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Road signs EU and BREXIT
UK
Regardless of the resolution of the UK’s long Brexit saga, the tea industry will be significantly affected. The main impacts are already apparent:
Import cost increases driven by volatile and falling currency exchange rates. Typhoo’s c.e.o. reported on how his firm was affected. The price for an 80 kilogram (180 lb) shipment rose from £100 to £150, adding £250,000 (more than $300,000) a month to operating costs.
Loss of the re-export market in trade with Europe. Britain imports virtually all its tea and then re-exports around 17%. Its main import suppliers are beginning to bypass it. In early 2017, Kenya tea exports to the UK fell – along with the pound – by 40% while its sales to Poland increased by the same amount and those to Germany by 12%. Germany seems likely to become the dominant European trade center for tea. It is already the largest importer of Darjeeling and Hamburg is the major shipping port.
Pressures on margins: There’s no Brexit scenario that provides for improved costs plus higher prices. For a full decade before the referendum, UK retail prices were essentially flat. Britain’s mass-market tea suppliers face a continued shrinking of the core black tea bag domestic market, with little room for passing on Brexit-driven cost increases. Coffee chains like Costa dominate High Street service and are making the UK a global coffee innovator. The more uncertain or economically damaging the Brexit fallout, the lower the exchange rate and hence cost burden of imports. The loss of European markets adds to the risks of low growth, low pricing power, and higher costs.
The Brexit outcome is impossible to predict: a successful exit agreement with the EU, versus a “Hard Exit” with no deal, or even a do-over new referendum that might or might not reverse the vote to leave. The beleaguered Prime Minister, Theresa May, may or may not survive her mid-January Parliamentary defeat, where the vote against her last-ditch proposal was the highest in Britain’s entire democratic history. The UK may or may not reach bilateral trade agreements with other nations, swing to the radical left or populist right, face recession or maintain economic growth.
None of the scenarios are encouraging for tea but they may be offset by the flood of innovation among the leaders to counter the general problems. These include product diversification to build a stronger position in the growth markets of flavored, wellness and new variety teas. The dominant brands have made major moves in supply chain integration, sourcing and transparency.
But the Brexit problems remain. They will reshape the UK tea industry and its markets. Welcome to “Brexocalypse.”