Brexit to hit margins at food and drink firms, warns industry body
Post-Brexit trade tariffs pose a "major risk" to the performance of Britain's £28bn food and drink sector, an industry body has warned.
A report commissioned by the Food & Drink Federation (FDF) said the introduction of tariffs on existing EU trade would heap further pressure on manufacturers already squeezed by higher import costs linked to sterling's weakness.
It added that the sector also faces disruption if Brexit reduces access to EU workers, with the industry looking to attract 140,000 new staff by 2024 to fill a hole left by an ageing workforce.
Produced by professional services firm Grant Thornton, the report said: "Food and drink manufacturing businesses that source ingredients from abroad have already experienced a negative effect through the devaluation of the pound which resulted in a sharp increase in the cost of raw materials and, therefore, higher production costs, which have to be shared with their customers and subsequently consumers.
"For many, the costs associated with any tariffs being imposed on existing trade with the EU represent a major risk on margins.
"A risk that is exacerbated for those with cross-border integrated supply chains in the industry."
According to the study, the food and drink sector is the UK's largest manufacturing industry, adding around £28.2bn to the UK economy each year and employing close to 400,000 people.
While the UK's exit from the EU poses challenges to the sector, it said a small number of businesses could benefit from lower costs by importing raw materials from markets outside the 27-nation bloc.
However, it said efforts by firms to prepare for life outside the EU single market and the customs union will be "extremely costly and prone to errors" unless the Government draws up a clear plan.
The pound's plunge since last year's referendum on EU membership has the potential to boost UK exports because it makes British goods cheaper for overseas buyers.
The UK's 2.2% share of the global food and drink market currently lags behind France and Germany, at 4.7% and 5.6% respectively, the report said.
It comes as former Sainsbury's boss Justin King warned that shoppers will see "prices, quality and choice" impacted by Britain's decision to exit the EU.
He said consumers are "completely in the dark" over the effect leaving the EU will have on their shopping basket. Speaking to BBC Panorama last night, he said it was "very clear" shoppers would face "higher prices, less choice and poorer quality" outside the bloc.
"Brexit, almost in whatever version it is, will introduce barriers," he said.
"That makes it less efficient."