Arla 's UK boss warns that leaving the EU without a trade deal would lead to price rises in British shops.- The dairy company was in the headlines on Sunday when UK Environment Secretary
George Eustice said it would have to move production of Lurpak butter from Denmark to Britain to avoid tariffs in a no-deal scenario. - However, Arla cannot do so because it would be illegal, its UK Managing Director Ash Amirahmadi said.
- Amirahmadi warned that tariffs on dairy imports would trigger price rises in the UK: "I would be very surprised if our customers didn't have to absorb the cost."
- He said that the UK dairy sector was potentially heading for a winter "triple whammy" of leaving the EU without a trade deal coinciding with the second wave of the coronavirus and the demands of Christmas.
The UK boss of one of Europe's biggest dairy companies has corrected the UK government after it suggested that the company could simply move part of its production from the EU to Britain in the event of a no-deal
The UK Environment Secretary George Eustice told the BBC on Sunday that Arla, which makes the popular Lurpak brand of butter in Europe, could make the product in the UK instead to avoid costly tariffs if Britain fails to secure a trade deal with the EU by the end of the year.
Eustice told BBC's Andrew Marr: "In a non-negotiated outcome, what would happen is companies like Arla, which is a big Danish company, sells brands like Lurpak in the UK that are manufactured in Denmark, they would have to relocate that production to the UK."
However, Ash Amirahmadi, Arla's UK Managing Director, told Business Insider that the company would not be able to move Lurpark production to the UK, as Eustice told the BBC's Marr, because it would be illegal.
"The picture around moving products into the UK is a bit more complicated than that statement," he said.
"If you take Lurpak on its own, it is subject to legal protection which means it can only be made in Denmark.
"It can't be produced in the UK. The Secretary of State may or may not have known that."
He warned that tariffs on dairy products imported into the UK from abroad, like Lurpak from Denmark, would almost certainly lead to price rises in UK supermarkets and potentially a reduction in product availability.
"We would have to pass on the cost to our customers," Amirahmadi told Business Insider.
"Obviously it's not for us to tell customers what to do. But I would be very surprised if our customers didn't have to absorb the cost. If we are in a situation of no negotiated deal, then we are looking at increased retail inflation."
The dairy industry is set to be one of the hardest hit in the event of UK and EU negotiators failing to negotiate a trade deal before the end of the year.
Around 98% of UK dairy imports come from the EU and under UK government plans from January 1, 2021 they will have tariffs of around 35% slapped on them if negotiators fail to agree a free trade deal. A 2018 London School Economics report into how Brexit would affect Arla specifically warned that "any increases in trade costs would likely have a major impact on the domestic dairy market in the form of shortages of products and significantly higher prices."
Amirahmadi said that the dairy industry was particularly vulnerable to the UK trading with the EU on costly World Trade Organisation Terms, or what Prime Minister Johnson's government calls "Australian-style" trading rules, because "dairy is high-volume, low-margin," meaning businesses would quickly struggle to afford increased costs.
He warned that the UK was "potentially heading for a triple whammy" — namely, the adverse effects of Brexit on food prices and availability coinciding with the impact of the coronavirus and the demands of the Christmas period.
"We've got Christmas trading and nobody is really that clear how Christmas is going to trade this year, we've got a second wave of COVID-19 and a recession, and then the potential of products being less available in shops and prices being higher.
"Consumers are going to be pretty grumpy," he said.
Arla is urging Johnson's government to secure a free trade deal with Brussels, he said, warning that "if we want to avoid availability issues and if we want to avoid consumer price inflation, then the only solution is a free trade agreement."
The UK negotiating team fronted by David Frost is in Brussels, Belgium this week where it is continuing negotiations with its EU counterparts, led by Michel Barnier. The two sides are in a race against time to secure a free trade agreement and get it ratified by EU countries and parliamentarians before the end of the year, when the UK will leave the EU's trading rules.
A spokesperson for Prime Minister Johnson said that the two sides were still grappling with disagreements over two issues: fisheries and what the EU calls a level playing field, which is intended to stop the UK undercutting European markets and vice versa.
"Significant issues remain, particularly on the so-called level playing field and fisheries," they said. "We are working hard to find solutions which fully respect UK sovereignty, but it is far from certain that an agreement will prove possible and time is now very short."