Spain’s food industry under threat from Brexit

The Spanish food and drink industry could be facing lower revenues, fewer exports and smaller profits as a result of the Brexit vote.

This is one of the conclusions of Alimentación y bebidas: tendencias 2016 (or, Food and beverages: Trends for 2016), a study by the consulting group KPMG.

Legal changes in the British market could also force Spanish exporters to obtain new licenses

According to the Trade Secretary’s Office, in 2015 Spain exported food and drinks to Britain worth over €3.5 billion, making it the second-most-important export sector after the auto industry.

Food exports to the UK grew 60% between 2006 and 2015. The fruit and vegetable category experienced the greatest boom, representing a 51% increase over the period to reach sales of over €2 billion in 2015. This is followed by beverages, food preparations, meat products, and fats and oils.

But this growth could be substantially slowed down by Britain’s decision to leave the European Union.

The study analyzes the internal effects of the Brexit vote, some of which are already taking place. The pound has fallen 15.18% against the euro, making imports more expensive for British companies and leading KPMG to conclude that the latter will increasingly turn to “locally produced goods.”

British retailers will also face new hurdles such as tariffs or taxes on EU imports. The study further notes that British consumers have reduced their spending levels due to “a rise in uncertainty, an expected rise in unemployment and a loss of purchasing power.”

More domestic competition

As a result of these lower imports by Britain, Spanish food exporters will have to reduce their own profits if they want to keep up a stable turnover. The study also notes that third countries facing difficulties to place their own products in the UK might turn to the Spanish market instead, thereby increasing the competition for domestic firms.

Legal changes in the British market could also force Spanish exporters to obtain new licenses or meet new food import standards, and even to pay new taxes.

The consulting firm is urging Spanish food and drink companies to try to “quantify the direct impact” of Brexit on their accounts, and to start drawing up action plans for the various scenarios opening up before them.

English version by Susana Urra.