John Giles, Divisional Director, Promar International

This article has been prepared on the eve of the decision for the UK to leave the EU. Even at this relatively late stage, it is not fully clear as to what sort of BREXIT we might end up with. There will almost certainly be several more twists and turns in the negotiating process before we get to the final deadline of March 29th.

In these circumstances, it can be difficult for South African fruit export businesses to know what to do, but at the same time, “doing nothing” does not seem to be an option either.

In these circumstances, difficult and unpalatable though it might be, preparing for a situation of “what might be the worst thing that can happen” seems sensible and taking the appropriate action as a result.

There are several things that all businesses should be thinking about, regardless of what the outcome of BREXIT might be. Some of these are to be done in the very short term and some might need a more mid to long term perspective but still need to be factored in to the overall equation.

A “check list” of some areas that South African fresh produce firms should be taking into consideration should probably include as follows:

  • Lobby government – the situation regarding market access to the UK could well change post March. In a worst case scenario, WTO type tariffs could be imposed soon afterwards. If a deal can be achieved, then there might well be a transition period of up to two years, which would take some of the immediate heat off SA fruit exporters. The South African government needs to be lobbied to ensure that the best possible access to the UK is continued for SA, whatever the outcome is. On a more positive note, the fact the UK will, in time, be able to negotiate its own trade deals, might mean there is an opportunity for SA to gain even better access than it now has.
  • Think about currency – it is quite likely that in the build up to 29th March and afterwards, the £ could fluctuate against key currencies such as the € and the US$, with knock on impacts on the SA Rand. In an industry with tight operating margins, an adverse movement could have a negative impact of profits. Thinking about hedging funds over the short and medium term to protect these would seem sensible, even if it is expensive to do.
  • Talk to customers – sharing future plans for the UK market with customers and supply chain partners seems an obvious thing to do. They will probably be thinking about the same sort of things and might also be able to share what is emerging as best practice from other supply chains.
  • Talk to staff – share what your plans are for the business in what might be this “worst case scenario” and gain their buy in and support. The UK is a key export market for many SA growers and exporters. Be open and frank with staff about what plans are being made for this.
  • Understand tariffs and customs clearance procedures – these could all easily change after 29th March. Lots of information is being produced by the UK government on this. Keeping abreast of this is essential if SA companies are not to be caught out. Not least, in a very worst case scenario, produce being trans shipped via other EU markets might attract a tariff. SA exporters should be checking on logistics to supply the UK market on a direct basis.
  • Update UK export strategy – the next few years will almost certainly see a more changeable trading environment in the UK with the possibility of new tariff and non-tariff barriers in place and the general economy being more uncertain. This is a good a time as any to review the real core competencies of the business and identify key trends in the UK that will impact it over the next three to five years, regardless of BREXIT. A well developed view of what the UK customer base will look like in the future and how it will be supplied will be useful.
  • Understand consumer and customer behaviour – even aside from the BREXIT process, the UK market has gone through a fundamental change in the last five – eight years. This has seen the rise of the discount chains, the growth of online shopping, the growth of the convenience sector and ongoing consolidation in the supply chain. Consumer interest in the provenance of produce, environmental factors and social responsibility has increased. Price and value for money have always been important, of course, but are even more so now than in the past. SA growers and exporters should make the upmost effort to understand what is happening in the UK market on a regular basis.
  • Consider other markets – the UK market has been at the very heart of the South African fruit export effort for many years. While there are still many factors that will make the UK an attractive market for SA based exporters, this might be also an opportunity to assess where the UK fits into an overall export portfolio. Building new markets takes time and effort, and as a result, this sort of review should be carried out on a regular basis.
  • Benchmark – regardless of what sort of BREXIT prevails, SA based exporters are competing against many other suppliers from the likes of Chile, Peru, India, Argentina, Mexico and the US, to name a few. SA growers and exporters need to be as efficient as they possibly can, and not just to supply the UK. Engaging in benchmarking against other countries in terms of varietal mix, costs of production, export logistics and marketing and promotional activity should be carried out on a regular basis against other suppliers, as well as any internal activity.
  • Talk to the bank – many of these actions will have a financial impact on the business, be it in the short to medium and even longer term. Talking to the bank is essential to plan for what might happen to the business in the immediate period after 29th March and for the period beyond this. Banks are there to help and advise and are also dealing with lots of other businesses in a similar situation vis a vis BREXIT. Talking to them and sharing ideas can only be positive.

Change is happening at a pace not seen before in the UK produce sector. There is a need to be better informed about the threats that these might well bring, as well as in many cases, the opportunities too. Where will we be by the end of 2019? In some cases, it is difficult to tell but in other areas, the evidence for the direction of change is compelling. Keeping on top of all this moreover is a demanding task, and not least, is where companies such as Promar can help.

John Giles is a Divisional Director with Promar International, the value chain consulting arm of Genus plc. He has worked on fresh produce assignments in some 40 countries around the world and in the last 12 months has been involved in several BREXIT related assignments. He has carried out many assignments on behalf of SA based export groups in the past. He can be contacted at: john.giles@genusplc.com.