Lidl Ireland has informed its suppliers in the UK they may have to shoulder the cost of any additional EU tariffs that may be imposed on the UK if Brexit goes ahead as planned on 31st October.
This will ensure any extra cost is absorbed by Lidl’s suppliers and thus not passed on to the consumer.
EU tariffs after Brexit
The proposed tariffs could be substantial. For some types of beef, the tariff is around 12.8%, plus €265 per 100kg. Even more pressing are proposed tariff rates for dairy produce, which could be as high as 35%.
This could create further difficulty for UK dairy suppliers, whose margins are already spread thin by current contracts with major UK supermarkets, which only cover the cost of production plus a little more.
Lidl represents a sizeable and growing portion of both the Irish and UK markets, with GlobalData reporting a 12.2% and 5.8% share respectively in 2018.
One major implication is that other major supermarkets in Ireland could follow suit if Lidl does force this through. Lidl already operates at a point of price competitiveness against larger and more established retailers such as Tesco, who will not sit idly by as Lidl consolidates further competitive advantage in the market. If this scenario plays out, Lidl suppliers won’t be the only farmers affected; this could be an industry-wide phenomenon.
Combined with the fact all exports by UK suppliers to the EU could be under a similar tariff arrangement, plus a proposed free trade deal between the UK and USA would bring in cheap imports undercutting UK suppliers, it seems a gloomy outlook.
Ultimately, simple economics dictates if suppliers go under, so will the supply of foodstuffs. This could mean higher prices for the average UK consumer as well as consumers in European export markets, plus a decimated coterie of UK suppliers.