Container in sea port

The impact of Brexit on the food and beverage sector

Ian Worth, Director, VAT and Customs Duty services
18/11/2021
Container in sea port
The end of the Brexit transition period at the beginning of this year proved challenging for many industries and those who operate within them. None more so than the food and beverage sector.

The food and beverage industries contain the single largest manufacturing sector in the UK. The agrifood sector alone provided , 9.4% of the UK’s manufacturing total and UK agrifood exports being valued at £23.6 billion in 2019.

There are a number of very real problems that UK exporters have been facing when moving their goods to the EU.

Administrative barriers

Every movement of goods from the UK to the EU now requires a UK export declaration and an EU import declaration. Depending on the commodity code of the foodstuffs being shipped, it is likely that they are subject to a physical inspection upon entering the EU. Goods containing products of animal origin also require an Export Health Certificate that has been certified by a qualified vet at the point of loading. The information from this is then lodged into the EU TRACES system, which notifies the relevant local body and inspection point of the consignment’s arrival.

The just-in-time supply chain model that most companies now operate within, leaves little to no leeway for any delays incurred as a result of any incorrect paperwork. This can have real impacts on goods that have naturally short shelf lives and timeliness in the supply chain is imperative.

Pair this with Certificates of Origin and export and import declarations, and you have a significant increase in burdensome tasks and processes in order to move goods into the EU.

Competitive advantage

While the UK government implemented a pragmatic approach to delaying checks on imports into the UK (including a relaxation on veterinary inspections on products of animal origin and plant-based products), the EU did not. While UK exporting companies have been subject to full customs and health controls at the EU border, the UK government is yet to introduce and implement, a fully functional inbound border model with the EU, meaning that goods being exported from the EU to the UK can do so with little to none of the barriers that UK exporters are currently working with.

The question therefore remains whether more help could have been provided to assist UK businesses, manage expectations and to bridge the gap between what was and what is now required at the EU border. The consequences of this lack of readiness for post-Brexit trading has subjected UK companies to a decline in competitive advantage against their EU counterparts.

Increased costs

Many of the companies operating in the sector do so on comparatively small margin and, while the EU/UK Trade Agreement has removed duties on goods with proven origin, there has been a considerable rise in costs. As referenced earlier, the increased admin and processes were always going to lead to higher operating costs for exporters. Compound these with large fees for import clearances, charges and taxes for health and physical inspections, and additional charges from logistics companies for delays, margins begin to be squeezed tighter still.

Workforce pressures

Even before the exit from the EU, it has been clear for some time that the UK food and beverage sector has been growing ever more reliant on a migrant workforce from the EU. With 25% of this workforce forecasted to have left the UK, following the end of the Brexit transition period, leaving an estimated 100,000 person skills-gap, an already under-pressure workforce has been cut drastically short.

As evidenced in the media recently, industries in the UK such as meat processing have been hit the hardest, with stories emerging of pigs being transported to the EU for culling & processing and major suppliers of poultry not being able to provide their usual output, leading to shortages and price increases across the board.

horizon

Changes in 2022

While the current state of play clearly disadvantages UK exporters more than their EU counterparts exporting to the UK, the next major challenges will come on 1 January 2022. This is when the pressure will really start to mount up on importers, especially those that have had a laissez-faire approach to supplementary declarations or Entry in Declarants Records (EIDR), as pre-lodgement declarations will now be mandatory.

While business have until July 2022 to organise Export Health Certificates and Safety & Security declarations on imports into the UK, 1 January 2022, also sees the requirement for all Sanitary and Phytosanitary goods to be pre-notified on IPAFFS (Import of Products, Animals, Food and Feed System. Another process that, if unaddressed, may lead to delays and loss of goods.

To conclude, businesses are going to be subject to even greater scrutiny and procedural pressure from HMRC when importing goods into the UK. While this may provide an opportunity to narrow the current gap between UK and EU companies, there also remains the threats that arise when new processes and requirements are implemented at border.

Crowe’s Customs team is available to support preparation for the forthcoming changes, and can be contacted through Ian Worth or your usual Crowe contact.

Brexit hub
Find out more about operating outside the EU following Brexit.

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Contact us

Ian Worth
Ian Worth
Director, VAT and Customs Duty services
London