With almost 70 per cent of Scottish food and drink exports heading to the European Union, the continued uncertainty over a post-Brexit trade deal is a huge concern.
“Businesses are getting more frustrated as it’s been Groundhog Day for two years,” says James Withers, chief executive of Scotland Food & Drink.
“The real fear is hitting March next year and still having little clarity on a future trading relationship.”
The entire industry has concerns about a no-deal hard Brexit, but with 96 per cent of its exports going to the EU, the red meat sector is particularly worried. ‘
“Of all World Trade Organisation tariffs, the most punitive are on agricultural products,” says Withers.
“The price of Scottish beef going into France could go up 50 per cent and it’s hard to see how we could be competitive.
“We’ve been locked out of EU markets before, such as during the foot-and-mouth crisis, which had a devastating impact.”
Stuart Ashworth, director of economic services at Quality Meat Scotland, says: “As trade with Europe is so important to the red meat sector, particularly sheep meat, unrestricted tariff-free access to the European market is a key concern.
“The worst-case scenario is a short notice exit with no trade arrangements in place.
“This would mean Scotland trading as a third country with the EU and having to pay tariffs on meat exports – and increased administrative and logistical costs.
“It would also leave the UK in a position where alternative trade agreements with non-EU countries would be very unlikely to be in place.”
Tom Sallis, deputy director (EU and Brexit) of the Scotch Whisky Association, also highlights concern about a no-deal scenario: “While there has been a political agreement between the UK and EU on the transition period to December 2020, this is only subject to the rest of the Withdrawal Agreement being finalised.
“We need to see this done as soon as possible. The last thing we want is companies getting to Christmas and still not knowing what’s going to happen in March 2019.” Sallis says the whisky industry’s priority is a relationship with the EU to support long-term economic success: “Whether this is a free trade agreement or something slightly different is not that important.
“It is the outcomes that matter – zero tariffs, continued alignment on regulations, minimal delays at borders.”
He accepts that Scotch whisky is well placed to cope with Brexit because of its broad range of markets: “Our exports are globally spread and consumers across the world will continue to love our product irrespective of how Brexit negotiations unfold.
“That said, because we are a global industry, it’s essential we maintain good access into EU and international markets – we need this to compete on fair terms with other spirits.”
Withers agrees: “The Scotch whisky industry could lose a key advantage – the ability to do unilateral trade deals – but it will not be badly affected by a customs union with tariff-free trade.
“Both whisky and seafood/salmon are international-looking markets. Seafood has a broader spread of markets than red meat but, because it’s so large, it’s vulnerable.
“If you run a fishing trawler, you want better access to UK waters, but how much are you going to be able to sell with tariffs added?
“The impact won’t be as bad as agricultural products but, in a competitive marketplace, it will cause difficulties.”
Julie Hesketh-Laird, chief executive of the Scottish Salmon Producers Organisation, says a hard Brexit would add a tariff of 2 per cent to fresh salmon, while any value-added products, including smoked salmon, would face tariffs of 13 per cent.
Like all other sectors, she highlights “frictionless trade” as being crucial to future success, although salmon is less exposed to EU markets (25 per cent of exports go there). “The issue is opportunity cost,” says Hesketh-Laird. “If you come out with no deal, it will become cheaper and more attractive for part of the processing industry to set up elsewhere.”
She accepts a 2 per cent tariff wouldn’t be a game-changer because fresh Scottish salmon attracts a premium price compared with salmon from elsewhere.
She does highlight potential border delays as a threat: “Salmon is a fresh product with a limited lifespan and cannot wait around at docks and airports.
“New border checks and delays would be a real challenge. What keeps me awake is the fear of having to implement new systems which will affect our members; contingency planning is tricky around those logistical issues given the lack of clarity.”
Joanna Fulton, a partner in legal firm Burness Paull and a member of its food and drink team, sees a lack of contingency planning across all industries, including food and drink.
“We are not receiving the amount of Brexit-related inquiries we expected,” she says.
“I think SMEs, which make up a large part of the food and drink sector, are waiting to see what happens – they don’t have the manpower or capacity to deal with an ever-changing landscape.”
Fulton says those who are planning are primarily focused on their future workforce and supply chains and Withers urges firms of all sizes to look at their vulnerability.
“How much of your business is either selling into or buying from the EU? Think about that while we wait for clarity.”
However, Withers feels the labour issue is no longer a major worry: “One-third of our workforce is EU nationals, from seasonal workers to people running big businesses.
“Future immigration policy remains a concern but that real negativity about how welcome EU nationals are in the UK has receded. Many workers feel more secure than they did, particularly in Scotland.”
Hesketh-Laird notes that many workers in high-end jobs in the salmon sector are EU nationals who have settled in Scotland and “these are not transient jobs”.
In terms of seasonal workers, fish processing, red meat slaughter and processing and soft fruit all depend on significant numbers and Withers says a formal arrangement is vital for these sectors: “We need a commitment to a seasonal agricultural workers’ scheme [allowing access to foreign workers for a specified period] and we have one on the shelf ready to go.
“Come autumn, when fruit and vegetable sector businesses are getting polytunnels ready for the harvest in spring and summer 2019, the scheme needs to be agreed.
“We hear, ‘Nothing is agreed until everything is agreed,’ but that doesn’t work in this context; we need a scheme now.”
Despite the challenges, Withers sees a bright future for a sector looking to double turnover to £30 billion by 2030. “Our long-term view is massively optimistic and positive. Scotland’s proposition is not cheap prices, it’s about premium quality and provenance – so we aren’t as vulnerable to smaller price shifts as other countries.
“Scotland is also developing a broader base of markets. In 2014, 80 per cent of exports went to Europe and that’s down to 67-68 per cent. Sales into China have tripled in just over a decade and we’re growing in North America and the Middle East.
“We want to do more business with Europe over time but reduce the percentage. That’s why we’ve put trade specialists around the world and we will release a new export plan near the end of 2018.”
Hesketh-Laird notes that Scottish salmon sales to China reached £70 million last year and sees enormous growth opportunities in both the Far East and US.
Back in the present, both Sallis and Ashworth are concerned that the post-Brexit transition period is too tight.
However, Withers calls for perspective: “Brexit is a hurdle we need to overcome but the future is more about consumer behaviour, markets and technology.
“We might look back from 2030 and see Brexit as one of the smaller changes we faced.”
A question of geography
“One consequence of producing a well-known product is that some people want to imitate it and sell fakes.
“Scotch Whisky’s status as a Geographical Indication makes it easier and quicker for us to take products off the market if they are clearly trying to dupe the consumer.
“GI status offers consumers more confidence that when they purchase Scotch Whisky, they are getting the real thing.”
Tom Sallis, Scotch Whisky Association. “A growing concern is the position of protected food names and particularly the Protected Geographic Indications (PGI) of Scotch Beef and Scotch Lamb in trade discussions and within any future UK brand identification protection policy.
“Any dilution of the protection offered by PGIs and recognition of these indications in the terms of trade both with the EU and globally would potentially lead to significant devaluing and protection of iconic brands.” Stuart Ashworth, Quality Meat Scotland.
This article featured in The Scotsman’s Food & Drink special. A digital version can be viewed here