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Brexit butchers EU trade for Scottish beef producers

EU Reporter Correspondent

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Brexit has dealt a blow to Andrew Duff’s business. His burgeoning sales of high end Scottish beef to Europe are on hold because his business is too small to navigate the post-Brexit customs border for now, writes .

The 32-year-old had been on the verge of expanding the family business, using his social media marketing skills to promote the rare beef that has been reared on farms across the Scottish lowlands and borders for centuries.

Instead his Macduff business is now one of thousands across Britain that lack the financial firepower to throw at the myriad health checks, customs declarations and higher logistics costs that are required to export goods into the European Union.

“With these customers it takes years to build the relationship and get them on board, and it can take seconds to lose,” said Duff, whose clients include an award-winning butcher in Germany and a Michelin-starred restaurant in Belgium.

“Luckily January is a quiet month. Come February, March, if the situation is still the same then it could be problematic,” he told Reuters.

Far from the dire warnings of clogged ports and tailbacks that preceded the departure, Brexit so far has seen factories and fishermen unable to complete paperwork and get the goods off their yard. Many still do not know which forms need completing. Different couriers give different answers.

The government has said it is helping businesses deal with the “teething problems”. It has urged exporters to make sure their paperwork is in order and said it will give 23 million pounds ($31 million) to fishermen who have lost sales due to delivery delays.

Prime Minister Boris Johnson argued that Britain would be free to trade globally once it had cast off the shackles of the EU. But his pursuit of a relationship that enables Britain to set its own rules means those firms trading with Europe face a full customs border.

Hardest-hit are the small companies that built up during Britain’s 47-year membership of the world’s biggest trading bloc to sell often low-priced product that was couriered at speed across the continent.

Almost half of 2018’s 76 billion pounds in exports to the EU from small and medium sized enterprises came from firms employing fewer than 9 people.

Where a huge meat or fish producer can fill one truck with one product and complete one set of customs paperwork, Duff sources top quality cattle from a selection of farms.

His goods - bone-in pieces from Shorthorn and Luing breeds - are sent on a truck carrying products from other suppliers, a process known as groupage.

Now a vet-approved health certificate is required for each firm’s goods, meaning potentially up to 30 per truck. One fish exporter said he needed over 400 pages of export documentation for one EU-bound lorry. One error can block delivery.

Duff’s transport company have said they are struggling as it is to help big customers, so groupage must wait.

He is also worried about prices, knowing that he cannot absorb all the costs of customs declarations, longer logistics times and the health certificates.

Logistics bosses believe Brexit could force a shake-out in trade. Truck volumes between Britain and the EU were on average down 29% in the first 20 days of the year, according to data firm Sixfold. Logistics groups say some trucks are returning empty to Europe to avoid export paperwork. Prices are rising.

One of those caught up in the bureaucracy is Sarah Braithwaite, who worked 16-hour days to build a horse feed firm that until 1 January was selling into 20 European countries.

This month her stock has failed to get to Europe or been rejected by customers over unexpected customs bills and taxes. Her Forage Plus has halted European orders - making up to 30% of her sales - and is refunding £40,000 to customers.

Braithwaite says her business is too small to build a presence in Europe to overcome the new barriers. “The trade that we’ve got now wouldn’t support the cost of setting all that up,” she said.

Both she and Duff are hopeful that exports can resume once the new system has bedded in but nerves are frayed. In desperation Braithwaite called the UK government for help.

The message she got back: ring the French embassy.

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Fishing firms could go bust over Brexit, MPs told

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British fishing businesses could go bust or move to Europe because of post-Brexit trading disruption, industry figures have warned, writes the BBC.

MPs were told paperwork due to new border controls had proved a "massive problem" and should be moved online.

They also heard extra costs had made it "impossible" for some firms to trade profitably.

Ministers have promised action on disruption, and £23 million for affected firms.

The UK government has also set up a taskforce aiming to resolve problems faced by the industry in Scotland.

The Commons environment committee heard funding could have to continue, and be widened further, to help the sector weather Brexit-related problems.

Outside the EU's single market, British fish exports to Europe are now subject to new customs and veterinary checks which have caused problems at the border.

Martyn Youell, a manager at south-west England fishing company Waterdance, told MPs the industry was facing more than just "teething problems".

"Whilst some things have settled down, some obvious issues, we feel that we remain with at least 80% of the trading difficulties that have been encountered," he said.

"There are some extreme forces operating on the supply chain, and we probably will see some forced consolidation or business failure."

"The exporters we deal with are seriously considering relocating part of their processing business to the EU because of the difficulties we face".

He said the "largely paper-based" forms they now have to fill in had pushed up costs, and called for the UK to work with the EU in moving them online.

'Lot of anger'

Donna Fordyce, chief executive of Seafood Scotland, said the problems could lead to smaller firms in particular stopping trading with Europe in the medium term.

She said the annual costs of the new paperwork, between £250,000 and £500,000 per year, were too much for them to sustain.

But she said many "can't see where they could turn" at the moment because travel bans and the Covid pandemic have closed off other markets.

She added there was "a lot of anger" about the design of the government's £23m compensation scheme, which links funds to provable losses due to Brexit.

She said it meant many firms which had "worked through the night" to get shipments ready had not been compensated for extra costs.

Shellfish ban

Sarah Horsfall, co-chief executive at the Shellfish Association of Great Britain, also criticised the scheme, noting firms that "made massive efforts" didn't qualify.

She also called for ministers to adopt a different approach to persuade the EU to overturn a ban on British exports of some types of live shellfish.

After leaving the EU single market, these exports from all but the highest-grade fishing grounds have to be purified before they can enter the EU market.

The UK government has accused the EU of reneging on a previous commitment such exports could continue with a special certificate.

Ms Horsfall said there had been the "propensity for a bit of a misunderstanding" among either UK or EU officials about the post-Brexit rules.

She urged a "more nuanced approach" from UK ministers in resolving the matter, noting their "bullish" response "perhaps hasn't helped either".

And she said a more "flexible" regime for determining the quality of British fishing waters could provide help to the industry in the long-term.

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EU auditors highlight risks of Brexit Adjustment Reserve

EU Reporter Correspondent

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In an opinion published today (1 March), the European Court of Auditors (ECA) raises some concerns over the recent proposal for a Brexit Adjustment Reserve (BAR). This €5 billion fund is a solidarity tool which is intended to support those member states, regions and sectors worst affected by the UK’s withdrawal from the EU. According to the auditors, while the proposal provides flexibility for member states, the design of the reserve creates a number of uncertainties and risks.

The European Commission proposes that 80% of the fund (€4bn) should be granted to member states in the form of pre-financing following the BAR’s adoption. Member states would be allocated their share of pre-financing on the basis of the estimated impact on their economies, taking into account two factors: trade with the UK and fish caught in the UK exclusive economic zone. Applying this allocation method, Ireland would become the main beneficiary of prefinancing, with nearly a quarter (€991 million) of the envelope, followed by the Netherlands (€714m), Germany (€429m), France (€396m) and Belgium (€305m).

“The BAR is an important funding initiative which aims to help mitigate the negative impact of Brexit on the EU member states’ economies,” said Tony Murphy, the member of the European Court of Auditors responsible for the opinion. “We consider that the flexibility provided by the BAR should not create uncertainty for member states.”

Opinion No 1/2021 concerning the proposal for a Regulation of the European Parliament and of the Council establishing the Brexit Adjustment Reserve

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UK will resist 'dubious' EU pressure on banks, says BoE's Bailey

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Britain will resist “very firmly” any European Union attempts to arm-twist banks into shifting trillions of euros in derivatives clearing from Britain to the bloc after Brexit, Bank of England Governor Andrew Bailey said on Wednesday, write Huw Jones and David Milliken.

Europe’s top banks have been asked by the European Commission to justify why they should not have to shift clearing of euro-denominated derivatives from London to the EU, a document seen by Reuters on Tuesday showed.

Britain’s financial services industry, which contributes over 10% of the country’s taxes, has been largely cut off from the EU since a Brexit transition period ended on Dec. 31 as the sector is not covered by the UK-EU trade deal.

Trading in EU shares and derivatives has already left Britain for the continent.

The EU is now targeting clearing which is dominated by the London Stock Exchange’s LCH arm to reduce the bloc’s reliance on the City of London financial hub, over which EU rules and supervision no longer apply.

“It would be very controversial in my view, because legislating extra-territorially is controversial anyway and obviously of dubious legality, frankly, ...” Bailey told lawmakers in Britain’s parliament on Wednesday.

The European Commission said it had no comment at this stage.

Some 75% of the 83.5 trillion euros ($101 trillion) in clearing positions at LCH are not held by EU counterparties and the EU should not be targeting them, Bailey said.

Clearing is a core part of financial plumbing, ensuring that a stock or bond trade is completed, even if one side of the transaction goes bust.

“I have to say to you quite bluntly that that would be highly controversial and I have to say that that would be something that we would, I think, have to and want to resist very firmly,” he said.

Asked by a lawmaker if he understood concerns among EU policymakers about companies having to go outside the bloc for financial services, Bailey said: “The answer to that is competition not protectionism.”

Brussels has given LCH permission, known as equivalence, to continue clearing euro trades for EU firms until mid-2022, providing time for banks to shift positions from London to the bloc.

The question of equivalence is not about mandating what non-EU market participants must do outside the bloc and the latest efforts by Brussels were about forced relocation of financial activity, Bailey said.

Deutsche Boerse has been offering sweeteners to banks that shift positions from London to its Eurex clearing arm in Frankfurt, but has barely eroded LCH’s market share.

The volume of clearing represented by EU clients at LCH in London would not be very viable on its own inside the bloc as it would mean fragmenting a big pool of derivatives, Bailey said.

“By splitting that pool up the whole process becomes less efficient. To break that down it would increase costs, no question about that,” he said.

Banks have said that by clearing all denominations of derivatives at LCH means they can net across different positions to save on margin, or cash they must post against potential default of trades.

($1 = €0.8253 )

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