Brexit: the least of our problems

18/07/2019

Over three weeks ago, I was discussing on this blog a report on a deal made between the Port of Calais and Channel shipping lines. The report had it that, in the event of a no-deal Brexit, British trucks would be prevented from boarding ferries at Dover if they didn't have the correct paperwork.

In this scenario, Dover would be used as a "filter" for traffic headed for the mainland, with the obvious possibility of massive tailbacks and disruption this side of the Channel. Vehicles without the necessary paperwork would be intercepted and stacked at Manston airfield as part of Operation Brock.

On the ball as always (not), BBC Newsnight has picked up the story, retailing it in its usual self-important way, as if it was the originator of the information, with no acknowledgement that this development is hardly news.

Predictably, though, the BBC is focusing on the possibility of gridlock in Dover as a result of the French action, where ferry companies have agreed to deny boarding in the UK to trucks without the right paperwork.

But, with this being an all too predicable outcome, even our lacklustre Department for Transport will be able to implement measures which will keep traffic away from the port, and avoid creating the long queues of traffic that the hacks are eagerly anticipating.

Thus, a DfT spokesperson is able confidently to state that: "There are well-developed plans in place to manage any traffic disruption in Kent in the event of a no deal scenario, keeping the M20 open with traffic continuing to flow in both directions".

Furthermore, there are long-standing plans for remote processing centres, one at Milton Keynes and the other in Hayes (West London), to handle incoming "high risk" traffic from EU Member States.

Even in the few months left to 31 October, when it looks increasingly likely that we crash out of the EU without a deal, there is time for additional contingency measures. And given the high profile and sensitivity of queuing traffic on the M20 and other approach roads, one can expect the authorities, with the backing of government, to put in a maximum effort in an attempt to ensure that the traffic flows smoothly after Brexit.

As we've pointed out before - quite recently - the first day outside the EU, on 1 November, will be a Friday. Most likely, the bulk of commercial traffic will be held back, with businesses taking a "wait and see" stance before sending stuff to Europe. Far from us seeing queues, therefore, the most probable immediate outcome of a no-deal Brexit will be a near-empty M20.

Perversely, therein lies a significant problem, but one of an entirely different nature to the one we have been schooled to expect. Because the latter-day emphasis of the media on queues at the ports, their presence or absence may well be taken as the test of the government's handling of Brexit – with no queues being taken as a measure of success.

One can imagine, therefore, a Johnson-led administration crowing about "project fear" and talking up claims about how their preparations have seen off the worse impacts of a no-deal Brexit. And, although border problems might not be expected to bite for a few weeks, the media is certainly superficial enough to buy in to the "success" story.

Should this happen – and there is every likelihood that it will – this will be yet another example of the legacy media missing the point. With the various contingency measures planned or already in-place, the indications are that there will be no obvious, visible effects of a no-deal Brexit. It will be a slow burn, with the main impacts measurable only through a web of statistics.

In that context, a while back I wrote about the role of European exports on the UK egg industry. Generally, the flow of fresh eggs across the channel is roughly in balance, so that we export as many eggs as we import. This has led some pundits to suggest that this sector would be unaffected by Brexit. We would simply divert production to the domestic market, and cease to take in imports.

However, things are never that simple. Although very few of our producers actually export directly to Europe (or anywhere else for that matter), the industry as a whole is largely dependent on exports to Europe to maintain its overall profitability.

The issue here is what is known in the trade as the "spring flush". Although commercial laying birds are far distant from the original jungle fowl and live in completely artificial environments, they still go into high gear in the spring (their natural laying cycle), whence egg production peaks.

This period normally matches Easter, one of the periods of highest egg demand – but there is not always an exact match. Before the Easter demand takes off, the hens are already in overdrive (especially if Easter is late). Producers watch nervously as a national egg surplus builds up and prices teeter on collapse. With predatory supermarkets, they can easily end up selling at less than the cost of production, wiping out profits for the entire year.

Fortunately, there is an answer – export. For reasons that were never clearly explained to me, the Dutch demand cycle is slightly different to that of the UK, taking off earlier in the year before the hens got into the spring flush. Thus, by the early spring, we could usually anticipate an egg shortage in Holland, driving up the prices there.

What then would happen was a number of entrepreneurs would contact UK farmers and buy up the entire UK surplus for a few weeks, stripping the wholesale market. They would fill up a number of containers for transport to the Dutch market. And because of regulatory harmonisation and the Single Market, that had become a simple operation: all egg producers had become export compliant.

This transfer of the surplus has the effect of stabilising the prices and, for many egg producers, without this they would be trading at an annual loss.

The point here is that most of the time, most egg producers did not export. But since they all complied with EU rules, when market stabilisation measures were needed, their surpluses could be bought up by middle men and exported – often bought off the wholesale market without the original producers being aware of the destinations.

Come a hard Brexit, where easy (and rapid) export of eggs to the continent might no longer be possible, there won't be any immediate effect on the industry. The main export demand would not be until the following spring. And if the market stabilisation system is no longer able to function, it may be towards the end of next year – or beyond – before we see a dramatic upturn in the number of bankruptcies, none of which will appear to be directly Brexit-related.

This is the problem with making predictions about the impact of Brexit. Business in the 28 EU Member States is now heavily integrated and interdependent, but the links are not always apparent. A component company, for instance, may sell its produce only to UK firms which in turn may make sub-assemblies for larger companies which do export their products.

In such a scenario, the actual volume of product from the component suppliers which ends up incorporated in other products destined for EU Member States may be relatively small – say about ten percent of their total business. But, for many businesses, it is that last ten percent or so that makes the profit and thereby ensures survival. A sudden loss of even small volumes of trade can drive them into liquidation.

Nothing of this is easily measurable, or even predictable – and the effects are most certainly not immediate. When I wrote recently of Brexit building up an accumulation of disincentives which will dissuade continental buyers from sourcing goods and services from the UK, it is thus also germane to add that the effects will not be readily visible.

With a government determined to talk up its Brexit "success", or at least conceal the adverse effects, one might see business failures attributed to other causes – anything but Brexit. Only when a downturn is so well-established that it is impossible to conceal, might there be a grudging acknowledgement that Brexit has been a causal factor in our woes.

Should this be the case, it will turn out that traffic queues at Dover – if they materialise – will have been the least of our problems. The slow burn effect is the one to look for, and that will not necessarily be easy to detect in its early stages.