In the wake of the UK’s unprecedented Brexit vote, the immediate dust has settled enough to turn our attention to the larger questions at play. There is no way to say for sure how Britain leaving the EU is going to affect the European food and beverage industry, but it’s likely to cause short-term disruption and have wide-reaching and irreversible ramifications. So what do you need to know?
The pound currently holds the dubious honour of being 2016’s worst performing currency, achieving its worst exchange rate since 1985. Fears over how Brexit will affect trade with the EU and America have led to the relatively unaffected Asian markets becoming much stronger. The yen is currently very strong, though the Japanese export economy relies on having a weak currency and so shares there have fallen. However, it’s not all bad news, as UK manufacturers shipping overseas may see an uptick in trade as it becomes cheaper to import British food and drink abroad.
Assuming the UK leaves the EU for good – which would happen in 2018 at the earliest – laws which were passed by the EU parliament will cease to be in effect unless the UK government passes legislation to the same effect. One example is the Working Time Directive, which gives workers the right to paid annual leave: Britain has specific legislation promising employees 28 days. Other Brussels legislation may not be implemented in this way, though, meaning there will potentially be legislative gaps on a variety of legal issues. Both EU and British food-bev businesses will be concerned by the legal status of EU workers in different countries. If business gets tricky, moving abroad might be favourable.
Movement of goods
One of the EU’s main draws is its free market, which allows products to be traded without restriction across borders. Owen Paterson MP claimed that leaving the EU would allow food-bev companies to negotiate better trade deals with the EU, though this has proven false as the EU look set to refuse negotiations until exit is achieved. The re-negotiated trade deals will probably have negative results for UK businesses of all types. Tariffs and quotas may be implemented, leading to potential problems in moving goods; it seems pretty likely that British trading with Europe will become more expensive and time-consuming. Some companies, like LUSH cosmetics, are moving manufacturing to mainland Europe to stay ahead of the curve. For the same reasons, European manufacturers may face obstacles in exporting goods to the UK.
Brexit has caused a contraction in the UK economy – even pre-referendum, growth was notably slower. Many economists believe that negative growth will follow, and Britain will plunge into a recession akin to the 2008 financial crisis. Currently, food and drink manufacturing contributes £21.9 billion to the UK economy, but output is liable to shrink in the coming months. The UK government could respond to these economic woes by cutting interest rates and implementing financial stimulus programs. Alternatively, there could be more austerity and cuts: stimulus programs are fairly unlikely given the economic ideologies of the current government. Whatever happens, the British economy is likely to be turbulent for a while yet.
The current riskiness of the UK economy means that British investors will be less inclined to put money into domestic businesses, but foreign investors who can brave the uncertainty will be getting more for their money. Companies expanding into the European market are less likely to pick London as a headquarters; Dublin will potentially see huge growth from investors, as it becomes the new English language gateway into the sought-after EU single market. Currently, three of the top five European food-bev stocks are from UK companies, with one each in France and Belgium: these UK companies are the most likely to lose out. As existing firms look set to move overseas, Berlin and Paris may become the new food and drink centres of Europe.
The overall picture, therefore, is not exactly positive. The food-bev industry across the UK and the continent should be prepared for periods of instability. Businesses will need to plan for the future with an international outlook, as potential growth may depend on breaking into new markets if European trade becomes unfeasible. The upshot: hope for the best but prepare for the worst.
Image via Pixabay. Creative Commons CC0.