It was a relief to many that a “Brexit deal” was reached between the EU and UK in late December. The deal removed the immediate prospect of tariffs and quotas on food products to and from the UK. However the new customs requirements, checks and paperwork are adding complexity and costs for imports and exports to the UK. We take a look at the challenges facing the sector.
Trade & Cooperation Agreement on food imports and exports
The Trade & Cooperation Agreement (TCA) struck between EU and UK was a last minute but very welcome relief for the Irish agri-food sector as it removed the immediate prospect of trading under WTO rules, with tariffs and quotas on beef, dairy and other food produce. However, the TCA does not change the reality that the UK has left the Single Market, and that means additional regulatory burden, customs checks and paperwork for food exports. How are Irish exporters faring in the post-Brexit world, and what are the prospects for the next few months?
The Irish agri-food sector is highly dependent on the UK market, with the value of exports to GB estimated at €4.3 billion in 2020. A no-deal Brexit would have been hugely damaging, with tariffs of up to 72% on some products possible under WTO rules. The TCA, a zero-tariff, zero-quota trade deal, averts the most serious impacts for the agri food sector.
Yet trade in food with the UK has been seriously hit by the additional customs checks, paperwork and SPS (Sanitary and Phytosanitary) checks that apply to all imports of animals, plants and products of animal and plant origin from GB. The Irish Government’s “One Month Post Brexit” assessment acknowledges the challenges for traders, despite the HSE and Department of Agriculture, Food and the Marine (DAFM) stepping up to 24 hour operations at Dublin Port. By the end of January, 80% of incoming freight vehicles were being “green routed”, cleared to leave the port immediately after arriving.
From the UK side, issues in relation to Rules of Origin (RoO), repackaging of loads within the UK and specifically what constitutes “substantive transformation” of a product have had tariff implications for UK supermarket chains. New rules of entry and SPS checks have also caused widespread delay and additional costs with some estimates of UK food exports to the EU dropping by 50% - 60% in January 2021. These developments have been described as “teething problems” by the UK government, but as an “unmitigated disaster” by UK food industry leaders who claim the cost of Brexit disruption has caused some firms to close permanently.
Further restrictions in April
There are further challenges coming in April and in July. The EU introduced controls on exports from the UK to the EU immediately, from 1 January 2021, but the UK government opted for a “grace period” until 1 April 2021 before introducing similar checks on imports. Once the UK implements those checks, this is likely to slow down imports, add complexity and potentially add cost for EU businesses selling products to UK buyers. There are warnings of price rises in UK supermarkets and potential food shortages, given that the UK is only 60% self-sufficient in food.
EU and Government support
The Brexit Adjustment Reserve, a financial support package to Member States and sectors most adversely affected by Brexit, allocated more than €1 billion to Ireland, or about 25% of the initial 2021 Reserve. The fund is to be used by Ireland for costs incurred in implementing Brexit mitigation measures. It is not yet clear what proportion of the €1 billion will be spent by Ireland on the agri-food sector.
Meanwhile, Enterprise Ireland have recently published details of a capital investment scheme for SMEs in the agri-food sector. Up to €100 million is being made available for primary food processing companies, to advance product and/or market diversification and improve resilience in the face of an adverse trading environment. Grants of up to 30% of the eligible investment costs will be given, with a cap of project value of €25 million. The scheme is open for applications until 15 April 2021 and further details can be found here.
Other supports for businesses, including the Enterprise Ireland Ready for Customs grant of up to €9,000, are still available. This can assist companies with the cost of engaging customs clearance staff for trading with GB.
Amidst all of these changes, there a few practical steps that traders can take to mitigate the disruptions to doing business that Brexit has created:
The additional checks, forms and online portals involved in trading under the TCA are here to stay. Pro-actively tackle the paperwork in the short term and where uncertain, seek guidance directly from DAFM, the HSE and Revenue.
If exporting to the UK, prepare for the expiry of the UK grace period on 1 April, and get fully up to speed on the further paperwork that will be required to clear UK customs.
Investigate and avail of the Government’s financial and practical supports for Irish food businesses.
Consider diversifying out of and away from UK markets. Could the UK landbridge be avoided and if so, how? Would a switch from UK to EU sources for ingredients and inputs be possible in the short, medium or long term?
For more information and expert advice on navigating challenges facing your business, contact a member of our Food, Agriculture & Beverage team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.