What are the consequences of Brexit for floriculture? That’s the question that the British Florist Association and Dutch stakeholders discussed in a debate organised by Florint and Green Team Consultancy+ in the Dutch village of De Kwakel. For British florists, the future looks bleak. A joint effort throughout the chain, with Dutch exporters and growers, is needed more than ever.
Things were not great for British florists as it was. Since the beginning of the financial crisis in 2008, sales have dropped by 30%. For a little while it looked as if the situation had stabilised, but Brexit now seems to cause a further decline. There will most certainly be consequences for Dutch floriculturists and exporters to Great Britain. That became clear in the debate, between British and Dutch organisations of the floriculture industry, which took place on the 28th of July in the Dutch village of De Kwakel. The event was organised by International Florist Association Florint and Green Team Consultancy+.
Shortly after the referendum, it seemed like the effects of a British exit weren’t too bad. But by now, the IMF and the Bank of England have given very gloomy forecasts for the British economy, which is largely based on services. Industrial activity has also changed from a slight growth in June to a decline in July, according to market research firm Markit. The depreciation of the pound is the most immediate problem for florists. “The biggest danger, however, is that we talk ourselves into a recession,” said Brian Wills-Pope, Chairman of the British Florist Association (BFA).
Trade agreement far off
The Dutch export of flowers and plants to Great Britain comprises a value of 925 million euro. How will the export market develop? It will strongly depend on the direction that the trade relationship between Great Britain and the European Union is going to take (read more under ‘Five possible trade relationship scenarios’).
Negotiations regarding trade relationships can not start until the exit of the UK has been finalised. This is because the EU can only make agreements regarding trade relationships with countries outside the union, which means that the UK’s departure has to be a fact. This process may take up to two years. After that, negotiations regarding new relations can start. “It will take at least eight to ten years to establish a trade agreement,” says Henk van Ginkel, a VBN-lobbyist in Brussels.
Van Ginkel: “An additional problem is that this is highly specialised work and that Great Britain only has around 750 experienced diplomats, who will be busy enough negotiating challenging topics such as phytosanitary regulations and intellectual property laws. At the same time, they want to reach agreements with the US, Canada, India and the rest of the world. It is likely that all this will take a long time. The closer the United Kingdom stays to the EU regulations, the faster the process will be.”
Van Ginkel thinks that an option that might be relatively fast, is if the UK joined a European Economic Partnership Agreement, just like Iceland, Norway and Liechtenstein did.
A disadvantage is that these countries have to comply with all EU regulations, pay the same contributions as the Member States, but have no right to vote on policies. Also, the vote for Brexit was largely motivated by the desire to place a limit on immigration. Word has it that there were some ideas for an EPA with a special regulation, exempting the United Kingdom from compliance with the immigration rules for a period of seven years, but this is a very unpopular idea among the EU countries.
Flowers and plants much more expensive
Brexit comes with a lot of uncertainty, but a number of developments are obvious. These are likely going to include trade barriers, predicts Mike Bourguignon, association manager at the International Florist Organisation Florint.
Because all types of free trading relationships mean that Great Britain has to fully comply with the entire set of EU regulations and this was exactly why they wanted to leave.
Regarding the value of the pound, it is anticipated that this will decrease to the same value as the euro, establishing so-called parity.
This will lead to a strong increase in the prices of flowers and plants from the Netherlands. The depreciation of the pound will cause a 20% price increase. Trade barriers will add another 15% to that. Additional administrative expenses and bank fees will amount to approximately 1%. That means that in total, flowers will become 35% more expensive. Such a price rise will have a major impact on demand. A sales drop of around 70% can not be ruled out.
There are examples from other countries. In Spain, for example, VAT on flowers and plants increased from 8 to 21% in 2013. Florists experienced a 26% sales drop. In the end, the VAT rate returned to 10% and sales went back up. Bourguignon concluded that this shows how a price increase can influence sales.
Higher prices, in combination with poorer prospects for the British economy, make it fairly easy to foresee that florists are going to have a hard time.
Supermarkets dominate
British florists have already been facing strong competition from the retail trade since the 1990s. In the sales of flowers and plants, the share of supermarkets is currently at 65% and this number will only go up. They often have long-term contracts with exporters, making them less vulnerable for currency fluctuations, at least in the short term. The exporter carries the risk.
“The pressure of the supermarkets has led to a dramatic decline in quality of British florists, because it forced them to compete on price,” said Koos van der Meij, market information officer with the Association of Floriculture Wholesalers (VGB). He thinks that there is still potential for British florists, provided they specialise and deliver high quality. “Otherwise the supermarkets will push them out.”
The chairman of the BFA, Wills-Pope, confirmed this. He said: “If we want to keep the florist in the High Street, there’s still a lot of work to do”. To start with, there is a need for information and training. “Florists need to think about how a 20-pound bunch can give them the same earnings as a 35-pound bunch. And every year, 2.5 million bunches of flowers are ordered online. Each florist should have a web shop, really.”
His hope is that Dutch exporters and growers are going to collaborate more closely with British florists to tackle the difficult situation together.
Lobbyist Van Ginkel adds: “We should join forces in trying to reach low trading tariffs and low VAT rates. This is in the interest of all parties that are taking part in the negotiations. So, it shouldn’t be a problem.”
Although the future looks bleak, there is a glimmer of hope for the British florists.
“Luckily, we now have a Prime Minister who likes flowers,” said Wills-Pope. „The day she arrived at 10 Downing Street, she immediately had some flowers delivered.” <
Five possible trade relationship scenarios
There are five options for a new trade relationship between the EU and the United Kingdom.
– The UK could join a European Economic Partnership Agreement, just like Iceland, Norway and Liechtenstein. This way, their free movement of goods will be maintained. But it also means that they must pay the EU’s contributions, follow the same rules and that they have no right to vote. There’s very little chance they will agree to this option as the British specifically wanted to escape the European regulations.
– The British could sign a free-trade agreement, just like Switzerland did. In this case, a large number of bilateral treaties will be established. Again, most EU regulations and contributions apply, while the country gets no voting right.
– One option is a bilateral trade agreement. But the British economy is small compared to France or Germany, making Britain’s negotiating position not very strong. And Europe is not in the mood to give away freebies.
– The UK is going to rely on WTO agreements. This option comes with high import tariffs. Also, it remains to be seen whether the United Kingdom can join the WTO, as all 163 member states must unanimously agree on this.
– Finally, there is the option to try and reach a Custom Union, something that Turkey has been trying to do for thirty years. However, agriculture and horticulture are not included in such an agreement.
– There is a sixth possibility, namely that there will be a snap election before 2020 and that the Remain parties will win. A new government could then cancel Brexit.
Joef Sleegers
jsleegers@hortipoint.nl
Florist Ted Martin from Wiltshire, awarded ‘Best flower shop in the UK’ by readers of The Telegraph a few years ago, wonders what Brexit is going to mean for her. She endorses BFA’s call for closer collaboration with Dutch exporters and growers. Photo: Ted Martin
