What are fair trade businesses to do in Brexit Britain
We live in a post-referendum, pre-Brexit Britain. Businesses like mine are already feeling the economic impact of the vote, just like other fair trade businesses in the UK. As business owners, how do we steer through these unchartered waters?
I’d like to share some observations gained from studying law & economics and listening to many economists in the last month. I don’t have all the answers but what’s important is that business owners take the time to study the economic facts and not be swayed by sensationalists media or personal sentiment.
How Art 50 works
Article 50, The Lisbon Treaty is a one-way street. Once the UK informs the European Council of its intention to leave, it will have 2 years to agree the Withdrawal Agreement. This Withdrawal Agreement has to deal with topics like fisheries, health, human rights, trade, climate change, social security, justice and home affairs, immigration, international development, employment etc. Basically all areas where EU law & policy apply and how we will interact with the EU on these matters in the future. That is a mighty agenda.
It’s important to understand that a trade deal for access to the single market IS UNLIKELY to be agreed at this stage. Experts are expecting that trade deals will be negotiated separately, simply because trade deals typically take 5 – 10 years to be agreed and there’s so much unpicking of EU laws to be done and tonnes of new UK laws to be made to fill the holes, that 2 years will be insufficient to wrap it all up.
Add to that the need to refer to Parliament for approval. The recent High Court ruling affirms the sovereignty of Parliament. Government cannot pull the UK out of the EU (thereby removing rights we have been given by Parliament) without Parliament first approving it. It therefore follows that if a trade deal removes rights given by Parliament, that Parliament will need to approve that trade deal. It’s unlikely all this can be done within the Article 50 time-frame.
Two years after Article 50 is triggered, our Withdrawal Agreement proposal will either be accepted (by a qualified majority of the Member States) or rejected. If rejected, we cannot cancel our notification and withdraw our withdrawal. We leave with nothing. Membership will cease 2 years after the Art 50 notification unless every single one of the Member States decides to be gracious and extends our time period. International relations is about reciprocity. Have we behaved in a gracious manner towards our EU partners? The EU has enough business to deal with than be wrapped up in the UK’s desire to leave. They will want finality to the withdrawal process. There is a grave danger that Britain will exit with nothing and will have to negotiate a trade deal with the EU as an outsider. Time span 5 – 10 years.
For as long as the trade deals are not concluded, there will be macro-economic uncertainty. Expect economic uncertainty for up to 10 years and plan accordingly for your business. I would like to highlight three issues since the vote:
1. Fall in Sterling Pound
Markets react quickly to political decisions. Sterling Pound has fallen to a rate that’s affecting all our import costs. A fall of 10 – 20% is eating up most of our margins. Forecasters can’t agree on how much the Pound will recover. All we can do as businesses is to expect that exchange rates will remain unstable during economic uncertainty (which may last 5 – 10 years), and take some action:
a. Absorb the higher costs, sacrifice profits. I know that fair trade businesses have smaller margins than conventional businesses (because of the higher cost of fair trade production) and many will not be able to absorb the higher costs;
b. Increase prices. Maybe customers will pay for more the goods. With fair trade, many people already complain that goods are expensive. Increasing prices is the last thing we’d want to do but perhaps there is no choice;
c. Discuss with your producers to see if they could make cost-savings and reduce your purchase price. Fair trade businesses must be careful not to squeeze the producers and go against the basic principles of fair price;
d. Ask your producers to quote in Sterling Pound and fix that price for as long as you can. If the Pound falls further, the producer will gain more but if the Pound strengthens the producer will lose out on exchange. Again beware of short-changing the producers;
e. Forward-buy currency. When Pound is falling, it’s a good idea to buy foreign currency in advance to remove some purchase price fluctuations;
f. Look at export markets for your goods. Fall in Pound makes your goods cheaper to overseas buyers. Bear in mind though that exporting is not for the faint-hearted. You will have some barriers to export such as lack of knowledge of export procedures, language barriers, cultural differences, costs of market visits and marketing in the target export market, cost of websites & product labelling in other languages, cost of product modification, just to name a few. More help on exporting can be found at the Department for International Trade (formerly UKTI) or at your local Chambers of Commerce.
2. Inflationary pressures
A weaker Pound has brought about a rise in costs and rising prices. Poor Marmite lovers! The Bank of England has traditionally used interest rates as the macro-economic tool to curb inflation. Our interest rates have remained low for so many years and it will need to rise at some point. Economists think sometime in next year or two. Raising interest rates will make mortgages more expensive. Coupled with the higher costs of household bills, this will lead to a drop in disposable incomes. Wages haven’t risen significantly in recent years, so the reality is that people will be squeezed. People spend less, demand drops, if supply stays the same, price will drop. That is how interest rates control rising prices (ie. inflation).
Lower spending means less sales for businesses. Fair trade businesses are rightly worried about the impact of less spending by the public. Being involved in fair trade campaigning in Staffordshire, I know only too well that when there isn’t enough money in the pocket, no amount of enthusiasm can make someone buy fairtrade products.
What fair trade businesses can do:
a. Research the pricing of similar goods and try to keep products price-competitive;
b. Look at all business costs and processes. Could you cut your overhead or operating expenses? Could you make a process more efficient, to increase profitability?
c. Take the customer focus away from price. Add value to the customer experience so that price isn’t the determining factor;
d. Carry on promoting awareness of fair trade and its greater good.
3. Rise in xenophobia
I don’t know whether lots of people were xenophobic to begin with (and now feel justified to express themselves) or whether they became xenophobic after hearing mostly negative things about the immigration during the referendum campaign. What I know is there is a rise of nationalism in the UK, which is not uncommon during austerity times. Rise of nationalism often results in an increase in fear or intolerance of people who aren’t like oneself. Foreigners are blamed for all the bad things that happen in a country. They are taking our jobs. They are taking our housing, school places etc etc. The media has negatively portrayed EU immigration to the point that public perception bears no resemblance to reality. Take my local town Stoke-on-Trent. Only 2% of the population are EU immigrants. I wouldn’t say there is pressure on housing or school places. Yet when my friend was campaigning, she was dismayed that around 70-80% of people she spoke to had a problem with EU immigration. The 2% of EU immigrants were the cause of all their troubles!
One of my problems with nationalism and xenophobia is that it doesn’t consider us all as brothers and sisters of the human race. Whatever the colour of our skin or religious beliefs, we were all born equal. It’s the inequalities of this broken world & the action of men that make some racial groups inferior to others. Fair trade is all about helping people in developing countries. I have heard people say “why should we help people abroad when we can’t even help people here?”. If people only want to help their own kind, it will be harder to get them to support fair trade. This is worrying and I’m not sure what we can do about it, except speak up and fight it. Don’t worry about losing some friends over it. Those were probably not worth having in the first place.
There are other issues to watch out for in Brexit Britain; the level of Foreign Direct Investment (FDI), immigration policy and probable skill-shortages, the property market etc. I’d like to leave these issues for another day. The main point of all this is that the economy hates uncertainty. The only certainty for the next 5 – 10 years is uncertainty. Fair trade has very challenging times ahead. We must persevere for the greater good.
If you have any further thoughts or ideas on this, I would be glad to hear it. Just contact me on email@example.com, comment here or via our social media channels.
Social entrepreneur, solicitor