Testing times for UK supply chains

As widely reported at the end of August, the government’s final post-Brexit Border Target Operating Model (BTOM) for food products coming from the EU has finally been announced. The first stage of the UK’s new border model, originally set for October, is now delayed until January 2024.

Under the latest plans, checks on medium-risk food, animal and plant products from the EU won’t come into force until 30 April. And fresh fruit and vegetables arriving from the EU will be exempt from pre-notification requirements and UK border inspections – a change of plan celebrated by the FPC in August. The decision will prevent additional border costs of an estimated £250 million per year being incurred by the horticultural sector. A similar arrangement is expected to be announced soon for fresh produce from other non-EU suppliers. This will see a reduction in some border controls and associated bureaucracy.

Yet, to our mind, the issue of border controls, while crucially important, fits into a wider debate about the issues facing the UK market overall. This decision on the BTOM comes as a huge relief to UK importers who bring in an estimated £12 billion of fruits and vegetables per year – not just from the EU, but also from a wide range of other countries.

The significance of this development is clear. One of the reasons stated by suppliers in Spain and Morocco earlier in the year when they were unable to supply the UK market was the issues they had encountered with so-called ‘trade friction’. Research shows that the additional transaction costs incurred as a result could be as high as eight per cent. And this comes at a time when the UK and many other countries around the world have experienced high inflationary costs and literally every penny in the supply chain counts.

In both Spain and Morocco there were other factors at play that created this situation, namely the impact of adverse weather conditions and a sense of dissatisfaction with how UK supermarkets, in particular, operate vis-à-vis prices paid for imports. So, the trade friction was not the only cause of these problems, but it certainly did not help. Resolution of this issue under the new rules, as set out by the BTOM, can only be good.

The rumbling after-effects of Brexit, Covid and the war in Ukraine have combined, however, to produce these almost unprecedented levels of food inflation. You have to have been around since the early 1970s to have seen anything like this in the past. This has impacted all areas of the food market, but fruits and vegetables have been particularly affected. In the last 12 months, the price of cucumbers has gone up by over 50 per cent, potatoes by 30 per cent, and bananas by 20 per cent.

Consumer incomes have had little opportunity to keep pace with these increases. These are not just being seen in the UK, but around the world. A similar situation is seen in other EU markets, but the UK seems to be particularly hard hit by soaring prices – although not as much as other regions such as Sub-Saharan Africa and Asia. This has become a global issue in the last 18 months, but one to which there are no simple solutions. Those that do exist are, at the moment, more of a local nature, when the root causes are more global.

The UK consumer reaction to this has been to shop more in discount stores; buy less food, less often; and, in general, ‘trade down’ by looking for better value for money and price bargains. This has impacted many consumers, but as is always the case, it has impacted those on low and/or fixed incomes the most.

The UK has also always been a net importer of fruits and vegetables since we first joined the Common Market in 1973. This has seen an increasing dependence on supplies from the likes of France, the Netherlands, Spain, Italy and Greece. All of these countries grow fruit and vegetables that could, at least in theory, be produced in the UK. We have also imported significant volumes of produce from more long-distance suppliers, including Turkey, Kenya, Chile and Peru. In addition, the UK has of course imported significant volumes from South Africa for a long time.

Producers and exporters in the EU and other parts of the world have also been subject to increased cost of production and logistical problems caused by Covid. While the costs of international transport have come down in the last few months, these are only part of the wider issue. As a result, they often see, in many cases, better and/or less problematic opportunities in other European markets. The UK has always been an important market for these countries and will probably remain so in the future, but we might not always be their number-one priority going forward, even with simpler rules on border controls.

For countries such as South Africa, Chile, Peru, and others in Central America, while the UK has always been an important market, their attention has for some time been on what are seen as more lucrative markets in the fast-growing regions of Asia. This is likely to continue going forward.

This all adds up to a situation where the resilience of the UK fresh produce sector – when it comes to domestic production or imports – should no longer be taken for granted. It will also add to the overall price pressure on both suppliers and consumers in the UK. This will only serve to make the challenge of supplying a regular flow of high-quality, nutritious, safe and affordable fruits and vegetables to consumers of all types increasingly difficult.

Taking this all into account, as an industry in the UK, we are at something of a tipping point. Some clear thinking is needed in the very short and then mid-to-longer term about how the British market operates and is structured in the future.

John Giles is a divisional director at Promar International, the agri-food consulting arm of Genus plc. He has worked on horticultural assignments in over 60 countries around the world and is a visiting fellow at the University of Reading.