Written evidence submitted by Retail NI (NIP0020)

 

 

Retail NI Submission to NI Affairs Select Committee Inquiry on Brexit and NI Protocol

 

Introduction:

 

Retail NI is Northern Irelands business organisation for local wholesalers and independent retailers. Our membership also includes a significant numbers of suppliers to our sector which enables us to give a unique perspective on the operation of the protocol.

 

Our membership is varied and includes independent retailers of all kinds but also key wholesalers such as Henderson Group, Musgrave, NISA, Costcutter, Co-op, Savage and Whitten and companies such as Applegreen and Circle K.

 

This submission includes a number of recommendations and three wholesaler case studies on the operation of the protocol.

 

Retail NI Recommendations:

 

 

 

 

 

 

 

 

Case study 1: Henderson Group Responses:

 

 

 

The main focus of businesses throughout the food supply chain is to create and implement systems and processes to ensure the most efficient and effective methods of continued food supply in NI, and as such the following issues have been seen in the run up to and since the implementation of the Protocol.

 

The finalising of the “Deal” and implementation of the protocol so late in the day before the festive period has caused a number of issues within the supply chain especially for “fresh food product” suppliers. The reluctance of suppliers to adapt processes in readiness for the Protocol has led to a number of challenges within the industry, which are still being felt now some 4 weeks into the new process. Recent weeks have shown this to be the case with GB suppliers in particular.

 

The uncertainty of what exactly was required by suppliers and the lack of guidance in time to implement required changes prior to the 1st January has meant that certain GB suppliers have stopped NI supply which in turn has caused availability issues within the NI markets as suitable product alternatives needed to be sourced from the Island of Ireland at relatively short notice.

 

The industry has experienced delays in product deliveries due to paperwork checks at Ports, sometimes up to 2 -3 days product shelf-life loss – this in turn can cause further problems down the supply chain when product is despatched out of warehouse to retail shelves as consumers have come to expect longer shelf-life. Business systems which operate “Just in time” deliveries have experienced product shortages due to these delays.

 

Another significant impact caused by the implementation of the protocol was that the availability of “Groupage Transport” effectively disappeared overnight due to implications caused by seals, sign off and additional paperwork requirements being too detailed for many smaller product suppliers to deal with. The costs associated with product supply via non-groupage methods have meant that smaller product suppliers have been priced out of the supply chain and in turn meant that there could have been product shortages on the shelves had wholesale businesses not stockpiled products prior to the Festive period.

 

Businesses have experienced challenges to service levels, with an average of up to 12% decrease in service level when compared against the same period last year. This significant decrease of service level could have proved catastrophic to the Retail industry leaving empty shelves had businesses not stockpiled products before the implementation of the protocol, with ambient products being hit the hardest as priority at Ports is being given to fresh and frozen foods. Only due to diligent planning prior to and throughout the implementation of the protocol have businesses been able to maintain their outbound service levels at levels similar to that of the same time period last year.

 

 

The end of the “grace period” will no doubt cause further delays in the food supply chain with loads being held up at Ports due to paperwork issues and further, more in-depth product inspections being carried out at Point of entry to NI. Further delays in the supply chain process will not only result in more product wastage due to shortening of shelf-life due to processing issues and delivery vehicles being held up at ports, but it will also affect product pricing, as the cost of implementing the required changes and processing of certificates etc will need to be recouped by the supplier; therefore it will inevitably end up with the consumer footing the bill as per example below:

 

“Ware potatoes from GB are subject to phytosanitary and plant health documentation. This is slowing down the supply chain considerably, loads are taking several days to receive the green light from TTS. Due to this delay, when moving potatoes, a much longer timescale must be factored in from ordering to arrival. Currently due to the 'Grace Period' there are no extra costs. From 1st April when this ends there will be an additional cost of £150 per load for this documentation which equates to approximately £5 per ton.”

 

Another example of increasing costs now includes additional charges in relation to suppliers having to provide heat treated pallets and additional labelling to satisfy legislative requirements this can add up to an additional £40 per pallet of goods ordered. These additional charges are currently being described as transitional costs to cover the rework of current stocked items; therefore, it is likely that a deduction in additional charges will occur in the coming months when stocks deplete and are replaced with fresh stock.

 

With the added tariffs now being applied to certain product ranges being imported from GB from alternative origins, NI consumers will see price rises on their everyday grocery items. Industry officials are currently looking at ways to ensure that additional costs passed on to end consumers are kept to a minimum to ensure competitive pricing within the retail environment, but ultimately the additional costs need to be recouped to ensure the supply chain is maintained at financially viable levels.

 

 

As was evident in the first few days of the Protocol implementation, lack of training and awareness caused a number of teething problems, within an already fragile nervous industry, questions are being asked as to what plans government departments have in place to prevent such issues arising again when the “Grace Period” ends on the 1st April.

 

As there has been a zero-tolerance approach to errors on critical paperwork – this has led to hold ups at Ports to allow the errors to be rectified. Those which have not been able to be rectified have seen loads rejected for sailing or held so long that the shelf-life reduction of products has deemed them unfit to delivery.

 

Availability of resources could lead to further issues down the line – with limited numbers of trained professionals within the food industry, which could in turn see shortfalls in production with Technical Staff from the industry being recruited to facilitate checks at ports. This point also relates to Environmental Health Office staff and Veterinary Officers.

 

In preparation of the supply chain facing more issues with delays at Ports due to paperwork checks, suppliers have already started to investigate and implement changes in their processes to enable them to streamline the overall flow of goods. One such change which has been felt by consumers in NI since 1st January is that product ranges in retail stores have reduced significantly, limiting customer choice. This reduction in product range has been implemented to limit the effect of product unavailability being passed on to the consumer and prevent chaos within the retail sector caused by consumer panic buying.

 

 

 

Supply chains are still adapting! Most of the adaptations come within the route to market. Supply chain models have had to change where possible from the “Just in Time” model to a more contingency method where product is sourced and stored weeks in advance to avoid disruption to supply. Obviously, this change in process can only be applied to certain sectors of the Food Supply Chain – such as Ambient and Frozen products. Fresh Food products which cannot be sourced and stored weeks in advance are a different matter and have meant that businesses have had to rethink their supply chain. Some businesses pre-empted the disruption which has ensued at the ports over the recent weeks and prior to the Protocol being implemented had switched the majority of their fresh product supplier to the Island of Ireland supply where possible, or at the very least, have a contingency supply agreement in place with ROI suppliers for products currently sourced from GB. Direct shipment of loads from the Continent to ROI on existing routes and through brand new routes have seen a significant increase in recent weeks as businesses are trying to redirect the supply chain to avoid travelling through GB where at all possible, as a method of stream-lining and simplifying the delivery process.

 

Businesses have also proactively sought out new product ordering processes in order to limit effects on their supply chain – examples of these changes include streamlining product varieties to ensure continuity of supply. As a method of deflecting, and passing associated increased costs on to end consumers, suppliers and wholesalers have implemented changes to ordering quantities and frequencies. For example, wholesalers who previously have provided two deliveries per week have altered their lead times, increased their minimum order quantity to try and limit the need to have Vets on their site to sign off consignments thus saving on administration and governance costs. NI Businesses where possible have increased stock holding to limit the risk of product shortage; this in itself can cause businesses further issues, as it directly effects cash flow and available funds for other products. Unfortunately, this step is not one available to all NI businesses as most smaller companies do not have either the additional storage space or the resources available.

 

 

Collectively across the supply base, businesses are requesting that ongoing funding be provided for suppliers who now need to pay for Phyto certs; this would ensure that small GB suppliers don’t stop dealing with NI due to increased documentation costs and any other costs associated with GB to NI Trade.

 

Businesses across the UK are asking that more clarity and awareness is provided with regards to whose obligation it is to complete clearance documentation on the TSS portal, as to date, guidance has been vague and has left a level of ambiguity whether the haulier or end trader completes this paperwork.

 

Some Businesses are calling for the “Grace Period” to be extended to allow more time to create and implement more stringent workable solutions for all issues the supply chain is facing.

 

Decisions need to be made and process changes implemented on rules around groupage to allow this vital service to remain viable within the industry. An industry without straight-forward groupage transport processes will see a large amount of smaller bespoke product suppliers close their doors to trading with NI.

 

Calls for concise guidance on Computerised Operating Systems have been echoed across the industry, with particular concerns being noted regarding the contingency process should systems such as TSS and GVMS crash and what load tests and other checks are being completed to ensure that the systems are fit for purpose, come 1 April.

 

Throughout the industry, communication channels and working groups have been created to ensure that there is a collective shared knowledge base to enable a proactive combined approach to problem solving across all aspects of the supply chain. This shared knowledge base will continue to function in the months ahead though calls from across the working groups to reiterate the need for additional government support and guidance to bolster the working knowledge base.

 

Industry representatives are calling for clear and timely guidance regarding training on new systems and processes being implemented by Government to allow individual businesses throughout the industry to adapt and upskill staff in a timely manner in order to prevent a repeat in further delays and non-compliance issues at the end of the “grace period”.

 

In conclusion, the consensus across local business is that the best outcome for the overall supply chain would be the implementation of a digital solution (from source to shelf) covering the logistical and technical requirements for ensuring compliance to the legislative requirements. This would ensure a more effective and efficient process throughout the supply chain and limit the costs and burden to the industry of what currently is a complicated process, while helping create a frictionless goods movement process, and maintain availability and price of food products across the NI market.

 

                           

Case Study 2: Response by Musgrave

 

Company Overview

Musgrave is a hugely positive force in Northern Ireland both economically and socially, supporting the employment of over 4,750 people in 300 locations and contributing c.£350m to the local economy.

 

Musgrave is at the heart of local communities, working with over 3,000 local farmers, in partnership with over 140 local suppliers, selling nearly 3,000 local products across the stores. 

 

Musgrave operates the SuperValu, Centra, Mace and Day-Today retail brands throughout Northern Ireland, servicing a total of 292 stores. Collectively, these retail brands deliver c.£246m annual turnover.

 

Musgrave have invested significant resources to minimise the impact of any disruption following the end of the transition period and have:

 

 

  1. Current availability and supply chain impact

Our supply chain is strong as a result of our stock-building, and contingency planning has helped to protect availability during some initial disruption.  We continue to work closely with our suppliers, to ensure continuity of supply.

 

However, a key impact to-date has been increased order lead-times as a result of import requirements from GB. Whilst we are seeing increased lead-times across many suppliers, suppliers of animal origin goods are most impacted, with increases of up to five days being experienced.  This impacts flexibility and our ability to react quickly to changes in consumer demand e.g. weather events, COVID lockdowns.

We are also concerned about the following, based on our experience in our Republic of Ireland business:

 

 

Therefore, we have serious concerns regarding the end of grace period easement for authorised traders on 30 March 2021 and the introduction of the requirement for export health certificates.  We believe that an extension to the current trusted trader easement would provide stability and allow businesses the time to fully prepare and to address the issues outlined above while the EU and UK work together for a pragmatic solution. 

 

A 6-month extension after the return of the hospitality sector post-COVID lockdown would allow businesses the time to fully adjust to new requirements.

 

  1. The UK Trader Scheme

The UK Trader Scheme is an essential facilitation to allow businesses to declare non-qualifying goods imported from GB, for sale on the NI market as ‘not at risk’.  Without this facilitation businesses would be required to pay tariffs on such goods.

 

Under the current HMRC interpretation of the Northern Ireland Protocol, GB suppliers who do not establish a physical presence in Northern Ireland will lose their current access to the UK Trader Scheme and will be required to pay tariffs on such goods, even though those goods are for sale only in the Northern Ireland market.   This approach discriminates between different supply chains importing the same products from the same supplier.  The Musgrave model where suppliers act as the importer would face the burden of tariffs, administration and drawback, whereas UK multiple grocers operating a different supply chain model would not face this burden.

 

Significant practical, financial, and operational challenges would face Musgrave as a direct consequence of this interpretation of the NI Protocol including:

                     Introduction of tariffs on goods clearly intended for the NI market

                     Loss of business to GB suppliers due to unworkable NI entry arrangements

                     Significant effect on future business continuity

                     Reduction in consumer choice

                     Creates an overly burdensome administrative process for businesses and HMRC

                     De-stabilises the Northern Ireland supply chain.

To ensure a level playing field for Northern Ireland businesses, it is essential that the UK Trader Scheme continues to apply to Northern Ireland retailers and their suppliers after the temporary authorisation period ends.  The current position is inconsistent with the intent and spirit of the NI Protocol. 

 

  1. Recommendations

 

 

 

 

Case study 3

 

The UK's exit from the EU meant we, like the major supermarkets, faced new challenges in supplying products to Northern Ireland from mainland Great Britain because of the new arrangements and added administrative implications which require more stringent product certification.

 

We had been working towards dates outlined by government when supply into Northern Ireland wouldn’t have been possible on certain prohibited lines due to the introduction of Export Health Certificates (EHCs) and we have sourced alternative suppliers for some of those products to limit the impact on our partners.

 

These changes only account for a small proportion of our volume into Northern Ireland but to continue to support our partners we have sourced alternative suppliers for some of the lines which will be available on a direct to store basis for partners in Northern Ireland. 

 

Unfortunately, the changes meant we were unable to supply to Northern Ireland partners some of the lines that appeared on our Summer Presell and had to secure alternatives via our Central Invoicing/Direct to Store arrangement.

 

We are continuing to develop our offering to ensure we have a robust product range we can supply to partners in Northern Ireland.

 

We know there are further challenges coming on 1st April and we continue to work hard with the Co-op, our suppliers and our logistics partner DHL while engaging closely with Retail NI, BRC, DEFRA and DAERA to find the best way to support our partners in Northern Ireland.

 

 

Glyn Roberts

Retail NI Chief Executive

March 2021