Summary
The lack of preparation by EU SMEs for a possible ‘hard’ Brexit scenario has been highlighted as an important potential threat to the future viability of many EU SMEs. The need to begin contingency planning for the possible consequences of various Brexit scenarios would appear to be relevant for indigenous ACP exporters, the vast majority of which by EU standards are SMEs. The launch by the Irish government of a ‘Be Prepared Grant’ facility to help exposed Irish enterprises plan for various Brexit contingencies could usefully be replicated for a cross section of ACP enterprises and producers associations which are most vulnerable to potential Brexit related disruptions. Funding for such an ACP focussed facility should be sought form the EC and the UK government.
According to a survey by the Chartered Institute of Procurement and Supply (CIPS) ‘more than a fifth of manufacturing firms are planning to lay off workers to cope with the costs of Brexit’ while ‘46% said they had already increased costs to customers in the wake of the Brexit vote’. What is more a process of ‘in-shoring’ is underway. ‘In-shoring’, involves UK companies seeking to repatriate supply chains to local UK suppliers in the face of potential Brexit related disruptions of existing EU27-UK supply chains. Such disruptions could easily arise if the formal process of concluding the necessary agreements to facilitate a smooth Brexit are mishandled either in the run up to 29th March 2019 or during the subsequent transition period up to 1st January 2020. However CIPS has pointed out ‘in-shoring’ is by no means a simple process and that companies which are slow to act ‘may not survive’ (1).
CIPS argues ‘it’s becoming clear that manufacturers can no longer absorb the costs of Brexit, and so the burden of higher prices is spreading to consumers, to suppliers, to clients and reshaping supply chains’. CIPS highlights particular concerns in regard to smaller companies which are ‘not preparing for a bad outcome from the Brexit talks’ and where no contingency planning is taking place (1).
The problems faced by SMEs have also been highlighted by Freshfel in a working document ‘Bottlenecks for fresh produce trade after Brexit: potential impact, mitigation measures and solutions’. This document notes how many SMEs in the EU ‘have no experience in trading with 3rd country markets’, having always operated within the single EU market. As a consequence they ‘will need to be trained to trade with the UK’. It notes how in the Republic of Ireland initiatives are underway to help firms with a self-assessment of the impact of Brexit on their operations, with a special ‘Be Prepared Grant’ facility having been established to co-finance the efforts of exposed enterprises to start contingency planning for the possible consequences of Brexit (2).
It is maintained there is already evidence EU businesses are starting to split away their UK partners as Brexit approaches. Analysts at the Centre for European Reform have argued that with little more than an FTA on offer businesses with pan-European supply chains are increasingly reviewing the viability of their current UK operations. In this context it is argued the transition agreement serves a dual purpose ‘buying time for the EU and UK to finalise an agreement’, and buying time ‘for businesses to repatriate their supply chains to the EU 27, if necessary’ (1).
| Comment and Analysis
Given the current assurances of continued duty free-quota free access which the UK government has provided to least developed countries the question arises in the agro-food sector as to the opportunities this could create for LDCs capitalizing on the emerging ‘in-shoring’ opportunities. For example, if there is the possibility of the cross channel delivery of cut flowers to the UK market being disrupted by a ‘hard’ Brexit, what opportunities does this open up for Ethiopia and Tanzania to expand their direct exports of cut flowers and prepared bouquets to the UK marke? Ethiopia Cut Flower Exports to the EU28/UK 2013-2017
Tanzanian Cut Flower Exports to the EU28/UK 2013-2017 (tonnes)
Similarly if the cross channel trade in Dutch onion exports to the UK were disrupted, what opportunities could this create for the direct export of Senegalese onions to the UK? Senegalese onion exports to the EU28/UK 2013-2017 (tonnes)
More generally, while the nature of the issues faced may be different the concerns being expressed over the lack of contingency planning for a ‘hard’ Brexit by small and medium sized enterprises in the EU, would appear to be equally relevant to a large number of ACP enterprises. The hard reality is the vast majority of indigenous ACP enterprises (although by no means all) are small and medium sized enterprises by EU standards. To date at the corporate level little attention is being paid in ACP countries to: a) identifying the main areas in which Brexit could potentially impact on individual ACP exporting companies (and of course ACP companies serving domestic and regional markets); b) what steps need to be taken at the company level to ‘Brexit-proof’ ACP export supply chains; c) the initiation of dialogues to make sure the broad spectrum of ACP concerns and issues which arise from within the Brexit process are taken on board and effectively addressed at the policy level within decision making processes in the UK government, the EU27 authorities and national ACP governments. It is against this background the Irish governments’ ‘Be Prepared Grant’ initiative could usefully be replicated for ACP companies and producers associations to assist then in getting to grips with the potential impact of Brexit on their current trade relations with both the UK and EU27 member state and in identifying what can be done to ‘Brexit-proof’ their current export supply chains. In the first instance this could be most useful to ACP exporters whose trade with the EU is highly focussed on the UK market and those ACP exporters whose exports to the UK go through a EU27 member states (or to a EU27 member state vis the UK). Exporters involved in triangular supply chains could be particularly vulnerable to disruptions under various ‘hard’ Brexit scenarios, particularly where this involves regulatory divergence between the UK and EU standards (see companion article, ‘Potential Brexit Related Chocolate Trade Disruptions Highlighted in Industry Submission to Parliament’). |
Sources:
(1) The Guardian, ’Industry planning jobs cull to offset Brexit’, 31 March 2018
https://www.theguardian.com/politics/2018/mar/31/manufacturing-firms-plan-job-cuts-after-brexit
(2) Freshfel ‘Bottlenecks for fresh produce trade after Brexit: potential impact, mitigation measures and solutions’ working document 30 March 2018