Food and Drink Federation – Written Evidence (JTN0009)

Introduction

  1. This submission is made by the Food and Drink Federation (FDF), the trade association for food and drink manufacturing. Food and drink is the largest manufacturing sector in the UK (accounting for almost 20 per cent of the total manufacturing sector), turning over £105 billion per annum; resulting in Gross Value Added (GVA) of £28 billion and employing over 430,000 people. Our industry is larger than automotive and aerospace combined in terms of employment, GVA and turnover.
  2. Our industry is unique in that it provides the opportunity for the UK Government to deliver direct benefits for every UK community through future international trade agreements. Production of food and drink is widely dispersed with a significant footprint in every constituency. As a whole, the food and drink supply chain employs 4.3 million people – 17.5 per cent of the UK workforce – and generates over £120 billion of GVA each year.

Summary

  1. Our industry’s top priority for future international trade is to ensure that existing tariff-free trade in agri-food and drink remains tariff free after 31 December 2020. This is especially true for trade with the EU which due to geographical proximity and shared consumer preferences is by an overwhelming margin our largest market and our largest supplier.
  2. From the UK Government’s current negotiations to secure new preferential trade agreements, the most important for the food and drink industry is to ensure there is no break in terms of preferential access to Japan and that any new deal secured is at least as generous as the EU-Japan Economic Partnership Agreement (EPA). If businesses are forced to revert to trading on a WTO Most Favoured Nation (MFN) basis with Japan after the UK leaves the EU, this will place UK industry at a very significant commercial disadvantage to EU counterparts, causing long-term damage to food and drink exports that would not quickly or easily recover even with a new deal.
  3. A critical area that will need to be addressed through a bespoke solution will be rules of origin. UK food and drink is a global industry which faces a unique challenge among manufacturing industries due to the impacts of climate and seasonality. FDF has shared with the UK Government detailed guidance and recommendations on rules of origin for the future UK-EU trade agreement. There are key lessons in these documents that should be applied to ensure consistent and workable rules are included in any deal agreed with Japan.

FDF’s international trade priorities

  1. The Food and Drink Federation (FDF) is a longstanding advocate for trade liberalisation. We supported the WTO Doha Development Agenda (DDA) that aimed to deliver further trade liberalisation and put in place a fairer and clearer set of multilateral trading rules. Following the failure of DDA talks in 2008, the FDF backed UK-driven plans for the EU to prioritise ambitious bilateral trade agreements. Given the scale of technical, regulatory and tariff barriers faced globally in agrifood and drink, preferential trade deals can deliver substantial benefits for our industry.
  2. Food and drink provides a unique opportunity for government to deliver direct benefits to every UK community through future trade agreements. Production of food and drink is widely dispersed with a significant footprint in every constituency. As a whole, our industry employs over 4 million people from farm-to-fork and generates over £120 billion of GVA each year.
  3. New UK trade agreements can deliver a long-term win-win opportunity for trade in food and drink, providing benefits for UK consumers and businesses alike, helping to:
  1. enable consumers to access a wider selection of quality food and drink at competitive prices;
  2. lower transaction costs for companies and speed up business operations;
  3. create opportunities for new market entrants, and SME manufacturers in particular; and
  4. deliver benefits in terms of underpinning our food security, given food is a key component of the UK’s Critical National Infrastructure.
  1. The EU’s deal with Japan has delivered tariff cuts that have in the short term improved our ability to sell quality UK manufacturing in Japan while addressing longstanding regulatory issues and removing costly non-tariff barriers that inhibit our growth potential. Reverting to trading on an MFN basis would cause long term damage to UK exports.

Food and drink trade with Japan

  1. Japan is the world's largest net importer of agrifood and drink and has the third largest market for sales of packaged food after the USA and China. Analysis undertaken by Grant Thornton[1] on behalf of FDF indicated that Japan is a priority market for UK food and drink manufacturers. It offers significant export growth potential, however, in the absence of an ambitious preferential trade agreement, market access for key sectors will be limited and UK producers will not be able to compete with competitors in countries that do not face such prohibitively high MFN tariffs.
  2. Demand for imported food and drink in Japan is growing because of its ageing population, declining domestic production and a shift towards Western consumption patterns. A Canadian Government report[2] notes a wide range of export opportunities in Japan. It also indicates that Japanese consumer preferences are closely aligned to those of UK consumers, with a strong focus on variety, innovation, quality, safety, nutrition and affordability.
  3. Japan is the UK’s 17th biggest market for our exports, worth £311.5 million in 2019. Given the scale of Japanese import requirements, significant opportunities exist to increase the UK’s share of sales to Japan if there is an ambitious preferential trade agreement in place. However, selling into Japan is not simple or straightforward. Successfully entering the market requires a long-term commitment to build relationships with key buyers.
  4. Japan is not a major exporter in value terms of ingredients and raw materials to the UK food and drink industry. In 2019, imports into the UK were worth £46.4 million making Japan our 67th most valuable source of imported food and drink. While this value is relatively modest, Japan is a key source for certain high-quality specialist ingredients and consumer products and an ambitious deal that at least replicates the provisions of the EU-Japan EPA would deliver significant benefits to UK businesses that source from Japan.
  5. To ensure businesses are fully equipped to take advantage of opportunities arising from a deal, we would urge the UK Government to take forward FDF’s proposals to deliver a long-term approach to the provision of specialist export support for the agrifood and drink sector. Our outline proposal has been agreed and endorsed by industry members of the Food and Drink Sector Council and we are developing a more detailed proposal for a Government-industry partnership that can deliver a more collaborative and joined-up approach across the four nations and greater specialist support in the UK and overseas.
  6. If a new UK preferential trade agreement enters into force on 1 January 2021, in-market sectoral expertise will be essential if we are to ensure the UK’s agrifood and drink industry is able to take full advantage of these new opportunities. We believe an urgent and immediate priority should be to replicate in Japan the successful Defra/AHDB model of placing an agrifood specialist in China and which has recently been replicated by Defra in the Gulf region.
  7. Additional support will be essential to help businesses take advantage of preferential tariffs. A European Commission report[3] highlights the issue of low rates of tariff utilisation via preferential trade agreements. For example, after seven years of application of the EU-South Korea agreement, a fifth of exporters were still not taking advantage of preferential tariffs, while little more than a third of exporters selling to Canada were using preferential tariffs rates a year after the EU-Canada CETA agreement entered into force.

EU-Japan Economic Partnership Agreement (EPA)

  1. The FDF strongly supported the negotiation and successful conclusion of the EU-Japan EPA which entered into force on 1 February 2019. We repeatedly made the case in discussions with government that an ambitious deal with Japan would unlock significant growth opportunities for UK food and drink. Our priority was for a deal that addressed prohibitively high Japanese tariffs and restrictive tariff rate quotas as this promised to deliver the most immediate and valuable export opportunities. These, rather than divergences in regulatory approaches, represented the single greatest obstacle for UK exporters.
  2. Government’s own analysis at the time supported this view, indicating that UK food and drink would deliver the greatest value gains for the UK from a preferential trade agreement with Japan. SME manufacturers would stand to benefit given they make up 96 per cent of the UK food industry. Similarly, the European Commission’s impact assessment identified the greatest potential gains for the EU would come from processed foods, with exports estimated to increase by between 150-200 per cent.
  3. The deal subsequently concluded with Japan has provided significant new market access opportunities for food and drink. However, UK producers and Japanese buyers have been reluctant to fully embrace the opportunities provided by the EPA to expand UK-Japan trade since it entered into force due to the ongoing uncertainty about its long-term application for trade between the UK and EU. This means we are already missing out on growth opportunities in Japan.

A new UK-Japan preferential trade agreement

  1. A new deal with Japan should deliver terms of trade that are at least as favourable as those secured by the EU. We welcome the UK Government’s prioritisation of food and drink in these talks and insistence on ensuring no reduction in agrifood access. Equivalent improvements in terms of both market access and regulatory coherence can in the long-term help to deliver growth in trade and investment, enhancing productivity, while contributing to the mutually enhanced competitiveness of both countries, promoting economic growth and increasing employment.
  2. A new deal also provides an opportunity for the UK to move faster towards the full implementation of tariff reductions with Japan than has been agreed in the EPA. Certain Japanese agrifood and drink tariffs that offer significant opportunities for UK exporters are subject to staged implementation over periods of up to 15 years. We hope the Government will be able to agree a more ambitious approach to tariff reductions that delivers greater benefits for UK food and drink exporters via a UK preferential trade deal with Japan. Tariff reductions should be introduced faster and potentially go further where the end goal agreed in the EPA is not full liberalisation.
  3. A critical area that will need to be addressed with a bespoke solution will be rules of origin. UK food and drink faces a unique challenge among manufacturing industries due to the impacts of climate and seasonality. At different times of the year, manufacturers often need to adjust sourcing arrangements to secure the required specifications of ingredients. This means that manufactured products will frequently contain a mixture of content originating from the UK, the EU and from the rest of the world. This presents a serious challenge for future UK trade agreements. Insufficiently generous rules of origin will effectively block UK producers from accessing preferential tariff rates.
  4. FDF worked with industry partners to produce detailed guidance and recommendations for Government on rules of origin in a future UK-EU trade agreement. We have subsequently taken forward these proposals at the request of officials by producing a draft legal protocol based on these recommendations to help Government take them forward for use in negotiations.
  5. There are key lessons in these documents that can be applied to ensure workable rules of origin are incorporated into a deal with Japan or any future UK preferential trade agreements. The most important of these in the case of trade with Japan is that Government should work with Japan and the EU to prioritise the agreement of full diagonal cumulation between the UK, Japan and EU. Without this, manufacturers that depend on inputs from both the UK and EU27 will be shut out from key benefits of the agreement. Full diagonal cumulation would better ensure UK producers are able to utilise tariff concessions secured through a trade deal with Japan.

 

20 August 2020

             


 

The UK Food and Drink Manufacturing Industry

The Food and Drink Federation (FDF) is the voice of the UK food and drink manufacturing industry, the largest manufacturing sector in the country. Our industry has a turnover of more than £105 billion, which is almost 20 per cent of total UK manufacturing, and Gross Value Added (GVA) of more than £28 billion. Food and drink manufacturers directly employ over 430,000 people across every region and nation of the UK. Exports of food and drink make an increasingly important contribution to the economy, exceeding £23 billion in 2019, and going to over 220 countries worldwide. The UK’s 7,400 food and drink manufacturers sit at the heart of a food and drink supply chain which is worth more than £120 billion to the economy and employs 4.3 million people.

The following Associations actively work with the Food and Drink Federation:

ABIM              Association of Bakery Ingredient Manufacturers

BCA              British Coffee Association

BCUK              Breakfast Cereals UK

BOBMA              British Oats and Barley Millers Association

BSIA              British Starch Industry Association

BSNA              British Specialist Nutrition Association

CIMA              Cereal Ingredient Manufacturers’ Association

EMMA              European Malt Product Manufacturers’ Association

FCPPA              Frozen and Chilled Potato Processors Association

FOB              Federation of Bakers

GFIA              Gluten Free Industry Association

PPA              Potato Processors Association

SA              Salt Association

SNACMA              Snack, Nut and Crisp Manufacturers’ Association

SSA              Seasoning and Spice Association

UKAPY              UK Association of Producers of Yeast

UKTIA              United Kingdom Tea & Infusions Association Ltd

FDF also delivers specialist sector groups for members:

Biscuit, Cake, Chocolate and Confectionery Group (BCCC)

Frozen Food Group

Ice Cream Committee

Meat Group

Organic Group

Seafood Industry Alliance

Food and Drink Federation               Page 8

 

[1] Grant Thornton ‘Economic Contribution and Growth Opportunities’ (2017)

[2] Canada Agri-Food Trade Service market analysis report (2019)

[3] European Commission report on Implementation of FTAs (2019)