Exclusive Interviews, UK trade politics

UK agri-food trade ‘won’t return to normal any time soon’

FDF’s Dominic Goudie

Borderlex spoke  to Dominic Goudie, head of international trade at the UK Food and Drink Federation, about rules of origin, SPS deals with the EU, and the global growth potential for UK exports.

Patterns of trade in food and drink products into and out of the United Kingdom have changed profoundly this year as a result of a combination of the Covid pandemic and Brexit.

But Dominic Goudie, head of international trade at the UK Food and Drink Federation, is clear that of these two factors, the UK’s withdrawal from the EU single market at the start of this year is the one which will have the bigger long-term impact.

“It’s really difficult to disentangle the impact of Brexit from the Covid pandemic. We can see from the trade data that our industry has been massively impacted by both,” Goudie said in an exclusive interview with Borderlex.

“But in time, the Covid effect will recede – and, like the tide going out, we’ll see what’s then left on the beach in terms of the Brexit impact,” he commented.

But Goudie expressed rather more optimism over the longer-term prospects for UK sales to the rest of the world – helped by the strong focus which the UK government now has on this area.

Goudie is the leading trade expert at the Food and Drink Federation, the organisation representing the interests of what is the UK’s largest manufacturing sector – contributing £29 billion to the UK economy annually, and employing over 440,000 people.

According to FDF figures, exports of food and drink products from the UK have fallen from £11.1 billion in the first half of 2019 – to take a pre-pandemic, pre-Brexit comparison – to £9.2bn in the first half of 2021,

But while exports to the EU have fallen by 15.9% over those two years, exports to the rest of the world have stayed almost unchanged – supporting the thesis that Brexit has been the primary cause of trade disruption this year.

“Flows of goods have changed very significantly over the past couple of years,” Goudie said. “We won’t see the kind of levels of trade we saw previously any time soon.”

Some food products ‘just can’t get into Europe any more’

Sales of premium products such as whisky had generally held up well. But there were other products, Goudie said, that “just can’t get into Europe any more – it’s just too difficult”.

He explained that Brexit uncertainties had been creating particular difficulties for exporters of ingredients to food manufacturers in the EU.

These businesses delivered to ‘just-in-time’ supply chains, and the risk of border delays, as a result of problems with paperwork, had had a trade-dampening effect.

“If exporters can’t get those goods through in the timescale required – if they face two- or three-day lead-in times where previously it was 24 hours – that just doesn’t work for manufacturers in the EU,” Goudie commented.

The FDF official praised the Port of Calais, which, he said, had been doing its utmost to ensure that goods from the UK could get through.

But Goudie said this contrasted with the position taken by countries like Spain, where many more difficulties had been experienced in the application of customs and sanitary / phytosanitary rules.

That had led to an increasing diversion of trade through Calais, a phenomenon which was reflected in the fact that UK agri-food exports to France were actually higher in H1 2021 than in the previous year – one of very few EU member states for which this was the case.

No time to prepare for TCA rules of origin

One key issue for exporters of manufactured and processed food and drink products has been the introduction of rules of origin under the new Trade and Cooperation Agreement between the EU and UK.

This has created an entirely new bureaucratic burden for the many producers who previously only traded within the EU single market.

“We only saw copies of the final agreement on rules of origin under the TCA on 26 December [2020], so there really wasn’t time for businesses to get ready,” Goudie complained.

He also claimed that businesses were “mis-sold” the benefits of the one-year grace period for submitting proofs of origin on exports under the TCA – a concession which was intended to ease the bureaucratic transition for exporters.

Food producers ‘taking no risks’ with rules of origin

“The reality is that any trading business will want to have their certificates of origin in place at the time of doing trade. They’re not going to wait until the end of 2021 to check that products meet those origin requirements, otherwise they could face a whacking great tariff bill at some point down the line.”

The introduction of rules of origin had caused significant shifts in trade patterns, he said. Some manufacturing businesses had changed the way they operated in order to ensure that their components met the thresholds for ‘originating’ material.

Goudie cited the example of fruit juice mixers who had switched to importing pulp instead of processed juice, simply to keep the originating content value within the correct percentages.

Had any exporters decided simply to pay the relevant tariffs, rather than grapple with the complexities of the rules of origin system?

“I have not spoken to any of my members who are taking that approach,” Goudie said.

“For food and drink, the margins are so small, and many of the tariffs so high, that it’s not worth doing that. Even a 5% tariff might be the difference between breaking even on a transaction or making a small profit on the deal.”

EU-UK SPS deal is ‘inevitable’ – but not yet

In the first couple of months of 2021, UK exports of livestock-based products were especially hard hit as traders struggled to cope with new EU sanitary and phytosanitary checks at the border. This trade has recovered somewhat in the meantime, although it is still lower than last year.

“Some businesses decided it was just not feasible any more to export to the EU, and they stopped that trade. Others have found ways to cope with it,” he noted.

Agri-food producers have been clamouring for the EU and UK to reach an SPS agreement which would remove the need for some of the checks being applied on UK exports to the EU (the UK has deferred its own checks on EU imports until mid-2022).

Goudie said he thought the current political climate was not conducive to a deal in this area in the short term.

But, he added: “It feels to me that a deal is inevitable at some point, because it’s just in the best interests of producers on both sides – especially on the EU side given the volumes of SPS goods that come into the UK. It just makes business sense.

“But looking at the agendas of the specialised committees set up under the TCA, it’s clear that they are not looking at those big issues just yet.”

Joined-up strategy needed to boost UK food exports

The focus of the UK department for international trade is to find and realise new trade opportunities outside of the EU in the post-Brexit era, supplanting the old trade relationships in the EU.

Goudie’s approach to the government’s ‘Global Britain’ strategy is cautiously positive.

“We are optimistic about these trade deals. UK trade deals could be better suited for the needs of our industry than the EU’s deals have been.

“But we need be alive to the fact that there will be winners and losers. And we need to have a joined-up strategy that deals with that, and addresses the pros and cons head on. At the moment we just have this rush to get trade deals done.”

Goudie said that more work was needed behind the scenes to join up government activity – noting that at present, responsibility for promoting food and drink exports is split between the department for international trade and the department for the environment, food and rural affairs.

“We have big untapped potential to export more food and drink around the world. People are waking up to the fact that UK food and drink is actually pretty good.

“But in many cases it’s down to individual businesses and trade associations, or down to one UK ambassador somewhere. It all has to be joined up.”

Growing the ‘difficult’ markets

Goudie said he was supportive of the UK government’s celebrated strategic ‘pivot’ towards the Asia-Pacific region, saying he saw great potential in “growth markets that are difficult to get into”.

While the upcoming FTAs with Australia and New Zealand, and the UK’s accession to CPTPP, could all bring benefits, Goudie particularly cited growth in a region with which the UK has no trade agreement, namely China.

“Not long ago China was well outside of our top 20 markets. But in the latest half-year figures, they rank fifth.”

The FDF official suggested that a strategy of focusing an export promotion campaign on a single city, such as Shanghai, might yield better results than a less focused campaign in a large region such as Central America.

“So we agree with DIT – this is a market where we could do an awful lot more.”

Getting past the short-term ‘existential’ threat

Goudie’s main short-term concern was a serious workforce shortage within the UK food chain, exacerbated by the inability to recruit freely from the EU, as free movement of people between the EU and UK was no longer permitted.

He said that FDF was urging the UK government to put in place a “short term Covid recovery visa” allowing EU citizens to work in the UK for a period of up to 12 months – “just to help industry get through a really difficult situation” – but said that the government had not consented to this proposal.

“What worries me in particular is that if we don’t get these solutions from government, the risk is that retailers might start to look elsewhere for food and drink – if UK producers can’t deliver as expected.

“The challenges of Brexit are very short-term, and for some businesses they are existential, whereas the opportunities are in the longer-term,” Goudie said. “The challenge I have is that I’m trying to face both of them at the same time.”

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