How can the UK halal food industry win in a post-Brexit world?

The decision for the UK to leave the EU in 2016 created significant uncertainty, especially for the food and beverage industry, especially given that 27 percent of the UK’s food was imported from the EU, resulting in rising costs following the decision.

The UK halal food industry has strong fundamentals but has also been impacted by the uncertainty. How can UK halal food companies best position themselves for success post-Brexit?

OVERALL IMPACT OF BREXIT

The decision for the United Kingdom to leave the European Union in June 2016 was unexpected and while it would take up to two years to negotiate an exit, the referendum outcome was soon followed by a drop in sterling to a near 30-year low against the U.S. dollar, and a downgrade in the country’s credit rating by both Standard & Poor’s and Fitch, with the latter citing a high likelihood of an abrupt slowdown.

The immediate short-term impact of Brexit on the food industry has been rising import costs, following the decline in sterling. The food industry in the UK is highly dependent on the EU for trade, with 27 percent of its food consumption in 2014 imported from the bloc.

Furthermore, the UK food industry is broadly pessimistic about the longer-term impact of Brexit, with UK respondents to a July 2016 survey by trade magazine just-food.com scoring global food industry prospects at 5.6 out of 10, which is lower than the average response across European countries. The same survey found that 37 percent of respondents in the UK felt that it could take up to five years before the full impact of Brexit on the food industry could be fully understood.

HALAL FOOD INDUSTRY

While the UK halal food industry has evolved substantially, estimated at over $5 billion in 2015, the Brexit decision has certainly dampened the mood in a buoyant high-potential sector. Salam Gateway interviewed several industry players, and found there to be three major concerns around Brexit.

1. Rising costs will impact profitability for halal food businesses, and could result in higher prices

The most immediate effect for halal businesses is the falling sterling.

While this may provide a boost to exports, the UK halal industry relies on imports, which has in turn hurt profits, and could ultimately lead to higher prices.

“In the short term it’s good for trade as the currency rates are more preferable, but in the long term we think it could negatively affect trade,” said Rizvan Khalid, director at Euro Quality Lambs, one of Europe’s largest Muslim-owned lamb slaughterhouses.

Noman Khawaja, co-founder and sales director at London-based halal meat brand Haloodies, added, “We’ll have less buying power due to the drop in sterling. We are buying products from Thailand, and are facing a higher cost of petrol and shipping, which could in turn affect our retail price.”

2. Amidst uncertainty about the nature of Brexit negotiations, planning and investment activity have been put on hold

Expansion into Europe is a key next step for UK-based halal businesses; however, the planned withdrawal from the EU makes the future uncertain. As a result, businesses have delayed expansion plans until the situation is clearer.

When asked about the uncertainty, Abdalhamid Evans of Imarat Consultants commented, “I’ve spoken to several halal businesses and they definitely wanted to remain. [Brexit] will slow down investment – everyone will take a wait and see approach.”

3. The uncertainty will also make raising financing harder, especially for SMEs

The broader SME sector has faced increased uncertainty, with a deal to lend $100 million to small- and medium-sized enterprises in the UK, agreed between Funding Circle and the European Investment Bank, likely to be scrapped.

With much of the UK halal food industry comprised of small businesses the lack of access to capital can further inhibit growth, by virtue of post-Brexit uncertainty.

“Halal businesses in the UK may struggle to seek expansion capital – especially if trying to expand into Europe – it will be more difficult to access capital,” said Haloodies founder and managing director Imran Kausar.

RECOMMENDATIONS

Although the halal industry is exposed to the broader post-Brexit uncertainty, the industry’s fundamentals remain strong, driven by a rapidly growing Muslim population, which surpassed 3 million in 2015, according to the Office of National Statistics. We suggest below three main steps that the industry can take to navigate the uncertainty.

Seek alternative export markets, and embrace the full global potential of the halal industry

Organisation of Islamic Cooperation (OIC) markets remain an attractive end goal for many UK-based halal businesses, and the uncertainty about exporting to the broader EU market could be an opportunity to look elsewhere – such as the Middle East.

Kausar confirmed that Haloodies is actively looking to penetrate the Middle East.

Imarat’s Evans suggested that increased costs could mean that other global halal export markets would benefit from the UK’s Brexit hangover. “Countries such as the U.S. and Malaysia could well pick up some of Britain’s halal business,” he said.

Make the UK a trade hub, enabling it to set up strong trading relationships with OIC markets

The UK has already made a significant effort to be a western hub for Islamic Finance. It could similarly cement its position in the halal food trade by establishing a halal food  hub within an existing freezone.

According to Dr Mohamed Amin Mohd. Kassim, Special Advisor to Penang Halal Hub in Malaysia, “For a country experiencing a very suppressed economic environment, like the UK - especially now that they’re coming out of the European Union - freezones are actually very important - this could be a way to generate growth.”

Establish a footing in Europe

Consider setting up operations in the remaining EU – such as Ireland, as a way to ensure continued access to the EU single market.

Discussing such a move, Rizvan Khalid of Euro Quality Lambs said, “We’re considering looking at Ireland. We have to wait and see what the opportunities are – so that we can access the broader market. There are significant meat exports from Ireland.”

(Additional reporting by Alicia Buller)

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