Rural and Environment
Compensation needed for Scotland’s food and drink businesses
Rural Economy Secretary Fergus Ewing has urged the UK Government to provide compensation to Scotland’s beleaguered food and drink sector as a result of the current trade issues.
The sector is currently facing a series of challenging impacts as a result of the Brexit deal establishing new non-tariff barriers. This is compounded by the coronavirus (COVID-19) pandemic affecting both national and international trade, with hospitality supplies essentially suspended due to restrictions.
The seafood sector has been particularly hard hit with companies having little time to put in place new business practices to export to the EU and Northern Ireland and difficulties understanding new customs and export certification processes.
In a letter to the Secretary of State for the Environment, Food and Rural Affairs George Eustice, Mr Ewing said:
“As I had feared, the relationship negotiated by the UK Government is having a catastrophic impact on Scotland’s food and drink export industry. The situation has slowly progressed from bad to worse and it is imperative to understand some of the impacts.
“As soon as the Implementation Period ended, customs systems failed and prevented exports. Fresh and live product became stranded or delayed. Orders went unfulfilled causing reputational damage. High value product lost value making the exports pointless. Thousands of pounds of Scotland’s finest seafood was spoiled.
“We have been advised that some Scottish fishing vessels have landed fish in Denmark to avoid the Brexit bureaucracy and red tape. We learn of some business having been lost to other suppliers. That some fishermen have decided to suspend their fishing for fear they cannot sell their fish. Market prices have fallen by 50% or more in some cases. The HMRC IT systems do not recognise types of Scottish fish and won’t accept them in their system of paperwork.
“It is the UK Government who refused the industry request for a six months grace period in which these untried systems could have been worked out and problems solved without commercial loss. It is incompetence in the extreme to fail to follow such an approach when the systems and paperwork are so complex.
“Ultimately it is the UK Government’s choices which have resulted in these impacts. Scottish stakeholders called for the UK Government to commit to bringing forward a package of financial compensation for producers, processors, manufacturers and distributors who encounter losses as a direct result of border or market disruption and, having spoken to business representatives from across Scotland, I second their request and I am writing to demand that you set out urgently how Scotland’s exporters will be compensated for their losses both in the short term and the long term caused by reputational damage. ”
A copy of the letter from the Rural Economy Secretary is below.
COMPENSATION FOR SCOTTISH FOOD AND DRINK EXPORTERS
I am writing to you today to outline the grave situation Scotland’s food and drink exporters find themselves in and to request an urgent package of financial compensation for producers, processors, manufacturers and distributors who experience a loss of trade due to EU exit. When Rt Hon Michael Gove was the Defra Secretary of State he made a commitment that the UK Government would meet EU exit related costs.
You are well aware of the Scottish Government’s position on EU exit and as a matter of course chose to ignore our wishes to stay within the EU’s single market and customs union. The EU is our closest and biggest trading partner and Scotland has enjoyed significant success in maintaining and growing its food and drink export markets in the EU and on the international stage as a member of the EU. There is no better example of success than Scotland’s seafood sector, including the UK’s number one food export – Scottish salmon.
The UK Government chose to pursue the most basic of trading relationships with the EU and failed to negotiate any simplification to third country trading requirements. Failed is a generous description: it was quite clear that the UK Government never had any intention of exploring potential alignment to EU Sanitary and Phytosanitary rules to maintain fluid market access. This lack of alignment is now manifesting itself as additional certification requirements, new complex processes and prohibited and restricted goods.
For years I have warned alongside key voices in Scotland’s food and drink industry that frictionless access to our biggest market was essential and that red tape would reduce the competitiveness of our food and drink sector and spell the end for some businesses. Scotland’s leading food, drink, seafood and farming organisations wrote directly to the Prime Minister in November 2020 highlighting the risks. It is Scottish businesses that stand to be more disadvantaged by these impacts, with food and drink exports four times more important to the Scottish economy than to the English economy. The Scottish Government offered strong support to the top priority in that letter for a six-months ‘grace period’ from the end of the transition period to allow businesses to adjust to the new rules. Something which is being offered for free to our EU counterparts because border control systems are not ready, but is not something you could negotiate for our home grown businesses.
As I had feared and predicted, the relationship negotiated by the UK Government is having a catastrophic impact on Scotland’s food and drink export industry. The situation has slowly progressed from bad to worse and it is imperative you understand some of the impacts reported to me since January 1st.
As soon as the Implementation Period ended customs systems failed and prevented exports. Fresh and live product became stranded or delayed. Orders went unfulfilled causing reputational damage. High value product lost value making the exports pointless. Thousands of pounds of Scotland’s finest seafood was spoiled.
Lack of business readiness, especially in smaller businesses, has led to issues with accuracy of paperwork as groupage distributors at Larkhall and around the UK grind to a halt under the pressure. This is notwithstanding great efforts by Scottish Government and Food Standard Scotland officials, working together with key stakeholder bodies such as Scotland Food & Drink and Seafood Scotland, to work with industry. It is clear that businesses are simply struggling to understand and meet the new requirements. For well-prepared businesses, such as DR Collin (who took part in Defra’s own test journey), even they have not been able to export a thing since the beginning of the year – UK Government IT systems are just not up to the task.
The more stakeholders I speak to the more the issues add up. System issues have been reported for Export Health Certificate Online, Fish Export Service and customs systems. Each glitch causes barriers to exports. One exporter who normally exports 1 million a week of product has managed to move £12,000 worth of goods since the beginning of the year, with the fleet that supply them now tied up earning nothing at all until the situation improves.
Seafood Scotland has reported that up to a third of Scottish vessels are deciding not to leave port due to uncertainty, poor market prices due to lack of demand, and that – in what might count for one of the greatest ironies of EU exit – some fishing vessels are now landing directly into Denmark. This impacts on Scotland’s supporting port services, fish markets and processing sectors, putting at risk thousands of jobs all over the country. On Monday 11th January some prices fell by 80% at Peterhead fish market, previously one of Europe’s largest white fish ports. Vulnerable coastal communities are being dealt a double blow with EU vessels now choosing to land into Ireland due to uncertainty in IUU, SPS and customs processes.
The reputation of Scotland’s industry is being further diminished with every day that passes and Scottish exporters are losing long standing customers. This situation is immediate, dire and unsustainable. The losses suffered by some businesses, compounded by the impacts of Covid, will prove too much for many. The urgency is clear and action is required now.
The issues experienced are a direct result of UK Government only reaching agreement at the last minute, having earlier refused an extension to the transition period, which has left exporters less than three working days to understand the newly agreed relationship with the EU and implement new business practices. Well known and experienced exporters – including the Scottish Salmon Producers’ Organisation and John Ross Ltd (who wrote directly to Rt Hon Alok Sharma last week) – are all facing the same issues. No amount of business preparations would be adequate to address issues caused by dysfunctional UK Government customs and Export Health Certificate systems. There was insufficient time to test these systems and now Scottish businesses are predictably finding difficulties with their use, resulting in further delays which are devaluing product, on top of the existing challenging market conditions. The UK Government must take responsibility for the failure of these systems and the impact they are having on traders from across the UK.
Ultimately it is the UK Government’s choices which have resulted in these impacts. Scottish stakeholders called for the UK Government to commit to bringing forward a package of financial compensation for producers, processors, manufacturers and distributors who encounter losses as a direct result of border or market disruption and, having spoken to business representatives from across Scotland, I second their request and I am writing to demand that you set out urgently how Scotland’s exporters will be compensated for their losses both in the short term and the long term caused by reputational damage.
The Rt Hon Michael Gove has been quoted in the press admitting this is likely to get worse before it gets better, a bit different from 2016 when he suggested there wouldn’t “be a sudden change that disrupts the economy”. The UK Government didn’t keep to those words but you can keep your promise that the UK Government will cover the cost of EU exit and support businesses that your approach to delivering EU Exit has put at risk.
Your silence on this stands in stark contrast to the 5 billion Euro funding package that the EU is putting in place for affected EU member states, including 600 million Euro for fisheries alone, and, I understand, over 1 billion Euro for Ireland.
Compensation is not the only answer, there is a lot of work to be done to understand and fix the issues being experienced by Scottish food and drink exporters. So I also ask you how the UK Government will respond to fix border delays and increase business readiness across Great Britain. The Scottish Government stands ready to work constructively with UK Government to resolve the plethora of issues faced by Scottish food and drink exporters.
Prohibited and Restricted Goods
The economic impacts for exporters extend beyond those immediate ones mentioned above in the form of prohibited and restricted goods. The basic third country trading relationship sought has resulted in a whole raft of new legal barriers to trade for exporters of these goods. A list of currently known prohibited and restricted commodities is included at Annex A. This list has increased in length in the last few weeks as the detail of final export health requirements and final third country listings became clear. Communications on prohibited and restricted goods only issued from UK Government in late December, this followed earlier communication by Scottish Ministers forced by the UK Government’s inaction.
Traders are still familiarising themselves with the new requirements. Some businesses have come to the realisation that they have become unviable overnight. Examples range from a prohibition to seed potato exports, to barriers of the export of crab claws and the movement of sheep from Great Britain to Northern Ireland. One business is reporting they will face a 4 million loss if they are unable to continue exports of crab claws to the EU.
I therefore again ask you to set out urgently your plans to compensate businesses which have been sacrificed by the UK Government’s own negotiating mandate.
What has already been done to find a solution to these barriers to trade?
I am copying this letter to Rt Hon Michael Gove Chancellor of the Duchy of Lancaster and look forward to a prompt response given the urgency of the situation.