On 22 February 2018 ACT Alliance convened Seminar on the Implications of Brexit in the agro-food sector for ACP countries and for the forthcoming ACP-EU Post-Cotonou negotiations. A series of twelve 2 page summary notes were produced for the seminar covering both substantive issues arising within the Brexit process and the current state of play in the Brexit process. Note 7 explores the potential of the Brexit process to disrupt the functioning of triangular supply chains which serve the UK market via an initial port of landing in an EU27 member state or EU27 markets via a port of landing in the UK.
What is the Nature of the Threat of Disruption to Triangular Supply Chains?
Over the years ACP supply chains have been built up to serve multiple EU markets through a single port of landing in an EU member state, with this often being linked to lowering of costs of onward shipment within the EU.
The development of these triangular supply chains may be a result of:
- a particular marketing expertise which has been built in particular EU member state locations (e.g. Dutch horticulture trading networks);
- a particular marketing infrastructure which has been built up in a particular EU member state (e.g. the Dutch cut flower auctions);
- purely commercial economic factors linked shipping arrangements (e.g. the availability of cheap freight rates linked to tourism development);
- the limited availability of shipping routes;
- corporate tax minimization strategies;
- the development of dedicated further processing facilities prior to onward sale (e.g. Pacific Island fully traceable sustainably certified palm oil via to the UK to all EU28 markets);
- the development of specialist value added processing activities (e.g. converting cocoa beans into cocoa butter, paste or powder in the Netherlands and Belgium for export to the UK)
Potentially any number of these supply chains could be disrupted by the Brexit process.
The basis for the development of triangular supply chains will determine the vulnerability of the functioning of individual triangular supply chains to Brexit related disruptions as will the nature of the product traded and the extent to which it has a limited shelf life or is part of a ‘just-in-time’ delivery supply chain.
While any number of these triangular supply chains serving the UK market via a EU27 member state could be subject to disruption horticulture and floriculture supply chains serving the UK market through on-ward shipment via UK channel ports would seem to be potentially the most vulnerable to disruption.
Sources of Disruption Along Triangular Supply Chains
A number of specific sources of disruption of the current functioning of triangular supply chains can be identified arising from the prospect of a ‘hard’ Brexit and the re-imposition of standard 3rd country controls on EU27/UK mutual trade. These include:
- a possible loss of ACP identity and hence a loss of any retained duty free- quota free access to the UK markets through transhipment via an EU27 member state;
- increased SPS certification costs (e.g. with each product requiring separate SPS certification, a mixed container of 20 different fruit and vegetable products could face additional costs of €1,000 per container post-Brexit or a need to
- redesign of how cross border shipments are organised);
- logistical disruption at channel ports linked to delays arising from the re-imposition of standard 3rd country controls on mutual trade linked to:
- lack of space at Dover
- increased inspection requirements (99% trucks not currently inspected – 2 minutes v 20 minutes);
- inadequate staffing levels to meet increased inspection requirements linked to a lack of trained staff in the UK;
- issues of cross border freight licensing;
- issues of driver documentation checks
- reluctance French and Belgian authorities to redirect public funds to increased staffing at cross channel shipment points
- Disruption of processing activities prior to shipping to other current EU member states (e.g. cocoa products; fully traceable sustainably certified palm oil, fair trade sugar).
The Scale of Potential Disruption
It is difficult to identify what volume of ACP exports take place on a triangular basis, since the free movement of goods once a product enters the EU means the country of origin of re-exports in intra-EU trade cannot be determined from trade statistics (e.g. the original source of imported fruit and vegetable products entering the UK from the Netherlands is not recorded in trade data).
This needs to be assessed at the country/product level, with individual exporting companies needing to analyse their routes to final markets to determine the vulnerability of their current supply chains to Brexit related disruptions.
It needs to be recognised that larger exporters such as Kenya will be less vulnerable to disruption of triangular supply chains, since there will be greater scope for the development of direct freight flights to the UK from Nairobi, with a regular direct freight service between Nairobi and Doncaster/Sheffield airport in the UK already having been initiated in 2017, supplementing/replacing flights shipping via Liege in Belgium.
Small scale or emergent horticulture and floriculture exporters serving the UK market by taking advantage of scheduled passenger services to secure cheap freight rates via EU27 destinations are likely to be worst affected, given the vulnerability of cross channel freight services to logistical disruption under a ‘hard’ Brexit scenario.
Way Forward
The extent of the triangular trade potentially affected and the principal threats of disruption posed within different supply chains will need to be identified so appropriate policy measures and commercial responses can be set in place to minimise disruptions.
While there would appear to be scope for negotiating arrangements to address the tariff and administrative problems which could arise along triangular supply chains, this will require specific consultations and discussions between ACP/EU27 and UK authorities, with appropriate administrative arrangements being set in place to facilitate their continued smooth functioning.
Of far greater concern are the logistical challenges which would arise under a ‘hard’ Brexit scenario, with this including any EU27/UK FTA arrangement which did not include CAP related fruit and vegetable products.
These issues are much more difficult to address at the policy level, and may require a complete rethinking of the routes to market used by private sector ACP exporters.
In addition political priority will need to be accorded to ensuring the human resource capacities for clearing increased direct ACP exports to the UK are set in place and that the needs of cross channel ports do not denude essential services elsewhere of the necessary trained staff.