Brexit Talk Casts Uncertainty on Ethical Labels

Uncertainty affects consumers and investors’ confidence and can rein in investors’ desire to undertake investment. As the 23 June referendum is approaching, stakeholders in the ethical labels market are wondering what the potential impact would be if Brexit happens. At the recent London Caffé Culture Show, some exhibitors discussed this with Euromonitor International’s analyst and raised their concerns.

Our health and wellness database shows that retail value sales of organic food and beverages (packaged food, hot drinks and soft drinks) amounted to around US$14 billion for the entire European Union (EU) in 2015; excluding UK sales, it was worth US$12 billion. Overall, the EU organic market is growing steadily and new product categories are coming to the market to attract consumers. It was reported that the EU as an economic region encourages organic certification and offers financial assistance to farmers to become certified, in contrast to other countries such as China, where little assistance is offered.

The Soil Association’s (the UK’s leading organic certification body) latest report mentioned that since January 2015, EU farmers have had to comply with new rules to qualify for 30% of the Basic Payment Scheme payment. This is because EU regulations require 5% of a farmer’s land to be set aside as an Ecological Focus Area – called “greening”. However, organic land is seen as green by default, meaning organic farmers automatically qualify for the payment. This change could make it more attractive for arable farmers to consider converting to organic in the future. Some younger generation farmers may consider renting or purchasing the land for organic practices. However, they may now pause and delay any decision until the outcome of the vote. If the outcome is to leave, investors are not sure what kind of deal they will receive from the British government if the EU is no longer obliged to assist them. The Soil Association’s press officer has said that it is leaning towards remaining in the EU.

From a labelling point of view, EU law ensures that all organic food and drink sold in shops meets strict standards – shown by the green leaf logo on packaging. The Soil Association (SA) claims that its standards of animal welfare, environmental and wildlife protection are higher – or stricter than EU legislation. It is noted that Tesco’s Organic milk displays the EU leaf logo, while all Sainsbury’s So Organic range displays both SA and EU logos. Pukka Organic Mint, Peppermint, Spearmint & Fieldmint Tea Bags carry a long list of ethical labels, including: USDA Organic, Kosher, EU Organic, Soil Association Organic (GB Organic Certification 5) and FSC. The Soil Association stated that its certification business is the UK’s oldest and most experienced and licenses over 70% of the organic food on sale there. If Brexit occurs, what would happen to those brands currently only carrying the EU logo but no SA logo? Marley Coffee has both SA and EU logos on its pack and it is actively operating in some EU markets and the company has shown a little concern about the uncertainty of labelling or potential additional costs if the outcome is Brexit.

Nevertheless, nothing will happen overnight, according to the Soil Association. There would be an easing/ learning period for negotiation. As farming is a highly seasonal business, hopefully, the uncertainty and any potential disruption is minimised.