The Food and Drink Innovation Network are usually pretty topical with their seminars but they excelled themselves this week. On Tuesday, not only did they have a regulatory lawyer explaining exactly what the High Court action which launched this morning could mean, but we had the director of the Food and Drink Federation, Ian Wright, warning that it would not be long before the fall in the value of sterling started to feed through into high street prices. And hey presto, this morning brought the first clash of the food titans as Tesco and Unilever locked horns over the price of Marmite!*
The FDIN Brexit seminar was most ably chaired by Tim Lang, founder and first Professor of Food Policy at the City University’s Centre for Food Policy. Despite the understandable desire of delegates to focus on the immediate effects on their industries, he set the Brexit debate within the wider on-going debate about our worldwide food system and its need to be sustainable.
The bigger picture
Climate control and the loss of biodiversity are crucial to the future shape of food production. Over 30% of European carbon emissions come from the food industry – and it is impossible to reduce that without fundamentally changing the way we eat: away from dairy and meat to plant based proteins. We need to focus on the loss of biodiversity world wide, which is now all but unstoppable. Even just looking at the UK we need to worry about water stress (yes, many parts of the UK are short of water) and the poor health and falling nutrient content of our soils. We also need to see food as means to address the huge rise in non-communicable diseases. A big ask but maybe the chaos caused by Brexit might be the catalyst for change?
The industry view
So will it be chaos? Well, the FDF definitely thinks so, as, apparently do 90% of the UK food industry. There are four main issues, as they see them.
- The uncertainty over what is going to happen. The government has no plans and currently twists and turns on a daily basis. So no one can plan ahead and already new product development and marketing plans are all on hold.
- The fall in sterling has already dramatically affected the cost of imports and will continue to do so, with an inevitable knock on effect on prices in the shops. (Bear in mind that while we do export £19 billions’ with of goods to the EU annually, we actually import £40 billions’ worth.)
- The legislative/regulatory confusion that will almost inevitably result from our attempts to extricate ourselves from European law. Even if we adopt most EU legislation wholesale, there will still be more than ample opportunity for each pressure group to attempt to change the minutiae in its own favour. The FDF suggests that the lawyers are already rubbing their hands in anticipation!
- The effect that the fall in sterling will have on the labour force.
The first three are fairly self explanatory but the knock on effect as far as labour is concerned may not be so obvious. There are over 1.7 million foreigners currently working in the food service industry and another 470,000 in food manufacturing. Many of those send money home a weekly basis. But that money is now worth 20% less that it was two months ago so for many of them, it is no longer worth being here – and they are already starting to head home. UK workers do not want to work in the food industry so where is it going to find its labour force? Shortage will force up the cost of labour which will, inevitably once again, feed through to higher prices on the high street.
Then, in the longer term – more uncertainly over trade tariffs. We are currently a member of the WTO (World Trade Organisation) as part of the EU. But if we leave there is no certainty that we would have any standing as far as the WTO is concerned and might need to negotiate membership from scratch.
The longer term effect on the British food industry? Because British shoppers are addicted to cheap food, in order to keep prices down industry will be forced to reformulate to use cheaper and/more local ingredients and will automate production even further in order save labour costs.
And then, of course, there is Ireland… Our dealings with Ireland up till now have been as a single country, even though, effectively, it is two. But what happens if all of a sudden the north and the south do really become two countries once again and there is a lengthy land border just ripe for smuggling products in/out of the EU?….
The legal view
Our relationship with the WTO – and with Ireland – were also discussed by Brian Kelly of Covington, a law firm which specialises in food and beverage practice within and without the EU. As Brian pointed out, we have ‘favoured member’ status as regards the WTO as a member of the EU but once outside, we could find ourselves having to negotiate for that – not with 27 EU member states, but with 192 members of the WTO.
He also suggested that we need to be very aware of what else was happening around Europe – such as in eastern Europe where Visegrad Group want to curtail all free movement of people from outside the EU (which could now include Britain) while maintaining it within the group.
As regards the High Court action which started today: which ever way it goes, both parties have, very unusually, already been granted leave to appeal to the Supreme Court. The action is, according to Brian, the most important constitutional case since 1066! And it hinges on whether the government, by using the Royal Prerogative, can trigger Article 50 without reference to the House of Commons.
The referendum was ‘advisory’ so has no legal status. Therefore the government has to follow ‘constitutional process’ in how it implements it. But, we have no constitution… Hence the challenge in the High Court to the government’s claim that it can trigger Article 50 under the Royal Prerogative. The ‘challengers’ claim that at the very minimum, the government needs a vote in the commons to invoke Article 50 but that, since our accession to the EU was by statute then, if we are to leave the EU, that can also only be achieved by statute e.g. passing an act of parliament. Watch that Supreme Court…
The pollsters’ view
An interesting presentation from Pippa Bailey from Ipsos MORI reviewed some of the thinking behind the vote and showed that as yet, there was little change in the public’s views.
In the original campaign, as is usually the outcome in such cases, the heart won over the head. In other words, the Leave campaign, by appealing to people’s ‘Britishness’ (regain British sovereignty) and hyping up immigration fears, were always going to win over the Remainers’ purely fiscal/money/economic arguments. Especially if you take into account the ‘optimism bias’ – ‘bad things may happen but they are never going to happen me’.
But she did point out that although there was little change in how people might have voted in the referendum, 37% of the population were now starting to worry about the cost of goods and services and whether they would be affected. One person who certainly does think they will is Dr Tim Dennison, Director of Retail Intelligence at Ipsos MORI:
‘Things will clearly change when retail prices begin to see inflation and retailers decide to pass on higher prices to customers – and these are just starting to come through.’
Despite all this doom and gloom, the day was ended on a more optimistic note by Nicola Thomas from the Food and Drink Exporters Association.
While accepting that the balance of imports versus exports was certainly not in our favour, Nicola believes that the UK food industry is in a very good position to ramp up its exports. She maintains that we are 3-10 years ahead of other global markets in terms of product development – choice, quality etc. For example where German manufacturers may only offer two flavours of crisps we already offer six or seven. And in many specialist markets (organic, fair trade, freefrom, world food etc) we are way ahead. British food is also seen to have the highest food safety standards in the world and to offer a genuine premium quality. So we really are way ahead of the game.
Nor should we just be looking at Europe. There are huge developing markets in the Middle East, in India and in China and although they are not the easiest to access, the rewards could be very significant and we are in the perfect position to exploit them.
So onwards and upwards!
*Sadly, if not unexpectedly, this seems to have been a brief stand off and they have already ‘reached an accommodation’…..