A no-deal Brexit – hello tariffs goodbye innovation…

Law firm Cripps Pemberton Greenish takes a look at how food and drinks businesses may struggle to innovative post Brexit...

Most industries in the UK will be impacted by Brexit in some shape or form, not least the food and drinks industry. Whilst Brexit may provide many new opportunities for the UK these are by no means certain. What we do know, with greater certainty, is what we will be losing assuming no deal is struck, which is looking more and more likely judging from the recent rhetoric between the key players in the UK and EU.

As highlighted by a government briefing paper published last month by the House of Commons Library (briefing paper number 7851), the EU is the UK’s largest trading partner accounting for 46% of UK exports and 54% of imports last year. Currently UK businesses enjoy free movement of goods which means that there are no tariffs on trade with other EU member states. A no deal Brexit will put an end to that, meaning the introduction of import/export tariffs. The potential implication of this, amongst other Brexit related issues, is giving UK businesses a huge headache on how best to resolve.

If tariffs are introduced this will mean an additional cost for businesses to take into account. The key question then is who (in the first instance) will pay for these tariffs. From the food and drink industry’s perspective, only last week Lidl have made clear that suppliers will be expected to pay these. Understandably this has caused a stir, particular if other major retails adopt a similar stance to tariffs. 

If suppliers are faced with additional tariffs which they are expected to pay, logically there are only a few options on the table for them to deal with this, namely:

  1. increase the cost of the goods supplied to take into account the tariff they are being asked to pay; or
  2. source the goods from elsewhere where lower tariffs apply; or
  3. innovate to produce the goods at a lower cost to the supplier.

Depending on the specific goods in question, if option 1 is adopted then this will likely lead to a decrease in demand for those goods as ultimately that increase in cost in the supply chain will work its way down to the consumer. Option 2 is more wishful thinking, particularly if the goods cannot be realistically sourced from other places outside the EU. Option 3 is unlikely to be the answer in the short term as innovation takes time, effort, and money, something which businesses are short on bearing in mind the Brexit deadline of 31 October is only just round the corner.

Unfortunately Brexit is, at present, all encompassing. Whilst this article has primarily focused on the likelihood that tariffs will be introduced in the event of a no deal Brexit, that is of course just the tip of the iceberg and there are a myriad of other issues and concerns which businesses are currently having to consider. 

Businesses cannot sit still and hope that a Brexit deal is struck. Businesses must therefore come up with their own back-up plans and contingencies to ensure they can carry on trading with as minimal impact as possible in the case of a no deal Brexit. Frustratingly, for most businesses this has meant diverting time, effort and resource into trying to develop such plans and contingencies. 

Consequently the ability of businesses to focus on other areas of their businesses which would ordinarily receive their attention is hampered.  Whilst there is an element of “needs must” it does raise the question what impact this is having? One suggestion is that areas such as R&D will be the first to be impacted which will unfortunately likely result in less businesses creating and adopting new and innovative technologies. We would suggest this is bad news for all as businesses simply seek to stay afloat in these uncertain times.