Prestige Purchasing: Playing poker with food supply

I read an article recently that described the UK as being in that moment on the Titanic after the ship has been holed below the waterline, and before it began to sink. Passengers carried on waltzing and drinking Long Island Iced Tea, even as the decks beneath their feet filled with ice cold water.

Regardless of your political views about Brexit, few doubt the strong possibility that in a little over two month’s we will be leaving the EU without a deal. The consequences of that decision are for the time being unclear and attempts to get the facts about them often frustrated by ridiculously polarised answers. One person predicts Armageddon, another a few little bumps in the road.

The sparsity of facts

What creates the space for all this political hot air is the continuing sparsity of hard facts. This past weekend was a case in point. The leak in the Sunday Times of Whitehall’s assessment of no-deal impacts seems to have come as a bolt out of the blue for one of the most important freight industry associations preparing for a no-deal scenario.

James Hookham, deputy CEO of the Freight Transport Association (FTA) has said that some of the reported Operation Yellowhammer scenarios pointed to something “far, far more potentially disruptive” than his organisation had been told to prepare for, and he’s now calling for urgent clarification on what the government predicts the impact of no deal will be for moving goods into and around the UK.

The FTA was particularly blindsided by the suggestion the government’s own no-deal zero-tariff policy could hit the UK’s domestic fuel industry, leading to the closure of two refineries, strikes and disruption to fuel availability. Hookham said: “That really frightened me, because that’s clearly got the potential to disrupt all goods distribution activity and commercial activity, if domestic fuel supplies are under threat. That’s certainly never been raised with us before. Any threat to fuel supplies would be a game-changer. What we want now is just some honesty and some clarity. How can we help to mitigate this if we don’t know what we’re trying to solve?”

Other facts that we don’t know include any final decision on UK tariff policy (critical in food supplies), the level of support that the UK government will grant to farmers, and the level of customs intervention there will be for goods leaving the EU and entering the UK. Perhaps most critically, we don’t know how consumers will react to any food shortages. After all, a few storms in Spain cleared the supermarkets of lettuce in January 2018 for several weeks.

The UK government declared tariffs to the WTO (in the event of no-deal) last February, but the new government keeps saying that tariffs are “not yet decided”, so the consensus view is that these will be reviewed again pre-October 31. A simple example of an import tariff issue would be tomatoes. In late October 70% of UK consumption is Morocco grown. The EU has trade deal with Morocco that has 0% tariff. In event of no-deal the tariff may (dependent upon government policy) rise to 40%.

The UK’s exports will be disrupted in a savage fashion, as import tariffs to the EU will be imposed, which will be particularly damaging to our livestock and seafood sectors, though the resulting surpluses will likely ease some of the price pressures experienced from other categories such as fruit and vegetables.

So, what DO we know?

Suppliers have been working on the assumption of “no-deal”, since long before 31 March 2019. Consensus among the larger suppliers is that there will be considerable disruption in early November, but that the supply chain should adjust and cope before Christmas, even though the proportion of product imported in late October is higher than late March. But let’s not forget, there is just four weeks between Brexit day and the beginning of the Christmas trading period.

We know that the biggest challenge will be short shelf-life product, particularly salad leaf. The key anxiety is delays at port, perhaps of two to three days which will cause some stock-outs and shorten the shelf life with the customer. Some suppliers are adopting strategies to buy product in a less ripe state to ease this issue, admitting that this may transfer some usability risk to the customer.

The larger wholesalers seem to be contracting only with suppliers that have robust and tested distribution arrangements and are resisting a mix of spot buys (which is their usual strategy) which will of course drive up cost. They have consciously spread their risk on availability by contracting on a wider basis geographically.

And sterling has been falling. The £’s recent decline is already squeezing supplier margins in fixed price contracts and driving price upwards elsewhere. No-deal will impact this some more, as the pound is likely fall further.

The market for fresh produce is now controlled by the supermarkets and to a lesser extent by the larger foodservice wholesalers. The impact upon ‘market supplied’ wholesalers looks likely to be more severe as a result. One large wholesaler said to me “for at least a month or two wholesalers with no upstream contracted volumes will get no supply”, referring to the markets as being the usual dumping ground for excess stock after the retailers and big foodservice players have had their deliveries, and that there will be a period where there is simply no excess stock.

Brexit fatigue, and what not to ignore

I’ve not met anyone since the spring that is excited about Brexit anymore. We are all tired of it and wish it would go away. When you’ve stood in the path of a jumbo jet and survived there’s an understandable confidence that next time it will be easier. But it may not be.

We must not ignore the criticality for operators and their representatives talking to their suppliers. They are advising customers to make an agreement on specifications at a SKU level against this type of criteria:

• · must have exactly to spec
• · could work with a wider spec
• · less essential product

This will enable them to prioritise supply on a customer by customer basis.

And make sure that you conduct a menu review to remove over-onerous commitments on provenance or specification. Discuss provenance at a SKU level with your suppliers and agree contingency plans now. Be flexible, collaborative and, above all, patient.

And check the source of all the products that you buy. Understand the contractual status of availability and make sound contingency plans accordingly.

Whatever you do, don’t sit on your hands hoping that it won’t happen again. Don’t play poker with your food supply even if the government appears to be.