Many businesses breathed a sigh of relief when the UK and the EU clinched a last-minute deal days before the end of the transition period.
The agreement eliminated the risk of a ‘cliff-edge’ scenario and paved the way for continued tariff-free trade. Three months in, some of the intricacies of this new reality have become apparent, with many businesses still trying to get their head around new paperwork.
Supermarket supply chains have come under pressure. Unlike other sectors, stockpiling isn’t an option for grocery retailers due to the short shelf-life of many products. While fears of tailbacks at UK seaports and food shortages haven’t materialised, UK and EU trade slumped in January. UK exports of food and drinks to the continent fell by 75%, while EU imports fell by nearly 25%, a stark reminder of how non-tariff barriers can be as taxing as tariffs themselves.
Compliance with rules of origin has proved a tall order too. Under these rules UK exporters/importers are required to provide evidence of the origin of the product they trade in order to have tariff-free access to the UK/EU market. These, and other regulatory requirements, have slowed down supply chains.
The UK government has responded by extending the ‘grace’ period, due to end on March 31, to October 21 and full customs declarations required from January 2022. This should give supermarkets and their suppliers time to understand the new regulatory requirements, limiting potential disruption.
To minimise the risk of supply chain disruptions, UK supermarkets are broadening their sourcing base, with many already increasing domestic sourcing. Currently the UK produces roughly half of the food it consumes and 75% of its food imports originate from the EU. Seasonality matters too. In June, the UK grows 95% of the lettuce it needs, but this share virtually reverses in January.
Trends like vertical farming combined with consumers’ growing focus on sustainable supply chains should help bridge the consumption/production food gap in the longer term.
Depending on the level of congestion at current food import/export gateways, some food retailers may also look to source more from outside the EU. Most EU-imported fresh produce travels by truck to the English Channel where it’s loaded/unloaded onto a ferry or train until it reaches its destination. Since most UK extra-EU trade is waterborne, we could see growth in port-centric logistics due to the re-routing of food supply chains.
Bruno Berretta is retail, logistics and industrial research lead at Cushman & Wakefield
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