Sector highly dependent on UK market but we have the skills to respond appropriately
When it comes to the idea of a British exit from the European Union (Brexit), there seems to be widespread fear among food industry leaders here. A recently published study by the London School of Economics concludes that Ireland will “suffer the largest proportional losses” of any country after Britain, due to the interdependency of our economies, if Brexit happens.
Compared to Irish industry in general, the food sector is even more highly dependent on the British market. The UK is our largest export market for food and drink at 41 per cent of total exports.
Much of the exports are in primary products, which are likely to suffer most from a change in international trading agreements. Some 52 per cent of all Irish beef exports, 60 per cent of cheese exports, 70 per cent of prepared consumer food exports and 84 per cent of poultry exports go to the UK. Any barriers to trade or reduction in our relative competitiveness is a huge concern.
Others have covered the likely impact of an exit: reduced domestic growth (possible negative impact of 1 per cent to 2.5 per cent); a 5 per increase in the cost of trading with the UK; further weakening of sterling. All of these changes would damage the Irish food sector. In addition, if freed from current restrictions the UK might look to cheaper and less regulated producers in, for example Brazil or New Zealand, for its beef or dairy.
Sterling weakness would affect both large publicly-quoted food businesses and smaller firms. It is estimated that a 10 per cent swing in the currency rate would dilute earnings at Origin by 6 per cent, C&C by 5 per cent and Kerry by 4 per cent.
The industry would, however, be energised by such a new challenge, would find ways to respond that would enhance rather than restrict its future growth potential. The management teams in our food multinationals such as Kerry, Glanbia and ABP are impressive professionals, and smaller entrepreneurial businesses have proved to be agile and ambitious.
The leadership in Government agencies and departments have responded exceptionally well to other food sector crises. We have the skills and experience to respond.
The industry would compensate for the almost inevitable reduction in UK and domestic market growth, pursuing other growth opportunities with renewed vigour and priority, broadening the footprint of exports into high-growth emerging markets. Bord Bia would strengthen its position in Asia and Africa, and individual firms would take steps to open new territories. We would make adjustments to protect our current business in the UK, which would remain our largest market, albeit outside the EU.
Some businesses say they would consider establishing a processing base in the UK. That might be a necessary step, although it would have a negative effect on local Irish ingredient sourcing and local employment. Many firms would continue to compensate for the likely negative currency impact, become more competitive, taking steps to more urgently remove excessive cost through investment and productivity.
Ibec has consistently highlighted this Brexit threat to competitiveness. That change would be painful but necessary if UK trading is to be secured.
At a policy level, if Brexit happens, new trading agreements between the UK and the EU will be negotiated over a two-year period, as is the case with Norway. A well-constructed arrangement would minimise the potential damage.
Ideally part of the price to be paid by the UK for access to the EU markets will include protection for EU-sourced primary products such as beef and dairy. Such a deal is highly likely, as failure to reach a deal would result in certain World Trade Organisation levies on UK exports into the EU, dairy products could for example carry a levy of 36 per cent. However, a bilateral agreement will not be possible between the UK and Ireland, notwithstanding the closeness of our trading relationships.
On a positive note, as much of the downside is already being priced in to currency rates and investment decisions, a vote in June to remain will result in an economic bounce for the Irish food sector.
Uncertainty will be removed, the sterling slippage of recent months is likely to reverse, the confidence of Irish food firms to invest in further growth in the UK will return, share prices will be reinvigorated, and Britain’s influence, from inside the tent, will continue to achieve EU reforms.
Article Source: http://tinyurl.com/kbwqb42