Essential updates for the Food & Drink sector

Our latest updates for those involved in the Scottish Food & Drink sector include: Covid-19 update; the UK-EU Trade and Cooperation agreement; the Trade and Agriculture Commission Issues report; the Scotland Food & Drink Recovery Plan; and an update from the Groceries Code Adjudicator.

COVID-19 Update

The 26^th April 2021 was an important day for food and drink retail businesses in Scotland with the whole country moving to Coronavirus Protection Level 3. This allows non-essential retail businesses to open as well as cafes, bars and restaurants, subject to limits on numbers, both in terms of households and individuals and physical distancing. Takeaways may also fully open. Bars may not serve alcohol indoors and outdoor drinking hours will be subject to local licensing regulations.

Food Standards Scotland has updated its sectoral guidance for food business operators in line with the easing of restrictions. This includes a risk assessment tool and also guidance on dealing with COVID-19 outbreaks. The sectoral guidance can be found here:

https://www.foodstandards.gov.scot/publications-and-research/publications/covid-19-guidance-for-food-business-operators-and-their-employees

UK-EU Trade and Cooperation Agreement (TCA)

It has been four months since the UK and the EU agreed the terms of the TCA representing the much longed for “deal” between the departing and the remaining members of the EU.

Most crucially for Food & Drink businesses (as for other businesses too), the TCA paved the way for tariff and quota free trade between the UK and EU subject to compliance with the TCA’s Rules of Origin. It also left each party to the TCA to its own devices when considering customs requirements, leaving open the possibility that there could be technical barriers to trade even in the context of a “Free Trade” relationship.

Rules of Origin

For Food & Drink businesses and particularly for those dealing in live produce, the Rules of Origin can be strict. In order to benefit from tariff and quota free trade most raw materials will need to be sourced either in the EU or UK unless there is significant processing carried out. Nowhere will this be more keenly felt than in the Seafood and Agri-Food industries.

Free trade agreements are, by their nature, protectionist and so it is perhaps unsurprising that the parties to the TCA will want to ensure their businesses are sourcing raw material within the free trade area as much as possible. However, getting to grips with Rules of Origin will be a new experience for many businesses, as will understanding the World Customs Organisation product classifications which underpin the Rules. Thankfully, the UK and EU have agreed to bilateral cumulation meaning that each party can treat raw materials originating in the other party’s territory as their own.

What it could mean for manufacturers and processors importing raw material from outside the UK or EU is a fresh look at the costs of supply from outside the free trade area, balancing those costs against sourcing raw material more locally with the benefit of tariff free trade.

Technical Barriers to Trade

Many Food & Drink businesses have found it difficult to navigate the new customs procedures introduced since the turn of the year for exports to the EU. Official statistics showed a significant shortfall in expected trade in Food & Drink during January, only part of which could be attributed to the global pandemic. Particularly affected was the fish and shellfish sector with delays at borders leading to spoiled shipments.

At the heart of the issue is the requirement now for all products of animal origin to carry an official export health certificate as well as evidence of origin. James Withers of Scotland Food & Drink called for alignment in EU and UK standards with EU exporters enjoying a grace period for technical standards while their UK counterparts were having to adjust to new registration requirements for their businesses and customs controls.  This decline in exports over the first quarter of 2021 comes on the back of a poor year for Scottish Food & Drink exports hit by the COVID-19 pandemic and US tariffs.

Trade & Agriculture Commission Issues Report

Faced with the challenge of having to negotiate free trade agreements with countries formerly party to agreements with the EU, the UK government faced intense pressure to ensure the maintenance of food standards. In mid-2020 the Trade and Agriculture Commission was established to provide recommendations to the government as to how the UK agri-food sector could be fully protected in trade agreements, both from the point of view of its competitiveness and also the maintenance of high animal welfare and environmental standards.

In March 2021, the Commission issued its report, setting out six broad principles and 22 specific recommendations for future government policy. Recommendations in the report include those relating to high standards of animal welfare, environmental protection and the impact of agri-business on climate change, labour rights, early engagement of stakeholders in free trade negotiations, support for developing nations, improving trust and transparency in supply chains and a new Food & Drink Export Council to be established comprising experts from and ensuring coordination across the Home nations. The Commission encourages the UK government to adopt a “bolder, more confident and less understated approach” in its dealings with international partners, working together with like-minded nations to improve agri-food standards worldwide.

This is a fascinating and ambitious piece of work which will challenge governments and regional assemblies across the UK. The full report can be found here.

Scotland Food & Drink Recovery Plan

The Scotland Food & Drink Partnership is a group of industry bodies and government agencies which, together with the Scottish Government, has set out a recovery plan for Scotland’s Food & Drink businesses coming out of the global pandemic and having to adjust to the post-Brexit landscape.

A 50-point action plan has been devised, including initiatives aimed at increasing supermarket listings for Scottish produce and promoting support for local suppliers. One the initiatives in the plan is the establishment of a national Food Academy. This will provide training designed to help Scottish Food & Drink businesses grow, including showing how to identify insights in markets and customer and category data, how to understand distribution channels and customers and how to build relationships with buyers. The Academy will also offer help for business to use market driven data and insight to drive innovation, identify opportunities and defend and increase market share

Update from the Groceries Code Adjudicator

Mark White, the Groceries Code Adjudicator (GCA) was appointed in July 2020. He announced on 12 April 2021 that the responses from the GCA survey 2021 had been reviewed showing a large increase in the response rate (up 60%) but a decline from 36% to 29% of suppliers reporting Groceries Code issues with their supermarket customers.

The GCA highlights that this indicates suppliers have more confidence in reporting and that relations between the supermarkets and their suppliers are improving. The recent highlight from the GCA is that Sainsbury’s has signed up the forensic accounting commitment introduced in 2014, the last of the regulated supermarkets to do so. The commitment is a voluntary undertaking by supermarkets only to undertake reviews of their trading accounts with suppliers for the current and previous two financial years. In the past, suppliers had been faced with overpayment claims going back sometimes up to six years.

In another move designed to make it easier for suppliers to report suspected breaches of the Groceries Supply Code of Practice, the GCA has introduced a confidential reporting platform:  www.telltheGCA.co.uk. This should help alleviate some of the fears suppliers may have had in reporting wrongdoing that they might damage customer relations.

Get in touch – we’re here to help

Please do get in touch with one of our team if you would like to discuss any of the topics raised.