Post-Brexit Britain: UK government’s “Not for EU” labeling proposal sparks industry concern

02 Feb 2024 --- UK F&B businesses are urging the government to provide clarity over the possibility of new labeling requirements amid fears that the proposed introduction of “Not for EU” product labels could push up manufacturing costs and hinder investments in the industry.

This week, Northern Ireland’s Democratic Unionist Party (DUP) reached a deal with Prime Minister Rishi Sunak’s government on post-Brexit trade rules that would allow the DUP to reinstate a “power-sharing” government. Northern Ireland has been without a devolved government for almost two years due to disagreement over trade rules.

However, the Food and Drink Federation (FDF) is concerned by the UK government’s proposal to go beyond the terms of the Windsor Framework — a post-Brexit legal agreement between the EU and UK, which adjusted the operation of the Northern Ireland Protocol — by requiring all products in the “Green Lane” scope to be labeled “Not for EU” when sold on the GB market.

Starting from October 2024, this rule change would impact products even if they are not intended for sale in Northern Ireland. The rules would also apply regardless of whether the product is produced in the UK or imported.

In a statement shared with Food Ingredients First, FDF’s CEO Karen Betts says: “We’re waiting for information from the government on exactly how the deal on Northern Ireland will impact the food and drink industry. However, we firmly believe that regulating now for rapid, UK-wide labeling changes would be a mistake.”

“Our members have worked hard to ensure that shops in Northern Ireland continue to be comprehensively well-stocked under the new Windsor Framework rules, and we think this is working.”

Costly for consumers
The membership organization, which represents and advises UK F&B manufacturers, suggests the UK government first properly monitor food and drink supplies to Northern Ireland and only implement new regulations if there is sufficient evidence to support them.

“Imposing costly, complex labeling changes before we know it is necessary risks pushing up manufacturing costs, and ultimately prices for consumers across the UK, for the sake of it,” warns Betts, adding that households are already grappling with a cost-of-living crisis.

“UK manufacturers will reduce the range of products to minimize the impact of extra costs on final consumer prices, which could lead to reduced choice in shops with UK production.”

“Experience shows us that the costs of a policy will be shared between producers and consumers, meaning manufacturers will absorb a share of the costs, and the rest will be passed on to consumers.”

Export barriers
FDF also raises concerns that more ambitious firms that want to expand through exports will be forced to create a separate production line at a significant cost if the proposed labeling rules are enforced.Mark Lynch, partner at Oghma Partners, explores why M&A activity surged last year in the UK F&B sector.

“Small production runs and volumes will make it too expensive to justify selling abroad. Some SMEs that already export will find the additional costs and burdens of running separate production and storage too much and will stop exporting,” says Betts.

“The proposed ‘Not for EU’ labels will also have a chilling effect on UK food and drink exports, particularly for SMEs, and more broadly on investment in UK businesses.”

“It’s unfortunate this is happening just as the Border Target Operating Model is coming into effect too. It’s a lot of complex change for companies to implement in unrealistically short time frames.”

The Border Target Operating Model is already causing concerns around rising costs among UK and EU food businesses.

Foreign investments
M&A activity in the UK F&B sector surged last year, according to a recent report by Oghma Partners. Notably, the corporate finance house has monitored an increase in the volume of overseas investments in UK food and drinks businesses since Brexit.

“The reason for the increased overseas investment activity is want of certainty — when there are potential difficulties importing into the UK, then having an onshore facility helps offset that concern,” Mark Lynch, partner at Oghma Partners, tells Food Ingredients First.

“Post-Brexit, a number of companies were put off the UK due to the uncertainty, but now, after a more settled period, people realize this is a market with a population of 70 million and worth taking another look at.”

“We could see an additional level of foreign interest in the UK sector picking up in due course.”

By Joshua Poole