to pay specific attention to the most vulnerable and so make provision for institutions, be they hospitals, prisons or schools.

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As such, the simple public discourse of exit as a reality – noting a £100 million public information campaign is on its way – creates an environment where we could see the rationing of foodstuffs in supermarkets to protect the most vulnerable from the most greedy, amongst wider controls.

That such views are being aired is quite staggering with respect to a supposedly advanced nation like the UK, but we do not live in normal times.

Chaos

Let us hope that such outcomes do not transpire because aside from the unedifying prospect of people arguing and fighting over chickens in the aisles, there is the prospect of chaos for the food system, from farmers seeing a hiatus in the lamb market, to the potential redirection of millions of litres of milk produced in Northern Ireland, through to dysfunctional logistics and packed-out food storage facilities.

Kicking the can down the road, again, still feels like the most likely outcome from the current shenanigans, a boot that will probably involve a UK General Election, so avoiding the somewhat bizarre near doomsday scenarios outlined above. Whilst so, it is important to reiterate that as September 2019 approaches, there is a new single-purpose British government, a divided Opposition, a pissed-off electorate and a wider world that believes the UK has become clinically insane.

In such circumstances, what could possible go wrong?

© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Clive Black. Click subscribe to sign up to ESM: The European Supermarket Magazine

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