“The day after we vote to leave, we hold all the cards and we can choose the path we want.” – Michael Gove, Secretary of State for Environment, April 2016.
The Food and Drink Industry
A week is a long time in politics and two years is an eon! Well almost two years on, the only thing we have learnt is that the politicians are not business leaders!!! The vote last night meant that Mrs May has a clear mandate to push for something that the EU have already said is unacceptable. Given the timescale this increases the odds of no deal. So where does this leave the food and drink industry?
The UK’s largest manufacturing sector by output (17% of UK manufacturing by GVA – £28.2 billion) and representing 400,000 employees you would expect it to be a bit of a priority however it is as much in the dark as everyone else. One reason for this maybe that 98% of the sector is represented by small and medium sized businesses and it is spread fairly even over the nation. Hence, no one MP is affected by a major body of constituents unlike the motor industry with its regional concentration. Thus, the industry finds its message somewhat diluted.
Government Brexit Preparations
The government has busily preparing for Brexit so we are told. What guidance is there? Well, in the event of a no deal the government has proved we can cope with 87 lorries driving into Dover and the port of Ramsgate will be home to a non-existent ferry company with no ships and a take way menu as its T&C’s.
But beyond that there is at best limited guidance released by the Government. Basically, because we do not know what Brexit is going to look like. The government website contains technical advice on what to do in the event of no deal. It’s not well written and offers little practical help.
Back in 2016, 31% of food & drink businesses said Brexit would not affect them. Of that 31% there is a degree of Ostrich mentality. Hopefully, that percentage should have fallen now as people have become aware of the implications of Brexit.
Should we simply just give up? Not if you believe in your business. There are some actions we can take. If we look at four pillars of your business i.e. customers, employees, logistics and costs we can develop some plans.
Your customers are your lifeblood. As such we should consider how Brexit will affect them. For example, will they need better credit terms or their deliveries altered?
Selling direct to the public? Consider making Brexit offers or analysing regular customer spending patterns. This can highlight which customers are at risk.
Early engagement will highlight risks that you face. Constructive dialogue will help overcome most of these through mitigation strategies or crystallise those that have the greater associated risk.
If you export one means of avoiding obstacles post-Brexit is for businesses to apply for Trusted Trade Status by obtaining an AEO Certificate. If your business has AEO status, it demonstrates that your customs controls and procedures are deemed to be efficient and comply with EU standards.
By obtaining AEO status, administrative burdens can be reduced and, in certain situations, this will enable shipments to be ‘fast-tracked’ through customs post-Brexit. To benefit from this, businesses must be organised and take action as soon as possible. If in doubt contact the author.
The level of EU employees has been estimated at 38%. Not all of these are low skilled roles. In terms of future immigration post Brexit existing EU nationals can apply for the right to stay. The government waiving the ludicrous £65 fee.
For future immigration, the drat white paper indicated that a points system would be introduced for immigrants on salaries in excess of £30,000 whilst below this level there would be no anticipated immigration. This potentially could be very damaging for the industry. Pubs in rural tourist areas are already finding it problematic to recruit.
It’s not all gloom and doom however some pragmatic solutions do exist. For example, conversations with local technical colleges could set up some Apprenticeship schemes. This will give local businesses a supply of labour that they can train on the job.
Most businesses rely on just in time delivery where stock levels are low. This is particularly true where fresh produce is involved in the supply chain.
To develop a solution, you need to determine the extent of the problem.
Firstly, identify which parts of the supply chain the UK’s exit from the EU will affect the most.
Secondly, consider what alternative arrangements could be made to simplify matters. For example, could products which are imported from outside the UK be sourced elsewhere within the UK?
Thirdly, consider what contingency measures are most appropriate to your organisation’s specific circumstances. For example, obtaining additional storage in order to stockpile goods might be suitable for some businesses, but not others.
Fourthly, businesses should also consider what its cash flow needs will be in order to make suitable arrangements with suppliers and customers. Consider purchasing and storing as part of a collective. This would increase purchase power and possibly provide additional storage
There is likely to be an increase in costs at least in the short term through both foreign exchange impacts and also the effects of tariff changes. These will impact not just direct costs but will have wider implications for overheads etc.
The question is whether as an organisation you can absorb them or do you need to pass the on to your customers?
Early dialogue with your funders is crucial given the potential impacts of Brexit will have. Equally, a lot of organisations will be in a similar position so there will be a rise in demand for short term funding.
It is anticipated that there will be a potential funding cost increase post Brexit through a short term increase in funding requirements however this is believed to be offset by the Bank of England’s own post Brexit planning in the event of no deal.
Review supply, manufacturing and distribution agreements to (i) insert appropriate “Brexit” clauses and (ii) address any anomalies. For example, if a distribution agreement defines the “Territory” as the EU ensure it is amended to cover the EU and UK post-Brexit.
Brexit is a known risk and as such shareholders can argue that directors should have Brexit plans in place to discharge their fiduciary duties. Therefore it would be wise to adopt “scenario modelling” in order to identify various potential consequences for your business post-Brexit. This will assist directors and businesses in identifying areas where there may be problems and in ascertaining arrangements which could be put in place to overcome these problems.
While the government obsesses about delivering the will of the people the food and drink industry must continue to trade. As you can see above there are actions that can be taken alternatively you can be an ostrich and hope it doesn’t affect you.