(Repeats story first published on Saturday)
* Sterling down 17 percent since Brexit vote
* Costs soar for Scottish shortbread maker
* Brexit uncertainty bites for some companies
* Prices could rise as costs rise
By Elisabeth O'Leary
HUNTLY, Scotland, Oct 8 Sterling's plunge since
Britain voted to leave the European Union has pushed up costs so
much for Scottish shortbread maker Bill Dean that he may have to
lift prices to balance the books.
Already Dean, who employs 150 people at his factory in the
rural northeastern county of Aberdeenshire, has a 3 million
pound ($3.7 million) investment plan on hold and says he may
eventually have to shrink his business - and his workforce - if
costs keep rising.
Dean's family business, born in his mother's kitchen in the
1970s, imports the chief ingredients of the rich traditional
Scottish biscuit: butter, flour and sugar. However, only eight
percent of his sales are abroad, so for him the weak pound
brings few benefits and a lot of headaches.
Sterling's 17 percent dive against both the dollar and euro
since Britons opted for "Brexit" on June 23 - signalling a break
with more than 40 years of stable trade within Europe - has come
on top of another problem that is eroding profitability for the
factory in his home town of Huntly.
Prices for butter - and shortbread needs a lot of it - have
jumped 75 percent since the referendum, inflated not only by the
weak pound but also by volatile prices of its raw material,
milk, on European commodity markets.
"After a while with higher costs and haemorrhaging cash to
keep up, your margin gets eaten away and your (profit) has taken
a pasting," Dean, who turns 52 on Monday, told Reuters.
"No business is capable of absorbing those kind of price
increases for any length of time," Dean said at his factory.
"We'd be looking at a reduced business model with fewer people
if this cost trend continues in the coming years."
Brexit may well push up prices for British shoppers, and it
has already cast doubt on job prospects. At the other end of the
corporate scale from Dean, Japanese giant Nissan has said it may
scrap potential investment in Britain's biggest car plant unless
the government compensates it for any new tax barriers erected
post-Brexit by the EU.
However, some British-based businesses will benefit from the
weaker pound, which makes their exports more competitive - as
long as they still have tariff-free access to the single
The FTSE 100 stock index, which comprises the
biggest London-listed corporations, has soared 20 percent since
referendum day to near record levels. Overall, these groups earn
the bulk of their money abroad, so the currency slide raises the
profits that they report in sterling.
Dean, whose business began when his mother's shortbread
recipe became a favourite with his father's bagpipe band, has no
such buffer due to his low level of exports.
Scots voted to stay in the EU but were outweighed by a
strong "leave" result in England and Wales, so Dean has to deal
with the uncertainties of Brexit. That has meant freezing the
three million pound expansion plan to make a bigger variety of
cakes and biscuits, including gluten-free products for customers
who are intolerant to ingredients such as wheat.
"It's a big investment for us but it's come slap bang in the
middle of a moving situation which we have no control over, so
it's not a comfortable place to be," the former metalworker
Even for a business that has doubled annual turnover to 8.5
million pounds in the past 10 years, the combination of higher
costs and continued uncertainty is damaging.
"We've not got such a big cushion to ride it out with both
of those barrels coming at us," he said, adding that transport
costs have also risen three to four percent.
DOUBTS FOR EU WORKERS
A short distance away in the town of Aberlour, a larger
family-owned producer of shortbread, cakes and traditional
savoury oatcakes exports about 40 percent of sales, which
reached 137 million pounds in 2013, helping it to withstand the
hit from weaker sterling.
But, like his smaller rival, proprietor Jim Walker has an
additional worry: keeping his large number of foreign employees.
With sterling at a five-year low against the euro, some EU
workers might find work paid in sterling less attractive and
this combines with doubts over whether they can stay in Britain
Food producers employ about 110,000 foreign EU citizens in
Britain, about 30 percent of the industry's total, but Prime
Minister Theresa May has promised to impose controls on
immigration from the bloc after Britain leaves.
In this rural outpost, a four-hour drive from the Scottish
capital of Edinburgh and 1,000 km (600 miles) north of London,
employees are hard to find and costly to train. "Foreign
nationals may well drift home if there is a persistent negative
sentiment in this country," Walker told Reuters.
"(They) make up about 300 or 400 of our 1,700 staff and they
have been a real asset to the company," said Walker, the third
generation of his family to run the firm. "Many food
manufacturers in this part of the world in particular, which has
a small population, are very dependent on them."
Businesses are also worried by recent comments from May
which have convinced some investors that by limiting
immigration, Britain could end up without preferential access to
the single European market in which goods and services move
Packed in red-tartan boxes, many of Walkers' biscuits and
cakes are high-margin gift foods that sell well abroad. For that
reason he describes single market access as fundamental and
hopes "common sense" will prevail.
"Britain is a much bigger customer for the rest of Europe
than it is a supplier so (single market membership) is as much
in their interest as much as it is in ours."
($1 = 0.8045 pounds)
(Editing by Guy Faulconbridge and David Stamp)