Summary
A consultancy report suggests significant additional logistical costs could arise on EU27-UK agro-food trade regardless of the final UK-EU27 tariff dispensation, as a result of the introduction of new customs controls. Depending on post-Brexit arrangements the cost effects range from additional transportation costs to a need to fundamentally rethink the import-export trade for perishable products. Given major ACP supply chain serve the UK market via other EU member states, this could profoundly disrupt the functioning of these supply chains, with fresh fruit, horticulture and floriculture exports via the Netherlands being most severely affected. This requires a study to scope the scale of the problem and identify possible remedial measures and the creation of market repositioning support initiatives by both the EU28 and UK authorities.
A report from the consultancy firm Oxera entitled “Brexit: The implications for UK ports”, has warned of a chaotic situation emerging at UK ports if important issues related to future UK-EU27 trade are no addressed before the UK formally leaves the EU customs union and single market. It notes that while the UK government ‘believes “frictionless” transportation of goods … between the UK and the EU’ will be possible, EU negotiators are far less convinced. EU chief negotiator, Michel Barnier has inferred it will not be possible for the UK to leave the Single Market and Customs Union and retain frictionless trade. The Oxera report sets out four scenarios for the situation at UK ports post-Brexit:
Scenario 1: Minimal friction, low regulation and enforcement with customs checks being performed away from the port
This would require the construction of large lorry parks away from ports, with additional costs arising from the construction of the infrastructure required for inspections to be carried out and the additional time for inspections which hauliers will need to build into their costs.
Scenario 2: Low regulation with high levels of enforcement
This would require higher staffing levels in ports to deal with lengthy checks. EU chief negotiator Michel Barnier has suggested the minimal additional costs of this scenario would be €1.3 billion per annum, with this not taking into account extra staffing costs, likely traffic congestion, land acquisition costs for the building of additional customs clearance facilities and the additional costs of having to move away from ‘just-in-time’ delivery systems.
Scenario 3: Uncertain passage: high regulation, low enforcement
Under this scenario enforcement would take place on a risk only basis replicating current SPS inspection procedures of the UK Department of Environment, Food and Rural Affairs. It has been suggested under this scenario ‘the prospect of goods being deemed non-compliant is high, reducing the appetite for import and export’. It could also lead hauliers to change their business models, requiring new investments in ports.
Scenario 4: Extensive regulation of products combined with increased levels of enforcement resulting in a significant increase in the requirements at borders.
According to Michel Barnier ‘the Port of Dover has called this scenario “Armageddon”’.
The report notes achieving low friction trade will not be easy. It highlights how decisions related to these matters cannot be left to a ‘last-minute deal on the eve of Brexit, due to the time it will take to get trade moving under the new arrangements’. Illustrative of the challenges faced, the port of Dover is busy installing a new IT system for customs clearance scheduled to come on-stream in March 2019. This system can currently handle up to ‘60 million clearances per annum’, while post-Brexit projections suggest it will need to deal with 300 million clearances per annum.
Redesigning this IT system to accommodate a five-fold expansion in the annual number of customs clearances required in a context of profound uncertainty over what the final customs deal between the UK and EU27 will look like, will be challenging to say the least.
The report notes ‘the Netherlands and Belgium are two major hubs for fresh produce supply into Britain’, with the future of UK customs and security checks on consignments imported through channel ports becoming a major issue of concern to fresh produce suppliers in mainland Europe.
| Comment and Analysis
The report notes food and other perishable imports into the UK will be particularly severely affected, including re-exports from the Netherlands and Belgium to the UK. Major ACP fruit, horticulture and floriculture supply chains serve the UK market via the Netherlands and Belgium. For example, in the cut flower sector in 2015 the Netherlands accounted for 77% of UK cut flower imports, with some 71% of Kenya’s cut flowers exports to the EU destined for Dutch ports of entry, compared to a mere 17.3% exported directly to the UK, suggesting a substantial on-ward trade from the Netherlands to the UK. The Netherlands also dominates the onion trade, accounting for 28% of UK imports in 2015, with many ACP onion supply chains to the EU going through the Netherlands. Similarly the main country of entry for imports of ACP mangoes, guavas and mangosteens into the EU is the Netherlands, taking 46.7% of imports from ACP countries in 2016, in a context where 80% of Dutch imports are then re-exported. In 2015 the Netherlands accounted for 5.7% of the value of mangoes, guavas and mangosteens imported into the UK, all of which were re-exported produce, Other EU member states also re-exported substantial volumes of mangoes to the UK, notably Germany, France, and Belgium (for more details see companion article, ‘Dominican Republic and West Africa lead way in growth in ACP Mango exports to the EU’, 25 July 2017). The logistical costs of this re-export trade could be greatly increased by Brexit. This is the case regardless of any accommodation of ACP interests around tariff issues. This strongly suggests many ACP exporters of perishable fruit, horticulture and floriculture products will need to reorganise their supply chains serving the UK market. The forgoing are merely illustrative examples, with a multiplicity of products and existing ACP supply chains being affected. For example, while 97% of cocoa beans imported into the UK in 2015 were sourced from Cote d’Ivoire (69%) and the Ghana (28%), the majority of UK cocoa paste (60.7%), cocoa butter (52.5%) and cocoa powder (94.8%) imports were sourced from fellow EU member states. The functioning of these supply chains could also be disrupted by Brexit. While less-perishable items like cocoa paste, powder and butter are likely to be less severely affected than fruit, horticulture and floriculture products, additional costs could nevertheless arise, requiring adjustment to existing supply chains. Overall this suggests a need for: a) the provision of assistance in scoping the scale of the challenges this dimension of Brexit could give rise to; b) the provision of assistance by the UK authorities to ACP exporters in identifying new routes to market post Brexit; c) the establishment by the EU28 of a market repositioning support facility. At a political level this is an issue which could usefully be taken up at the pan-ACP level through the ACP Ambassadorial sub-Committee on Trade. |
Source:
Freshfruitportal.com, ‘Port customs chaos ahead”, warns Brexit report’, 1 August 2017
https://www.freshfruitportal.com/news/2017/08/01/port-customs-chaos-ahead-warns-brexit-report
| Key words: Brexit, floriculture, horticulture, cocoa Area for Posting: BREXIT, horticulture |