Spotlight: How confectionery businesses can navigate Brexit rules of origin challenges
The thorny issue of Brexit has created notable trading complexities and issues for businesses both in the UK and across the continent. Kimberly Carey Coffin, Global Technical Director at Lloyd’s Register food certification organisation explores some of the key matters to consider
One of the most significant changes since the UK left the EU relates to Rules of Origin. The Trade and Cooperation Agreement (TCA) means confectionary producers potentially face increased tariffs. Food goods shipped from the EU to the UK could face full EU tariffs on re-export into the EU. As a result, brand owners may need to review their place of manufacturing and change their logistics plan to avoid supply chain disruption and additional costs.
Rules of Origin determine whether products incur trade tariffs. If a product is not sufficiently processed within the UK, it will incur tariffs upon re-export to the EU, with details varying from one product to another. For example, operations to colour or flavour sugar do not qualify as sufficient processing, whereas cocoa beans from Ghana (with beet sugar from EU and milk from the UK) used to produce chocolate do qualify, according to the DEFRA EU Rules of Origin Business Guidance. Essentially, final products re-entering the EU may contain EU-originating materials providing it has undergone adequate processing in the UK.
Supply chain re-optimisation
Many confectionary producers store goods in factories across the channel before re-shipping them. However, third country duty now poses significant cost implications, including the Northern Ireland protocol, which declares that products exported from the EU to Northern Ireland – via the UK – are liable to fees. As a result, some companies may consider re-optimising processes, including reconfiguring supply chains.
Changing supply chains is no easy task, particularly when balancing costs of manufacturing, storage and transportation while maintaining quality and profit levels for products already sold at low margins. With brands making quick decisions, there are concerns that risk mitigation could be compromised.
Companies must minimise risk and vulnerabilities in the process of manufacturing and moving food products. This includes finding a quality provider, ensuring standards are followed and storing product in the right conditions. Manufacturing that takes place in new locations must also include comprehensive risk assessments, and it is critical that these steps are not omitted.
Introducing new lines, manufacturing processes and product into an existing facility, such as a factory in the EU, can also raise cross-contamination risks, particularly regarding allergens. Manufacturers need to be aware that any new production facility may require auditing to meet the specifications of each retailer they supply. As such, ample time must be allowed to implement robust process validation and production verification activities.
If the risks associated with new manufacturing and distribution processes are not fully understood, there may be further consequences for confectionary businesses. Food safety concerns could lead to a rise in recalls which, although necessary to protect the safety of the consumer, could damage brand reputation.
Next steps
Confectionary companies are encouraged to seek information that enables them to make informed decisions regarding the future of manufacturing and distribution networks. Key players need to ensure all costs and implications are fully understood regarding risk. Optimising supply chains requires a strong evaluation of the additional vulnerabilities, and auditing and associated verification methods will enable businesses to ensure that practices are consistent across the supply chain.
For guidance on supply chain optimisation, please visit: https://www.lr.org/en-gb/insights/connected-supply-chains/
