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The impact of Brexit on the food industry

July 1, 2016
Food & Drink

Timing as they say, is everything. As the doors to the 2016 Summer Fancy Food Show opened last Friday at New York City’s Jacob Javits Center to a record-breaking 46,000 attendees, UK’s Prime Minister David Cameron announced the results of the UK’s Brexit vote and his resignation.

Newscasts are still focused on the drop in the global stock markets and the devaluation of the EU and Britain’s Sterling Pound to its lowest point in 31 years, and the impact on food will also be substantial.

The Fancy Food Show showcased over 180,000 products, according to the show’s organizer the Specialty Food Association, many of which are imports. This show, one of the largest in the U.S., focuses on “gourmet” foods those unique flavors, ingredients and packaging that just seem made for those food-obsessed Millennials.

Global exports of foods and beverages from the UK since 2015 have seen substantial increases. According to the International Trade Center, categories that showed the most increases include Cocoa, up 24.9% to $955 million), Food Preparations up 22.3% to $2.6 billion, Vegetable and Fruit Preparations up 17.2% to $653 million, Cereal and Milk Preparations up 8.1% to $2.3 billion and Coffee, Tea & Spices up 6.3% to $556 million. The UK exports to the US total 14.5% of its total exports with the number one food export being in beverages at $2.1 billion.

On the other side of the pond, the UK depends on the EU for approximately one-quarter of its food, but only 4% from North America according to the UK Department for Environment, Food & Rural Affairs. Britain will be effected the most as the value of its pound continues to fall against the dollar and euro, making imports more expensive.

The benefits of forming the EU for agriculture was that it made it considerably easier for the UK and the other 27 European states to buy and sell goods to each other – it was a commitment to the free movement of labor, capital, goods and services. Now, with the Brexit vote most likely forcing the departure of the UK from the EU, it is unlikely that the other EU countries will offer the UK access to the EU single market forcing them to negotiate with each country separately. No doubt the issue of allowing EU workers free movement into the UK will be a sticking point since much of the fervor leading to the Brexit vote was centered around this issue and immigration.

Of concern for farmers is the loss of the EU’s agriculture subsidies (much like our own Farm Bill) which totaled almost 3 billion pounds to British farmers. The deputy president of the Farmers Union told the Daily Mail that “prices will have to go up to ensure farms stay in profit. Many are already being paid below the cost of production prices and that is not sustainable.” He sees the biggest price increases in fruits and vegetables . In a pre-vote poll of the members of the Food Manufacture Group, 58% of its members thought that staying in the EU would offer greater business prospects. Freshfel, the European Fresh Produce Association reports that in 2015 the UK received imports from an estimated 120 countries of more than 5.6 metric tons of fresh fruit and vegetables valued at over $7.5 billion, over half of those come from the other members of the EU.

It is doubtful that the impact of the UK leaving the EU will have much impact on the prices on the imports to the US, in fact in the short term there might be some benefits as the British Pound continues its fall against the Dollar.

Liv-ex, the London based fine wine trading platform reported that on Thursday nite and Friday there was higher than average trading of fine wines from both the US and Hong Kong as the Brexit votes were being counted. UK’s Wine & Spirit Trade Association called for its members to remain calm, while the London International Vintners Exchange predicts the vote “means a sudden end to the Bordeaux 2015 en primeur campaign”, which held mush promise.

And then there is the possibility that Northern Ireland and Scotland could leave the UK and stay in the EU.

While almost 90 percent of Northern Irish farmers’ income comes from Europe, which has it’s farmers very concerned, the bright side is that Irish dairy imports have flooded the US market with great success – Kerrygold butter is already the number four leading brand in US supermarkets (including the store brand offerings) with Ornua the Irish Dairy Board predicting it intends to have Irish dairy products sales double to at least $500 million by 2020. But that will not solve the problem for the majority of agriculture production; staying in the EU will. In Northern Ireland the vote was 55.8 percent in favor or remaining in the EU.

The sales of Scotch, which by regulation must be produced in Scotland has seen a triple sales growth here in the U.S. from 2004 to 2014 according to the Scotch Whiskey Association. While Scotch only represents just over 4.2% of distilled beverage sales in the U.S., the Global supply of single malt Scotch is under pressure as the demand in China continues to increase. One-fifth of all Scotch sales occur in that country. Scotland’s Brexit vote was 62 to 38 percent in favor of staying in the EU.

It’s too early to fully gauge the impact on the global food economy based on the Brexit vote, but with US based brands pushing for a larger presence in the UK and EU, including Coca-Cola and Mondelez, and retailers like Walmart (who owns Asda) and Costco it is likely we will see major changes with UK businesses and farmers feeling most of the hurt.

By Phil Lempert. Phil is known as “The SupermarketGuru” and writes and reports on food trends.

Source: Forbes

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