As with any industry that does business with the U.K. or the European Union, the food production and service sector has been bewildered by the results of the Brexit referendum in June. The watchword to date is “uncertain”—in the same way that the U.K.’s political world has been turned upside down by the vote and its business world has been likewise shaken, the worlds of those who do business with the two political bodies are busy trying to figure out how to prepare for the commercial future of a world in which the U.K. is no longer part of the EU.
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Wim Vandenberghe, an EU competition and regulatory partner in the Brussels office of international law firm Sheppard Mullin, notes that there are two possible models for post-Brexit future of food production and service businesses that mirror the relationship the U.K. and EU ultimately agree to have.
In one model, if the U.K. wants direct access to the 27 member countries of the EU, Vandenberghe says, “the U.K. will—under a so-called European Economic Area Agreement—still be required to implement into its national law the applicable existing and new EU food and drink legislation (but will no longer have a say or influence in the EU legislative and regulatory procedures).”
If the U.K. doesn’t choose that model, its alternative will be to have to work out multiple separate bilateral treaties with the EU in order to gain preferential access to that market. In this case, Vandenberghe points out, there would be no obligation for the U.K. to implement EU food law, either as it exists in the present or is made into law in the future. The result would be that the U.K. could develop its own food law system.
However, Vandenberghe says, “it can be expected that the U.K. would not seek an overhaul of existing food laws as this may lead to significant expense for the U.K. food industry and ultimately an uncompetitive domestic market as food manufacturers may then operate under dual standards for the same food product.”
An overhaul of existing laws would also be constricted by the international food criteria to which the U.K. would remain subject outside of the EU, such as the Codex Alimentarius, which harmonizes standards for companies manufacturing and developing food.
“In the immediate future, as the EU rules envisage a two-year process of withdrawal from the EU,” Vandenberghe says, “it is likely to be business as usual since EU food law will continue to apply.”
In that meantime, he suggests that companies begin drawing up a transition to plan to prepare their business for the future relationship between the U.K. and EU. Such a plan would involve reviewing business agreements and processes, preparing a gap assessment to juxtapose EU food laws expected to remain part of the UK legal system against those that won’t, keeping track of new or revised EU law or guidance documents that will remain in force until Brexit is finalized, and reviewing pending or planned applications to EU competent authorities for genetically modified food or health claim approvals to anticipate the time frame for approval.
“The only thing that people can sensibly prepare for is uncertainty,” says Phil Gibbs, executive director of customer success for Llamasoft, a supply-chain design, analytics, and modeling consultancy, Ann Arbor, Mich. “It’s time to keep a cool head and do some objective analysis.”
In particular, Gibbs counsels those who have relationships with the U.K. or EU or both to privilege local sourcing and inventory position within the new trading blocks. He also encourages increased focus on dual-sourcing to improve supply-chain resilience, and changing sourcing and other strategies to take advantages of new exchange rates. In addition, he encourages keeping careful track of the supply-chain implications of changing labor-rate differentials across Europe.
“The ability to test scenarios to inform supply chain decisions will be vital in the coming years,” stresses Gibbs. “That makes the importance of analytics in supply chain design and planning absolutely critical, and those companies that don’t have a rapid analytics capability could be left standing.”
Gibbs says that companies should already be evaluating situations now and establishing supply chain analytics capabilities as quickly as they can if they haven’t already.
“An in-house modeling capability will be essential as there will be a need over the next few years to re-assess scenarios frequently as the situation becomes clearer,” he says. “However, it’s doubtful that anyone will be able to make long term plans anytime soon due to the uncertainty, unless those plans are to build in more flexibility and resilience into the supply chain.”