What Do You Do With 24 Tons of Beetroot Stockpiled for Brexit?

(Bloomberg) -- To imagine the dilemma companies face when preparing for Brexit, think of 24 tons of beetroot.

After the U.K.’s departure from the Europe was delayed in March, Nimisha Raja was forced to rent a chilled container to store the 20,000 kilogram mountain of the crimson vegetable she’d ordered in anticipation of disruption.

“It was an absolute nightmare,” said the chief executive officer of snack producer Nim’s Fruit Crisps, based south east of London. “We were trying to get through it quickly to save money on storage. We all said we never want to see another beetroot again.”

While a new Oct. 31 departure date from the European Union provides another deadline for companies to brace for, their inventory building might well be less dramatic than in the first three months of the year. Hoarding for the original Brexit date in March helped the economy experience a growth spurt of 0.5%, before it shrank in the second quarter as businesses ran supplies down.

This time might be different. Companies are grappling with the possibility of yet another extension, leftover warehouse surpluses, the bitter experience and wastefulness of previous stockpiling, ongoing doubts about how to prepare, and simply fatigue with the whole process.

That weariness and uncertainty are taking a toll across the country. Business confidence has weakened and investment is in a deep slump.

Raja’s biggest worry now is access to citrus fruits, which are especially popular around Christmas, and to the exotic and out-of-season produce she needs to launch her range in a new chain of supermarkets early next year. She has stopped taking on new export contracts from the EU, awaiting greater clarity over costs of trade and the exchange rate.

Even so, having only just offloaded the beetroot crisps she produced from the last round of hoarding, and with political chaos threatening to further delay to Brexit, she’s “umming and ahhing” about whether to stockpile this time around. She probably won’t.

Rowan Crozier, CEO of Birmingham-based metal pressing firm Brandaur, which produces components found in 90% of the world’s electric kettles, says the stocks from March mostly remain in place. With a lead time of up to 50 weeks for materials, he’s holding a third more than required in case Brexit disrupts supply lines, which is eating into his capital. At least, he notes wryly, it’s all quite small, non-perishable and relatively simple to store.

Even when goods are being freshly stockpiled, the data may not fully reflect the situation. At Brandaur, one customer -- a German airbag manufacturer -- built up stocks in March and is doing so again, but it doesn’t have to pay until it actually uses the parts.

“Our hard-earned cash is sat in material stock which we need not be doing,” says Crozier. “Unfortunately we had to take a decision.”

Trying to keep track of the potential disruptions is the Bank of England’s network of almost 30 agents around the country. But with the outlook so clouded, and decisions changing with the political situation day-to-day, monitoring isn’t easy.

Governor Mark Carney told lawmakers in London this month that the central bank underestimated how much the economy would slow in the second quarter, largely because fewer businesses held on to non-perishable stocks than they expected.

At the same time, Chief Economist Andy Haldane added that “a number have held the line and about a third plan holding more.” There’s also the issue of capacity, he said, as some firms need to store additional stock before the busy Christmas period and simply don’t have space.

The latest survey by the BOE’s agents showed a “small boost” to GDP from stockbuilding was likely. The Confederation of British Industry’s September survey showed firms are still building up supplies of finished goods.

What Bloomberg’s Economists Say...

“We doubt the impact of stockpiling on the GDP figures will be as pronounced this time round. The surveys suggest the firms aren’t building inventories to the same extent while the October deadline will mean the lift to output is spread across 3Q and 4Q. That said, the impact is still likely to be visible in the data and like 1H, make it difficult to judge the underlying pace of growth.”
-- Dan Hanson, Bloomberg Economics

While hard for economists, Britain’s businesses are the ones facing the real challenges from Brexit. The latest political chaos isn’t helping. Prime Minister Boris Johnson was found to have unlawfully suspended Parliament, and a month from the Brexit deadline, it’s still not clear what will happen next.

“People aren’t moaning about it, we’re taking it on the chin,” said Brandaur’s Crozier. “But when are we going to know where we’re going?”

--With assistance from Andrew Atkinson.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Brian Swint, Fergal O'Brien

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