LSE report September 2020

Government urged to be pragmatic and practical to avoid food price hikes from 1 January

New LSE and Arla Foods report identifies steps the Government and EU can take to ensure consumers of food and drink products do not face disruption at the end of the Brexit transition period

A new report from the London School of Economics (LSE), commissioned by leading dairy co-operative Arla Foods, has concluded that without practical action by the UK Government and EU, the food sector and consumers on both sides will be badly impacted. It concludes that higher trade tariffs and the establishment of new non-tariff barriers will have a major impact, with the price of fresh foods expected to rise significantly. The report crucially highlights practical ways that the UK and EU can work together to minimise disruption after 31 December.

The Vulnerabilities of Supply Chains Post-Brexit report, which has been produced by LSE Consulting’s Trade Policy Hub, outlines just how interlinked the food sectors in the UK and EU are. At present, a total of 40 percent of agricultural and food products consumed by households and businesses in the UK are imported from the EU.  In the dairy sector, 15 percent of all products sold are imported into the UK, and 99 percent of this currently comes from the EU. A no-deal departure, with high tariffs, will hike up the prices of many of Britain’s best-loved products; and even with a deal, non-tariff barriers such as increased paperwork and customs checks will have a major impact, increasing prices and reducing product availability.  Yet research conducted by Arla earlier in the year shows that consumers expect to have the products they want on the shelves, and do not want or expect to pay any more.

This issue is not limited to products on supermarket shelves but also affects agricultural production.  Major inputs into the production and manufacturing of food will also be affected. 69 percent of some aluminium products, 65 percent of certain pharmaceutical goods and 51 percent of many fertilisers are imported from the EU.  Costs from tariffs and non-tariff barriers on these goods will hit farmers and processors across the UK. 

The LSE report reminds us that the UK has benefited enormously from established trade links with the EU until now, giving UK consumers access to affordable products farmed and made to the same high standards as in this country. The importance of these trade links was reinforced this year by the coronavirus outbreak when imports of many products including butter rose sharply to cope with changing patterns of demand. The end of the transition period risks breaking those connections, significantly impacting food accessibility. And whilst the British food and drink sector is strong and has the potential to grow, it will take many years and hundreds of millions of pounds of investment to build capacity to replace imports from the EU.

However, the report makes clear that a way out of this situation is in reach. A trade deal for food and drink would deliver major benefits not just for UK consumers and producers but also for exporters of these products from Europe. And there are practical steps that can be taken now to protect farmers, processors and the public, such as confirming Great Britain’s SPS regime and clarifying the UK’s Border Operating Model, showing how customs clearance and payment of customs duty will be simplified. The report also calls for the Goods Vehicles Management System and Smart Freight Service to be tested and functional before the end of the year, and in the medium-term for alterations to be made to the UK’s proposed new immigration regime.

Ash Amirahmadi, UK Managing Director of Arla Foods explains: “This report shows how integrated the UK-EU food supply chain is and the mutual benefits this brings to both sides. Because of this free trade with our largest trading partner UK customers have access to a large choice of high quality, affordable, products. We want to ensure this continues after 31st December 2020 and we know consumers expect this to happen as well.  But for this to happen it is essential we secure a tariff-free agreement. And it is vital too that the Government takes pragmatic and sensible steps to limit the impact of non-tariff barriers.”

Dr Elitsa Garnizova, Lead of the Trade Policy Hub and one of the authors of the report, adds: “Tariffs imposed on food and drink are typically very high, so the impacts of a no-deal Brexit will inevitably have profound effects on customer choice. Even with risk management strategies in place, no-deal will have significant impact on the fresh foods sector and these need to be considered by policy-makers in the coming weeks.”

The report also takes a longer-term perspective, showing that whatever deal is done and whatever steps are taken flows of food and drink products to and from the United Kingdom are set to change very significantly over the coming years. It calls for the Government to take a strategic approach, working with farmers, processors and the rest of the supply chain to address the challenges and harness the opportunities that arise to ensure that farmers, consumers and the food industry all benefit from what happens once the UK is fully out of the European Union.

The full report can be viewed on the LSE website. 

Contact Information

Flic Callaghan

07966136112

felicity.callaghan@arlafoods.com

Notes to editors

About Arla Foods

Arla Foods is an international dairy cooperative owned by 9,700 farmers from Denmark, Sweden, the UK, Germany, Belgium, Luxembourg and the Netherlands. Arla Foods is one of the leading players in the dairy arena with well-known brands like Arla®, Lurpak®, Cravendale® and Castello®. Arla Foods is focused on providing good dairy nourishment from sustainable farming and operations and is also the world's largest manufacturer of organic dairy products.

About Trade Policy Hub (LSE Consulting)

Trade Policy Hub (TPH), a specialised team within LSE Consulting, provides professional, bespoke trade and investment expertise for clients across the public and private sectors. Our venture relies on three components: research on global trade and investment policy issues, a wide network of experts inside and outside the LSE, and professional management. TPH offers organisations up-to-date expertise, multidisciplinary approach, reach into networks and it is becoming an incubator for trade policy ideas.