Brexit no-deal: a view from a UK SME

 Men transport jute fibres by bicycle as part of a Traidcraft Exchange project in Bangladesh. Credit: Traidcraft Exchange/GMB Akash

Men transport jute fibres by bicycle as part of a Traidcraft Exchange project in Bangladesh. Credit: Traidcraft Exchange/GMB Akash

 

As businesses and commentators start to wade through the first 25 of the Government’s 84 planned ‘technical notices’ providing guidance in the event of a Brexit no-deal, Liz May talks to Robin Roth, Traidcraft Plc CEO, about the possible impacts on the UK fair trade business. [1]

“Even though the UK hasn’t actually left the EU yet, the Brexit vote has already had a big impact on Traidcraft Plc. Within a week of the vote, we estimate that the drop in the value of the pound cost the business somewhere in the region of £350,000.”

Robin explains that with most of their £2.4 million of purchases from developing country suppliers being transacted in dollars, the 15% drop meant Traidcraft plc simply had less to spend.

“Where other businesses may have found ways of compensating for this hit by passing on the cost to suppliers, that was not an option for us – it would run completely counter to our fair trade principles. We did not amend the prices we pay our suppliers and we did not reduce orders. Instead, we absorbed some of the cost and went through a painful process of looking through all our products line by line, assessing where a price rise was possible and within market boundaries. In January 2017 we launched a new craft range at a higher price point.”

Uncertainty about what will happen with Brexit together with stagnating wages has led to a tough time for all retailers – but when coupled with unwelcome price rises, it has been especially hard for companies like Traidcraft, who sell some goods which are part of a families’ discretionary (rather than essential) expenditure.

“Needless to say it has been a very tough couple of years, and Brexit has had a role to play in that.”

Fast-forwarding to March next year, a ‘no-deal’ scenario would spell further trouble for the business. Robin notes that the first thing to expect would be a further weakening of the £ to USD rate. 

“We are now at $1.27, and banks are talking about a spread of $1.10 (no deal/crash out), to $1.35 in the best of all possible worlds with a secure trading deal agreed. This would feed into a further potential increase in buying costs of around £200,000.”

Traidcraft Plc purchases most of its goods directly from producer partners in developing countries, but a small percentage (around 8.5%) is imported via fair trade partners in the EU.

Robin explains:

“After 40 years of single market membership there are some manufacturing processes that no longer take place in the UK, and certain ports (Hamburg and Rotterdam) that have developed a capacity to receive shipped goods for the whole of Europe.

In a no-deal scenario the Government has confirmed that we would face additional paperwork (which comes at a cost), customs checks would be put in place (which could cause delays) and that goods imported from the EU would face a tariff[2].

Our newly-launched premium organic ‘Eat Your Hat’ chocolate is bought via the German fair trade company GEPA. The bulk chocolate that we import from them could face an 8.6% tariff[3]. Our fair trade pasta is imported via our friends CTM in Italy. This could face 6.4% at least and the palm oil we import via The Netherlands for our Clean and Fair range could face a duty of 5.1%. We would have to make a decision about whether to absorb these costs or pass them on to the consumer – a tough call in a very price-sensitive climate.”

The Government has promised to continue to provide preferential tariff rates for goods imported directly from developing countries, even in a no-deal scenario. For many countries that Traidcraft Plc buys directly from, including India and some of the world’s poorest countries, this is a simple solution and a welcome continuity.

However, for some countries classed as non-least developed (such as Kenya or Ghana or Swaziland), the UK Government’s route to continuity depends on the replication of already unpopular FTAs. Traidcraft Exchange has been arguing since the referendum that it would be safer, simpler and quicker for the Government to include this handful of countries in their unilateral preference scheme rather than run the risk that market access is disrupted because agreements cannot be replicated in time.

Robin outlines Traidcraft’s current thinking:

“As a small business, Traidcraft Plc does not have the time or resources for complex contingency planning, but we are exploring a few different options – for example, whether bonded warehousing can help with some of the supply chains at risk, such as coffee.

We can also look at more direct sourcing, but the reality is that the necessary port facilities and manufacturing capabilities we need will not be replicable in the UK on April 1st 2019, if at all, for many years. This means that even if we were to buy directly from partners in the South, the goods would still, in many cases, need to be shipped via, or processed in EU countries.

Through all of this, our main concern is about what these changes mean to our supplier partners – those on whom we rely for the wonderful goods that we sell. Their biggest concern is that a sharp economic downturn would lead to a slump in sales to the UK – the biggest and most important fair trade market in Europe. The businesses we work with rely on selling their high-quality products to support their families and communities in some of the world’s poorest countries.  We know there is a strong appetite amongst UK consumers for goods produced in a way that celebrates the skills of the artisans and growers behind them, whilst protecting the environment on which we all depend. We are determined to continue to uphold this mission, whatever the future holds.” 

As the possible costs of Brexit continue to rise, the implications for small, ethical businesses like Traidcraft Plc and their suppliers are fraught with risk. That is why we will continue to argue that international developmental impacts be at the forefront of Government thinking.

Liz May is Director of Policy and Advocacy at Traidcraft Exchange. @LizMay12


[1] Traidcraft Plc is a medium size UK plc importing of a variety of food and homeware items from around 30 developing countries. Traidcraft Exchange is its sister development NGO. The two organisations work closely together.

These comments relate to the likely direct impacts of a no-deal Brexit on Traidcraft Plc as a business, and so they focus on supply chain dynamics, currency movements, tariff rates and the movement of goods. How a no-deal would affect the wider UK economy, whether that relates to health care, banking or other industries, is outside the scope of this analysis.

[2] https://www.gov.uk/government/publications/trading-with-the-eu-if-theres-no-brexit-deal/trading-with-the-eu-if-theres-no-brexit-deal

[3] Based on the EU CCT which the UK has proposed to replicate in the first instance. However by the time of Brexit, the UK’s tariff rates might be different from the EU rates.

 
Nancy Demuth