From Labor Shortages to Price Swings: How Brexit May Affect U.K. Food & Drink Supply Chains

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Scan the latest Brexit-related headlines, and the tone is decidedly pessimistic. Words like “turmoil,” “pain” and “severe loss” are scattered throughout. That last one comes from German Chancellor Angela Merkel, not one to mince words.

With the exodus of European Union workers already underway, many industries have cause for concern. The U.K. food and drink industry is certainly one of them, as new research shows. The Food and Drink Federation (FDF) commissioned a report to find out what Britain’s exit from the E.U. will mean for the country’s £28.2 billion ($36 billion) food and drink industry.

The findings? Well, challenges certainly lie ahead, and the skills gap is perhaps the most blatant. Migrant workers make up a significant percentage of skilled and unskilled labor in the food and drink industry. Overall, they form 38% of the workforce, which is 2.5 times the rate for the overall economy.

The Upcoming Talent Shortage

The graph above shows the share of migrant versus U.K. workers by skill level. As you can see, one in five workers with higher education are from the E.U.

As for how many E.U. workers there are in the overall industry, statistics differ. But the U.K. Department for Environment, Food and Rural Affairs (DEFRA) has estimated that in 2015, 29% of the workforce came from the E.U. 27 (the E.U. minus the U.K.).

Industries under the umbrella of food and drink won’t be equally affected. E.U. workers make up a disproportionate share of the meat industry workforce, according to estimates from the British Meat Processors Association, which has pegged the figure at 63%.

The loss of this source of labor will be compounded by the fact that some 10%–20% of the workforce is due to retire in the next decade. The average age of U.K. farmers is now 59, and as one survey respondent told the researchers, “it’s hard to get [young] people into agriculture.” According to the report, the industry will need to fill 140,000 positions by 2024.

Trade Uncertainty

Due to its size and climate, Britain is far from self-sufficient and runs a considerable trade deficit in food and drink, particularly in fruit and vegetables.

The survey respondents told the researchers that they import raw materials due to limited or lack of U.K. supply and lower costs or higher quality of products elsewhere. As the graph above shows, a significant percentage of U.K. food is sourced from the E.U. But despite the trade deficit, the U.K. has been increasing its exports in recent years. The E.U. is the largest export destination, having accounted for 60% of exports in 2016.

It’s too early to predict how current trade talks will turn out and what trade will look like post-Brexit, but it’s safe to say that costs will go up for many U.K. food and drink manufacturers, as the U.K. will likely have to pay tariffs on trade with the E.U.

On the flipside, however, some companies stand to improve their margins once they are able to source from non-E.U. markets without being subjected to the E.U.’s import restrictions and tariffs.

A major source of uncertainty is the fact that many products are part of supply chains that involve multiple border crossings, which Brexit will naturally complicate. As one survey respondent from the meat industry told the researchers, “There are lots of packing lines which are often done in the Republic of Ireland and then back to the U.K. via Northern Ireland. Currently this is a straightforward transfer, [but it could], following Brexit, incur an import/export charge.”

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