Brexit is having an adverse effect on the foodBy Richard Welbourne
Brexit is already having an adverse effect on companies from the food industry. Rising insolvencies, late payments through the supply chain and falling margins run riot all the while. The next deadline is only around the corner, I fear the worst is yet to come. The moment Article 50 was signed, the Sterling started to tumble and has done so again since pro-Brexiteer Boris Johnson was confirmed as the next Prime Minister. This negative impact Brexit is having on the economy is causing more businesses to speak to us at Avenue about protecting their best interests.
With the weakening of the pound, the whole supply chain of the food industry has been affected greatly. While the pound is at such a weak point against the dollar, it means that ingredients and the fuel to import them will cost proportionately more. On top of ingredients and fuel being at a higher price, so too will energy costs undoubtedly increase as the majority are owned overseas. The industry needs more scale to absorb such increases in costs not least to keep the retailers on side, but there is a limit to how much over production can take place without hurting margins.
Another major issue to consider post 31st October is the decline in foreign labour. With the falling pound and the increasing cost of living, people are choosing to work in other countries such as France, Germany and Italy. According to the new foreign labour laws only “high-skilled workers” with secondary school qualifications or higher will be allowed to remain in the UK. Foreign workers without secondary schooling qualifications or higher will only be permitted a 12-month work permit before being asked to leave.
From speaking to a number of our clients I know that the food industry as a whole is facing a number of other ongoing issues. With the uncertainty of not knowing what deals will look like post Brexit, trade is slowing up with the EU. Most companies are not seeing any long-term contracts being agreed. This is having a knock-on effect on stock with an increasing number of cold storage facilities reaching maximum capacity.
All of this may or may not be the cause for insolvencies in the industry increasing for a 2nd quarter in a row. The average size of debt from a single insolvency has almost doubled to around £60,000. In the long run, I don’t think that any industry can sustain many more insolvencies.
So what will the Food Industry look like post Brexit? Who really knows? And all this uncertainty is definitely not good for the industry as the supply change grapples with new laws and regulations in place for trading between EU and non-EU countries.
With a growing population, almost 50% of all food consumed in Britain is imported. There are growing concerns as to the welfare of the animals and farmers plus the quality of the produce post Brexit. If a no deal Brexit happens and is a very real possibility, there will be no free trade with the EU and the worry is that the WTO tariffs will see a substantial hike in costs to the point that it may cripple many SME businesses that rely on export trade. With dairy and bird eggs alone, the tariff is at 50.8% and sugar is around 20%.
What will also greatly affect export trade are the potential new border controls. At peak season through Dover alone are around 8,000 vehicles carrying food and food products. With all these vehicles being stalled it could have a disastrous impact on companies.
There is going to be no overnight fix for the country and the fear is that it is not going to be months but maybe years before trade agreements with countries are in place if the Brexit negotiations are anything to go by. The overriding fear is that Brexit could put the country into a further recession which will not only affect manufacturers, but the whole supply chain.
Research shows only 3 in 10 businesses are ready for a no-deal Brexit. But one thing all businesses must do is try to protect their cash flow and take steps to ensure customers pay invoices on time. A major insolvency can have a devastating impact along the supply chain. The only certain way to do this is to credit insure your trade receivables.
Richard Welbourne is Business Development Manager with Avenue Insurance Partners, a specialist credit insurance broker and a recognised expert in providing credit insurance solutions to the Food & Drink industry