Post-Brexit business models

The consequences of Brexit are starting to become visible. One of the most notable examples is the Scottish shellfish producers who are struggling to get their products to their markets in Paris and Madrid in time.

What can they do? I can think of a few options:

1. Do nothing and trust the government and the EU to sort out the problems.
2. Learn to live with the new rules.
3. Sell the fresh lobsters to people in the UK instead.
4. Stop selling fresh lobsters – sell something that isn’t vulnerable to delays, such as tinned lobster soup.
5. Leave the poor lobsters alone and do something else instead. For instance, the supermarkets are clearly struggling to bring in enough fruit and veg, so maybe there’s money to be made from growing tomatoes and courgettes.

Let’s have a look at them in turn:

1. The main issue with this is that the rules actually do more or less what the EU intended – it’s not an accident. This is the consequence of leaving the Customs Union and the Internal Market. (This doesn’t mean that some small issues cannot be ironed out – like allowing musicians to tour without a work visa or rejoining Erasmus+ – but the big financial problems can only be solved by rejoining the Internal Market, including free movement.) Eventually the UK may see sense and rejoin, but not soon enough to solve the current problems before the businesses involved have gone bust.
2. The new rules aren’t horrendous for all businesses. The main problem seems to be shipping small loads (or big loads composed of many products), especially when time is important. It could be that shipping live lobsters by lorry will never become profitable again.
3. Selling lobsters to the UK market is a decent idea, but presumably there’s a reason why they starting selling them in France and Spain instead in the first instance. I’m guessing the prices are just as bit lower in London than in Paris.
4. Producing tinned lobster soup might be a decent idea, but again it might not be nearly as profitable as the old live crustacean business.
5. Producing stuff to compete with EU produce that has gone up in price (I believe the technical term for this is “import substitution”) is a sound idea, but crucially it depends on the new state of affairs being permanent. It would obviously be disastrous to invest millions in building tomato farms if the UK (or Scotland) rejoins the Internal Market the following year, at which point the Dutch and Spanish produce would flood in again.

Rethinking the business model is not just an issue for shellfish producers. For instance, M&S has been struggling to supply its French stores from its warehouse in the East Midlands:

M&S has 21 small, franchised food outlets in France, including 19 in the Paris area. Until the New Year truck-loads of goodies from the company’s main depot in Northampton could roll into France each day as easily as they could roll into Lancashire or Cornwall. No longer. Since January 1st, daily supplies from Britain have been halted, while the company gets its head around the 1,200-page, post-Brexit trade deal.

Food exports are still allowed tariff-free into the EU under the last-minute deal struck by Britain and Brussels. But they now have to meet EU food standards. And prove it. They must pay tariffs if they contain ingredients imported from non-EU countries. Each product in each consignment must travel with the relevant documents. These are not new rules to punish Britain. They are the standard rules for access to the European single market that Britain helped to build in the late 1980s and has decided to abandon.

Maybe they’ll find a way to supply the shops. Maybe they’ll shut them down instead. Or maybe they’ll realise there’s a huge market for British-style products in the EU now that it’s suddenly difficult and expensive to import them directly, and set up shops selling haggis, shortbread, bangers and ploughman’s sandwiches, produced mainly in the EU.

To sum up, a lot of businesses will have to change their business models as a matter of urgency. Some will thrive, others will go bust, and new businesses will spring up to take advantage of new opportunities. But crucially, rejoining the the Internal Market and/or the Customs Union will negate all of this – suddenly the old business models will be superior again. And that’s true for Scottish independence, too: Ideally Indyref2 should have happened already (even if independence hadn’t been implemented yet), so that businesses could choose between remaining in Scotland and the EU on the one hand, or opting for the rUK and Brexit on the other.

Unfortunately, we don’t know yet when Indyref2 will happen – 2021, 2022, 2028, 2033 or 2055 have all been mooted. And that makes things really difficult for businesses. If it’s happening soon (and you expect the answer will be Yes), the most rational thing to do is ask the bank for a nice big loan to keep you afloat until an independent Scotland rejoins the Internal Market and the Customs Union in anticipation of full membership of the EU. But if it’s a decade or more away, you need to act now to create a business that takes advantage of Brexit instead. And of course, once you’ve made that change, you’ll swing politically from begging for Indyref2 tomorrow to hoping it’ll never happen.

It’s therefore of paramount importance that Scottish politicians start providing clarity on the timing of Indyref2. Perpetually continuing to promise it’s about a year away (as Nicola Sturgeon seems to have been doing since 2016) would have only one outcome: All businesses wanting to be in the EU would relocate to Ireland or another member state, and the ones wanting to take advantage of Brexit would move south of the border. The result would be disastrous for the Scottish economy.