Should we stay or should we go? The food industry might like to let us know
There have been many calls on the UK’s food industry and grocery supermarket leaders to give a steer, but in the main no leading retailer executives are prepared to go on record regarding a possible Brexit and the impact on consumer prices on the high street. In a statement, supermarket chain Tesco said: 'The referendum on EU membership is a decision for the people of Britain. Whatever that decision is, our focus will continue to be on serving customers.' But how can consumers weigh up the options, when the cost of their grocery shopping basket will be affected either way? There are many different opinions being espoused by food and retail pundits, but whether the UK stays in the EU or goes, British farmers and the UK supermarket fraternity will feel an impact – both positive and negative.
Sustainable and reliable supply chains depend on the free flow of trade, and of course today, consumers expect all variety of foodstuffs and fresh products, whether in season or not. During the last few decades, the advances of technology and subsequent development in logistics and efficiency in the UK’s food supply chain has led to the provision of a wide range of quality, just-in-time and affordable foodstuffs. Therefore concerns surrounding the current support system of subsidies that enable British farmers to invest in planting crops and rearing their livestock are understandable. Retailers pay for the goods they receive weeks and sometimes months after those goods have flown off the supermarket shelf. Cash flow in any business is important, but to have the upfront monies to invest is critical for farmers, which is why many of the NFU’s members are worried what a future outside the EU would look like. For example, there are growers and producers in the fresh produce category that depend on a temporary migrant labour force arriving each year mostly from Bulgaria and Romania.
A recent study conducted by the University of Birmingham, focused on horticulture in the West Midlands and the fresh strawberry supply chain in particular, identified that nearly 75 per cent of the ‘picking and packing’ workforce in fresh produce is migrant labour. This supply chain, like other seasonable produce, has a short period of employment opportunity and therefore has proved almost impossible to encourage locals to take on temporary work that also has an unpredictable shift pattern. This is in spite of a reward system that has a piece-rate bonus above the minimum wage and indeed, is one of the reasons migrants claim they come to the UK. Unfortunately, this is not the kind of employment that enables a limited period of work under the current universal benefits system. So, more permanent jobs in the fresh produce sector maybe the answer, but with the proviso that this will mean paying a little more for ‘strawberries and cream’ during the next Wimbledon season.
On the other hand, there are dairy farmers that criticise the cheap imports of bulk milk from elsewhere in Europe as this undercuts the price they can produce at. They also highlight the growing problem that multinational dairy processor vehicle-containers drive past their farms to collect milk from the Netherlands and France, which even with the additional transport cost is still cheaper to buy. So would a negotiated settlement based on WTO tariffs suit our local dairy farmers better? Maybe, but when will such an agreement be in place is the unknown factor. Such an arrangement would better reflect the real cost of production in the marketplace, but this could also lead to increased prices at the supermarket checkout. This raises the age-old question of when will the British public be prepared to pay the true cost of production for their weekly shop? Supermarket retailers are often viewed as the ‘darlings’ of UK governments due to their ability to help manage inflationary forces through keeping food prices down. However, there will be a limit to do this in the future, unless a) consumers pay more, b) we all buy less and possibly buy more seasonally, or c) the food supply chain continues to adapt and be competitive.
There are many issues to be wrestled with and there are both strengths and weaknesses in the current trading arrangements in Europe. Hence, the calls to retailers and food processors to more critically participate in the EU referendum debate. We need to know what the future may hold for British farmers with or without EU subsidies and the likely impact this may have on the cost of our grocery shopping bill. There is much research that indicates the cost of the weekly shop will increase in the short term, but for how long would this last? The arguments being made by leading economists for a vote to stay or go are well rehearsed but not enough has been said about the impact on the high street and the effect on household bills. So where are our retail veterans and well-known consumer brand leaders? We need to hear from you too.
Dr Pamela Robinson
Birmingham Business School
College of Social Sciences
Pamela is an expert in retail at the University of Birmingham. Previously she spent 14 years working in management at Tesco before joining PwC Consulting to advise retailers around the world on their buying and supply chain strategy.