What Brexit Means for U.S. Food Businesses

On Christmas Eve, just a few days before the Dec. 31 deadline, the European Union and the United Kingdom finally struck a deal on Brexit, the yearslong plan for the country to leave the EU. The agreement is mainly focused on circulation of goods and leaves out important aspects such as data sharing or professional services.

This last-minute act marked the end of the transition period, which started in January 2020. The exit of the U.K. from the EU is complete, and that will have consequences on U.S. food businesses.

Starting Jan. 1, 2021, producers that have been using the U.K. as an entry point to the EU common market have had to choose an importer based in one of the other 27 EU member states. For the most part, import rules will be the same regardless of the new point of entry. However, for some products, the EU country of choice might make a difference.

“Each country may have different requirements on specific products,” said food lawyer and consultant Cesare Varallo. “In the past, for example, many U.S. supplement producers would choose to access the EU market through the U.K. because there were fewer requirements.”

But, the EU is no longer an entry point for the U.K. market.

The exit of the U.K. also changes labeling requirements for food products that need to indicate the origin. Food from the U.K. must not be labelled as “origin: EU.” For products exported to the U.K., the “origin: non-EU” indication has to be replaced by “origin: non-U.K.” It is also mandatory to have a U.K. business name and address on the pack for all domestic and imported food. These provisions, however, don’t apply to Northern Ireland, which remains aligned to some of the EU rules for at least four years.

In the longer term, the consequences of Brexit on U.S. food producers are more difficult to predict, as they depend on many variables.

One of the priorities of the U.K. in the post-exit period will likely be to reduce its dependence on the EU, which provides 26% of its food. Even with a trade agreement in place, the reliance on EU imports is expected to increase food prices in the U.K. due to additional administrative costs. The London School of Economics estimated prices will rise between 4% for unbranded and more substitutable products, and 9.9% for branded and specialty products.

Such an increase will be unsustainable for many households, especially in the current recession caused by the pandemic. The need to keep food prices down will therefore push the U.K. to diversify its provisions by striking separate agreements with other countries.

That is good news for the U.S., which currently only accounts for 4% of U.K. food imports.

In fact, negotiations for a U.K.-U.S. agreement started in May 2020. The concern of trade organizations is that a future U.K.-U.S. deal may open the U.K. market to cheaper food produced with quality and safety standards that are considered to be lower.

The most frequent examples are the use of growth hormones in beef and the treatment of chicken carcasses with chlorine. These practices are banned in the EU and will likely remain banned in the U.K., at least for the time being.

That, however, may change if the U.K. and the U.S. strike an equivalence agreement. Generally, commercial deals between countries fall into one of three categories, according to Varallo.

“The simplest ones only include tariffs and leave out standards,” he said. “While the most complex types aim to harmonize them too. Equivalence agreements are somewhere in between. Each party’s standards are mutually recognized, regardless of their differences.”

Such a scenario would drive food prices down but would have to face the fierce opposition of U.K. food producers and retailers. In 2020, several supermarket chains, including Aldi, Marks & Spenser and Sainsbury’s pledged not to sell chlorinated chicken or hormone-injected beef.

A possible alternative for the U.K. would be to introduce certain food safety practices that were banned when it was part of the EU. That would allow internal producers to compete with imported food, but at the same time it would create distrust among the rest of European consumers, damaging U.K. food exports to the EU common market. There are complex choices ahead for the U.K. government, partly because the food sector is complex.

“The Brexiteers’ idea of making the U.K. a European free trade zone and strike better agreements might work in other sectors,” said Varallo. “But with food, it’s much more complicated.”