International

Brexit implications for the ornamental aquatic sector

By John Dawes

By the time we go to press with this installment of my column, some three months will have elapsed since the game-changing vote of the British EU referendum was announced. Despite this, we still don’t know with any certainty how things are going to pan out in the long term for either the pet or aquatics industries, or for anything else relating to the UK’s economy and relationship with the rest of Europe.

Although the vote went in favour of the ‘Leave’ campaign, the margin of victory was not particularly convincing (52% to 48%). Indeed, it would be fair to say that the result was unexpected and that it sent shock waves around the world. Not even the ‘Leave’ campaigners were expecting to win, as a result of which they were caught unprepared and with no detailed plan as to how to handle the situation.

Not surprisingly, chaos and confusion took centre stage, with accusations and counter-accusations being directed at campaigners and voters alike by both sides of the electorate. Disgruntled voters and ‘Remain’ campaigners, for instance, accused the ‘Brexiters’ of using false data and claims in their campaign. For their part, some two million expatriate Brits living within the EU complained that they had been unjustly denied their right to vote just because they had lived outside the UK for more than 15 years. It is, in fact, widely believed that if these expats had been allowed to vote, the result would have been different.

Whatever the case might have been, within days, a petition was set up requesting the British parliament to re-run the referendum. In less than a week it had amassed over 4.1 million signatures, making it one of the most-signed – if not the most-signed – petition in history. When UK petitions attract a certain number of signatures (way below that obtained by this petition), British law dictates that the matter has to be discussed in parliament. In this particular case, the date for the debate was set as 5 September. Consequently, the result was not known at the time of writing this piece or going to press with this issue of PIN.

SOME POSSIBLE IMPLICATIONS

So what could all this have to do with the ornamental aquatic industry? Well, quite a lot, the extent depending on what transpires over the coming months, and especially once the British government decides to activate Article 50, which it must do to open the doors to the tough EU exit negotiations that lie ahead. Even once Article 50 is activated, which, according to the latest pronouncements from the UK government, will not be until 2017, the exit process could take two years or more to be completed, so its effects will be felt gradually over an extended period of time.

Interestingly, while the nation as a whole voted 52:48 in favour of leaving the EU, the UK pet trade in general voted 54.7:45.3 in favor of leaving, a little above the national trend. No figures are, however, available for any of the subsectors of the industry, e.g. pet accessories, foods, ornamental aquatics, and so on. The result, just like the overall vote, surprised many…but perhaps it shouldn’t have done. The fact is that, for high street retailers (and not just for those specializing in pets and/or aquatics) the benefits of remaining within the EU are not as easily identifiable as for large corporations with multi-million export programs (see below for comments relating to exports).

For example, following EU edicts, UK high street pet and aquatics retailers, like all other retailers, have to charge a level of Value Added Tax (VAT) when selling their products (20%) which is paid by the end consumer. Leaving the EU means that there would be flexibility regarding this tax, with the possibility that it could be lowered. Legally, there would even appear to be no obstacle to eliminating it completely, but this would be very unlikely. It’s much likelier that it would be re-named and reduced. Such a move would be welcomed, both by the pet and aquatics retail sectors and by the public, who have not always appreciated that VAT is not a retailer-imposed charge, but a government one, and have therefore complained directly to shop owners.

Retailers were also forced by the EU to sell products in Metric units, i.e. kilograms and grams, and metres and centimetres, rather than Imperial measures, i.e. pounds and ounces, and feet and inches, something that was met with considerable resistance by the die-hards when the respective laws were first implemented, with such non-observance being subsequently penalized heavily. Such an imposition could be removed once the UK leaves the EU, since it would no longer have to abide by EU rules. It could also, one assumes, choose to return to the Fahrenheit temperature scale, abandoning the Celsius one, as well as to pints, quarts and gallons, although, in the last instance, the differences between a US gallon and an Imperial one would be likely to remain.

IMPORTS AND EXPORTS

With the immediate drop in value of the GBP against the US dollar and Euro which resulted even as the vote count was under way, imports into the UK became more expensive. In the first days following the referendum, the price increases were expected to be significant (perhaps 10% or more). However, as the dust has begun to settle, the value of the pound has been rising again (though modestly at this stage), meaning that the financial blow may not turn out to be as severe as predicted. Add to this the considerable powers of ingenuity and creative marketing that exists within the aquatics retail sectors, and it is not unreasonable to expect that
the impact will be cushioned.

On the more positive side, exports became cheaper overnight and, thus, more attractive to overseas buyers. This could have a significant effect on the general pet sector, which exports large quantities of dog and cat food and supplies. Live aquatic exports, though, are more modest, with a few notable exceptions, such as exports of tropical marine fish and invertebrates, some foods and equipment. Should the present currency exchange conditions persist for any considerable length of time, these exporters of
live aquatic organisms, aquatic plants, reptiles, amphibians, foods, medications and aquarium/pond equipment are likely to benefit, with the benefits becoming more apparent for the larger corporations with extensive export portfolios.

SOME CONCERNS AND OPPORTUNITIES

Having said this, the UK’s Pet Industry Federation (PIF) is concerned about pet sector exports because, as it says, the vast majority of companies currently exporting goods do so within the EU. It has therefore expressed the hope “that the government will be able to reassure (those) businesses that they will continue to be able to do so confidently without incurring far higher costs which could force some into difficulty.”

Exporters of marines – as well as other exporters – could benefit from Britain’s exit. PHOTO: JOHN DAWES

The PIF maintains that pet welfare is one of the least regulated areas of EU legislation, “with laws covering pet welfare largely devolved to the member states… While the UK is likely to still be bound by World Trade Organization (WTO) rules on imports and exports, there could be opportunities to prevent the import of animals…if they represented a disease or welfare risk, along with implementing other laws on animal welfare which might be better than current EU standards.”

The Federation therefore believes that leaving the EU may not necessarily be a bad thing for animal welfare, since the UK could design and adopt its own animal and welfare laws, free (but it’s not clear to what extent) from EU controls.

The British Veterinary Association also believes that leaving the EU will have “a significant impact on matters of interest to the veterinary profession, particularly in relation to regulation, education and welfare planning, but also in terms of animal welfare, research, surveillance and animal movements.”

Quite how the above will/could affect the pet and ornamental aquatic sectors is not clear at this stage, but there are, obviously, implications for our industries which will, hopefully, become clearer further down the line.

SRI LANKA’S GSP WORRIES

As I write these lines, there have been no official statements relating to ornamental aquatics from any of the countries which export to the UK…with the exception of Sri Lanka. The UK is currently the second highest destination for Sri Lankan exports, with sales of US$1,031 million in 2015 (the US is the highest at US$2,803 million).

Currently, Sri Lanka trades its export products under a standard GSP agreement which grants it several benefits with regard to tariffs. The Generalized System of Preferences (GSP) is an autonomous country- specific policy that permits tariff reductions, or possibly duty-free entry of certain imports from designated developing countries, Sri Lanka being one of these.

The authorities there are, consequently, concerned that Sri Lanka may lose these tariff concessions for the bulk of its exports (presumably, including ornamental fish, which are included in a list of top export products) to Western members, thus leaving it to compete with other suppliers from the entire world. Clearly, this could have a significant effect on its fast-expanding exports of aquatic organisms and rein back the growth which it has experienced in recent years. To what extent this will be the case will, of course, depend on the tariff structure that the UK will introduce upon exiting the EU.

 

This is one of the sites in Sri Lanka where the pearly or fire rasbora (Rasboroides vaterifloris) is collected for export. The country is concerned that its ornamental fish exports might suffer if it loses its current GSP status (see text for details).
PHOTO: JOHN DAWES
INTO THE UNKNOWN

There can be no doubt that the road towards the UK’s exit from the EU will be a very bumpy one. The prophets of doom are still predicting that the outcome will be disastrous, while those who still maintain that the vote was just, fair and correct maintain that things won’t be that bad and could actually be better for Britain.

The undeniable fact is that we are dealing in unknowns. Further, the UK is a major force in the commercial world, whether in or out of Europe. Therefore, some accommodation will, no doubt, be negotiated, especially since Britain’s departure will have numerous consequences for the remaining EU Member States.

There’s too much at stake for doors to be irrevocably shut because of the impending departure. I think that, deep down, we all believe this. We must also believe that our ever-resilient and vibrant industry will find workable solutions to all the challenges that lie ahead. I firmly believe this to be the case.