Companies need to maintain healthy balance sheets as they face cost increases from rising ingredients, packaging, equipment and maintenance, energy, fuel prices and labour charges if a free-trade deal with the EU is not agreed, a senior business executive and industry figure who wished to remain anonymous, has warned.
The executive was speaking at Food Manufacture’s Business Leaders’ Forum held in London last month. The forum was sponsored by legal firm DWF and food waste reduction specialist Company Shop & Community Shop.
Consequences and costs
He called on businesses to put in place contingency plans to protect themselves from unexpected consequences and costs associated with a hard Brexit and look at areas where they might be particularly vulnerable, such as in labour availability from the EU.
Uncertainty about the future was rife among business leaders attending the event. It was held as the UK government begins negotiations with European Commission officials over the coming months on transitional arrangements and the prospects for a free-trade deal with the EU.
The unnamed delegate at the forum described the current situation between the UK and EU as a “phoney war” in which some politicians and proponents of a hard Brexit overly relied on the boost to the UK economy and artificially inflated UK share prices associated with the 14% devaluation of Sterling that followed the Brexit referendum in 2016.
“Make sure that you have cash management strongly in focus,” he urged. He also called on firms to plan for potential disruption caused to their supply chains and inventories from the reintroduction of customs controls between the UK and EU Member States.
Pressure to increase inventories
“All that probably adds pressure to increase inventories,” he said. “People that are operating on just-in-time supply chains are very happy until they become just-too-late supply chains – and there ain’t much you can sell if you haven’t got the product.”
He also warned of other costs that were likely to be faced – not least for the 90–95% of food manufacturing equipment used in the UK that comes from the rest of the EU and will be priced in euros.
His views were echoed by another senior food industry executive, who lamented the political “fudge” and “complete lack of decisions” from the UK government since part one of the Brexit negotiation deal with the EU was signed in early December.
He raised concerns about “regulatory confusion” that would be difficult to resolve.
“We still don’t know if we will have four regulatory environments or one. And in order for us to get one we will have to have concessions from the Scottish government, the Welsh government and whatever emerges in Northern Ireland,” he warned.