The report states that manufacturers are "committed customers" of UK farming, but this is dependent on having continued access to imports that complement their use of UK raw materials

A new report warns that UK producers who have built supply chains within the EU’s Single Market may fail to comply with future origin requirements, in what has been described as a "hidden hard Brexit" for the industry.

The report, commissioned by the Food and Drink Federation (FDF) and the National Association of British and Irish Flour Millers (NABIM), has said the sector could face a "hidden hard Brexit".

The report warns that the international nature of food and drink manufacturing could hit British producers who have built supply chains within the European Union.

Such supply chains could fail to comply with future origin requirements.







In essence, rules of origin dictate if a product is deemed sufficiently ‘British’ – its economic nationality – and whether it qualifies for a preferential tariff that has been agreed in a trade deal.

Once this economic nationality is identified, customs officials then apply the correct tariff or duty to the product.

While it is the intention of the UK Government to negotiate an ambitious free trade agreement with the EU that delivers continued tariff-free trade in goods, including food and drink, exporters would still need to comply with complex origin requirements.

This poses a significant risk for UK firms exporting to the EU, which is worth more than £13.3 billion each year.

'Committed customers'

The report states that manufacturers are "committed customers" of UK farming, but this is dependent on having continued access to imports that complement their use of UK raw materials.

The ingredients in many food and drink products are a mix of domestic and international goods, many of which are not produced in the UK or not in sufficient quantity throughout the year to meet consumer demand.

The report goes on to say that under existing models applied by the EU, many UK manufactured products would not qualify for preferential tariffs.

For example, flour millers in the UK source 80% of their wheat from the UK, but also use grain from Canada, the USA and other European countries to make a range of flours with different baking qualities.

If the rules of origin adopted in many of the EU's trade agreements were to apply in a trade deal between the EU 27 and the UK, flour milled with even a small proportion of these grains, and many foodstuffs made from it, would no longer be considered ‘of UK origin’ and would therefore be subject to very significant duties.

Alex Waugh, Director General of the NABIM, said: "This would add, for example, €0.10 to the cost of a loaf in Ireland, which is mainly supplied with flour from the UK.

"Negotiating the right agreement is therefore crucial to the entire food supply chain, including consumers."

'Prohibitively high'

Manufacturers could face the prospect of either a costly restructuring of their supply chains or de factor barring from future EU-UK trade as a result of the EU’s Most Favoured Nation (MFN) tariffs.

The report says MFN tariffs are "prohibitively high" for food and drink, rising to more than 100% on many products.

Ian Wright CBE, Director General of the Food and Drink Federation, said that the rules of origin are a "big piece of the Brexit puzzle" for the food and drink industry.

“If we fail to secure sufficiently generous rules as part of a preferential trade agreement with the EU, food and drink manufacturers will be the ones who suffer this hidden hard Brexit," Mr Wright said.

“They could be facing an increase in exporting costs, or a complete ban of entry to the market. This report is essential reading for those who want to avoid both.”