British businesses looked on in horror as the Oct. 31 Brexit deadline passed—the second one the U.K. has missed this year.
Despite Prime Minister Boris Johnson claiming he would rather be “dead in a ditch” than still be in the E.U. after the October deadline, the U.K.’s beer industry is coming to terms with another three-month extension. The deferral is a huge blow to breweries and suppliers who said a delay would be the worst possible outcome for their businesses, with uncertainty preventing investment and currency fluctuations hitting already-tight margins.
Johnson had brokered a deal with the E.U., which was voted through on its second reading in Parliament on Oct. 22, but an amendment made by Member of Parliament Sir Oliver Letwin ensured the U.K. could not leave the E.U. until the bill was enshrined in law. After Parliament voted against fast tracking that process to meet the Oct. 31 deadline, Johnson was forced to request an extension, and has called a general election on Dec. 12 to break the deadlock.
The new deadline is Jan. 31, 2020, which means added complications during what is always the toughest month for the beer industry. Last year an estimated 4 million British adults gave up drinking as part of "Dry January," the most ever. That means breweries must take advantage of the festive season to secure enough liquid cash to pay bills during the slower months.
Even still, there will be plenty of beer to go around. The U.K.’s beer importers are uniquely exposed to the risk of no deal, and stockpiled products for both prior Brexit deadlines, leaving them with excess stock to shift. While the entire industry is worried about the collapse of the pound (now down 9% from the day of the referendum in June 2016), importers have additional worries regarding new customs laws, systems, and tariffs that could cost millions and result in delays at the border.
A worst-case scenario as noted by Operation Yellowhammer, the codename given to the government’s preparations for no deal, predicted delays of up to 2.5 days at the border for the first three months post-Brexit. While the time itself isn’t an issue for the beer industry, the costs associated with paying drivers extra time and delays in getting back out to pick up beer could prove onerous. Yellowhammer also suggests there could be fuel shortages in the short term, particularly in the southeast of England.
In the run-up to the October deadline, Cave Direct, one of the U.K.’s largest speciality beer importers, started bulk buying from its bigger European brands like Paulaner—bringing in around 50% more stock to last an extra two weeks. The company also diverted some of its supply via less busy ports to avoid congestion.
“There’s only so much warehouse space and cash flow you’ve got to put aside for stock,” says sales director Neil Kitching. “So we got enough of our bigger brands for a few extra weeks and brought it in through different ports to mitigate the risk. So now we’re getting Paulaner in via Rotterdam to London Gateway, rather than Dover.”
This plan has also been followed by several global logistics firms. After the original Brexit deadline passed in March, Samskip—a global transport and logistics company Cave Direct uses for much of its import volume—released a statement saying it had handled the extra volume of goods entering the U.K. well, and could provide “seamless customs clearance” in the event of no deal by spreading the loads across ferry ports and rail.
Even so, Kitching predicts there will still be stock issues and cost increases thanks to the delays and the associated risk. He has been asking his suppliers to work with him to avoid any over-inflation price rises—typically only a few percent—but accepts some will have to keep their beers within the E.U. to get the margins they need, whether there is a deal or not. James Welsh, cofounder of Barcelona-based Garage Beer Co., exports his beer to the U.K. via Cave Direct and has concerns about his product surviving any delays and increased cost on the shelf. Garage sends 45% of its volume abroad, and the U.K. is its largest market.
“The biggest risk we have is the freshness of our product as it hits the U.K.,” Welsh says. “We ship all of our beer cold-chain, so any bureaucratic delays in getting beer through customs could be catastrophic.”
While Kitching doesn’t expect the delays to be more than the few days predicted in the Yellowhammer report, he expects some smaller European brewers won’t want to take the risk.
“There will probably be less choice and variety because the little brewers will stop exporting [to the U.K.],” he says. “We’ve also seen a decline in demand for Belgian beer in the last few years and that’s in part because the pound has been really low against the euro, so it’s much more expensive than it used to be.”
You don’t have to import to struggle as a logistics company in the pre-Brexit world, however. Beer distributor Jolly Good Beer has made a name for itself by focusing on cold-chain logistics, but has purposefully avoided importing beers as a result of Brexit uncertainty. Even so, it has hit major issues as a result of the political precariousness.
Managing director Yvan Seth has struggled to find the refrigerated vans he needs—with rental companies citing Brexit as the reason—and has said he has seen a lot of above-inflation price rises from British breweries. He expects that to become more commonplace in the event of no deal, which will increase the costs of imported ingredients and equipment.
“[No deal] is a worst-case scenario,” admits Seth. “But I've seen so many serious disappointments in politics in the last five years that I wouldn't bet on it not happening. If it was practical to stockpile a month’s supply of diesel I would have done that and I might double up my holding of CO2 and 60/40 in case there's a break in gas supply.”
A no-deal outcome has become less likely due to Letwin’s amendment to the Brexit bill, but the prospect of a general election means it can’t be ruled out. In December only Nigel Farage’s Brexit Party will campaign for a complete break from the E.U. The Conservative Party, who are currently in power but don’t have a majority in Parliament, would likely vote Johnson’s latest deal through, while the Labour Party would hold a second referendum with no deal off the table. The Liberal Democrats, who are outsiders, would cancel Brexit outright.
The reduced chance of no deal is a source of comfort to the entire industry, but three years after the referendum, there is even less clarity about which form Brexit will take—and every delay hurts businesses more.
Part 3: Just Tell Me When It’s Over — Agriculture, Equipment Suppliers Suffer as Brexit Drags On
Words by Jonny Garrett