How does Brexit affect the food trade?
The referendum on the withdrawal of the United Kingdom from the European Union took place almost two and a half years ago. The consequences of Brexit – including the European Single Market and the customs union – will be decided these days. Since billions are traded annually between Britain and the EU, the food industry has a lot at stake.
Brexit: The status quo
Last Sunday, the heads of state and government of the remaining 27 EU countries approved the agreement proposed by Prime Minister Theresa May to withdraw from Britain. This is an approximately 600-page exit agreement that regulates, inter alia, the rights of EU citizens, final payments and the transitional period until the end of 2020. This transitional period should give all parties time to design a long-term trade agreement. There is also the option of an extension until 2022. Even after the transition phase, however, it could still come to a hard Brexit.
But May’s package for a Brexit deal is controversial. In addition to members of the opposition dozens of colleagues from their own ranks have spoken out against the agreement. Resistance also comes from the Northern Irish party DUP, on whose votes Mays minority government is dependent.
In the German economy, some institutions approve the deal. For example, the Verband Deutscher Maschinen- und Anlagenbau (German Engineering Federation) speaks of a “fair offer to Great Britain”. Or the Verband der Chemischen Industrie (German Chemical Industry Association) said that approval in Brussels was “another step on the way to a regulated Brexit”.
2. What happens next?
The next big date for the Brexit agreement is the 11th of December. On this day, the British Parliament votes on the agreement. If negotiations fail and a no-deal scenario emerges, Britain could leave the EU on 29 March 2019 without a contract or transitional solution. Other scenarios are also possible, as the chart of the BBC Political Research Unit shows.
The question of whether Britain could unilaterally withdraw its declaration on leaving the EU also interested a Scottish court, which called the European Court of Justice. The European Court of Justice is currently negotiating the topic in Luxembourg; a verdict is expected in a few weeks.
3. How much food is traded between the UK and the EU Member States?
Crucial to the implications for the food sector is the question of whether EU-UK trade can take place freely after Brexit and, if so, to what extent.
About 40 percent of British food is imported and 85 percent of the country’s vegetable imports come from the EU. Most tomatoes and onions in the United Kingdom come from the Netherlands, cauliflower and celery mostly from Spain and potatoes from France. While the country’s bananas are mainly imported from Latin America, apples come from France and South Africa; Spain delivers over half of all mandarins.
Germany exports billions worth of fruits and vegetables to Great Britain. In the year of the Brexit vote, German net agricultural exports stood at 3.1 billion euros. As reported by the Brunswick Thünen Institute for Market Analysis, the United Kingdom is thus the trading partner with which Germany has by far the largest agricultural trade surplus.
4. How could Brexit affect the food trade?
In the case of an exit without a deal, without a privileged partnership or free trade agreement, goods from the EU would have to be treated under customs law like goods from third countries. Trade relations would suffer from tariffs, border controls and product-related regulations on both sides. This could also increase costs with regard to the supply chain – for example, through longer transport times or greater documentation effort.
The Institut der Deutschen Wirtschaft (Institute of German Industry) said that the EU could levy duties of 2.8% on British exports on average, and the United Kingdom even levied 3.6% on goods from the rest of the EU. German exports to the UK would be burdened with an average of 4.3 percent.
Another factor is that, if the UK does not align its product-related rules with EU rules, products may need to be modified and re-authorized for export if possible.
The possible effects of hard or soft Brexit on German agriculture were also examined by the Thünen Institute. The result: In the case of a soft Brexit, a decline in German agricultural production in the amount of € 400 million is to be expected. This fall in value would be three times higher for a hard Brexit.
If the UK leaves the EU, then both in a hard Brexit, as well as in the agreement of a free trade agreement or other privileges are expected to have a significant impact on the food trade. The German Chamber of Commerce has provided a checklist for companies that want to be prepared for this, which you can find here. You will also find further information on our blog shortly.