Wednesday, November 23, 2016

Brexit and food processing

By some measures food processing is the country's most important industry, but is rarely treated as such. Relatively few estimates are available of the impact that Brexit might have on it.

Boston Consulting Group, law firm Herbert Smith and advisory group Global Counsel have considered the impact on a chocolate manufacturer if the UK left the single market and the customs union without any trade arrangements in place.

It is assumed that the UK-based chocolate manufacturer imports most of its materials from around the globe, over half from the EU and a quarter from the rest of the world. It sells mostly in the UK, but exports a quarter of its chocolates to the EU.

Hard Brexit scenario 1 assumes that UK imports and exports are subject to WTO most-favoured nation tariffs. (This does not allow for non-tariff barriers which might arise, for example, over the definition of 'chocolate' which has been the source of tensions between the UK and the rest of the EU in the past). In Brexit scenario 2 imports are subject to zero tariffs.

Under the first scenario the company would be £4.2m worse off on revenues of £100m and under the second scenario it would be £8.2m better off.

A more fine grained analysis would take account of which were the key materials (e.g., cocoa, milk), where they were sourced from and how vulnerable they were to different scenarios.

In the quarter to the end of September British food exports to countries outside the EU grew at twice the rate of those to the bloc, 19.2 per cent against 9.6 per cent. However, the EU still accounted for 71.5 per cent of food exports, led by Ireland, France, Germany, the Netherlands and Spain. Exports to China rose by 62 per cent in the first nine months of the year, making the country the ninth largest destination for UK food (the US is sixth).

However, the trade deficit in food and non-alcoholic drinks increased by 6.7 per cent to £23.3bn.

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