Monday 26 September 2016

Stormont needs to get real about potential Brexit fallout

Joe Gill

Published 09/03/2016 | 02:30

Prime Minster David Cameron addresses local farmers from the Ahoghill, Co. Antrim at Ballybollan House, as he continues a tour of the UK setting out the case for staying in the European Union. Photo: Liam McBurney/PA Wire
Prime Minster David Cameron addresses local farmers from the Ahoghill, Co. Antrim at Ballybollan House, as he continues a tour of the UK setting out the case for staying in the European Union. Photo: Liam McBurney/PA Wire

After the turbulence of the first two months in 2016, financial markets are exhibiting a modicum of normality in the past couple of weeks.

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That, however, will be tested to the full as the UK's referendum on Brexit gets closer. Those who depend on the agri-food industry for their employment or indeed their investments need to closely monitor how all of that unfolds over the coming months.

At a basic level the most direct impact will come in the short term from how sterling performs against the euro. After a number of years when Sterling was strong, and thereby boosted the competitiveness of Irish produced food, a weak UK currency has been evident since the end of 2015.

This adversely affects Irish food manufacturers in two ways.

First, food produced for export is now more expensive in Britain than it was two months ago. Second, food profits generated in sterling are worth less when converted back to euros.

Both of these are unhelpful for an industry whose single largest market is across the Irish Sea, where €4.4bn worth of product was shipped last year.

For those agri-food companies listed on the Stock Exchange the analysis is more complicated. They have significant operations in parts of the world outside Ireland and Britain. Most of them have very limited exposure to food manufactured in Ireland and exported to Britain. This mitigates the effects on their businesses from negative sentiment towards the Brexit debate.

The section of the Irish agri-food industry that is most vulnerable to Brexit linked problems is that owned by private companies and co-operatives.

These tend to have a heavy capital commitment to manufacturing assets in Ireland that are used to produce food for the UK. In addition, most of them work with relatively thin operating margins so any sudden and sustained weakness in sterling can be an issue for their actual profits.

Companies producing meat, prepared meals, ambient foods and bakery products in Ireland and destined for the UK are the ones I would observe closely if assessing risks.

Outside the Republic one of the areas where some remarkable attitudes towards Brexit have emerged is in Northern Ireland. The Secretary for State there has opted to support the Brexit campaign. I cannot find a economic single positive for the North that would follow a Brexit.

Northern Ireland has a large and important farming and agri-food industry that directly employs 6pc of the working population.

Its farmers, like those in the South, have been assisted over decades by strong European agri funds focussed on supporting farm families in a rapidly changing agricultural world. Its agri-food eco-system sees itself evolving as an important exporter in the years ahead.

If the trade barriers between Britain and Europe start to rise how on earth can the Northern Ireland food industry flourish when its largest trading partner begins to cut funding and restrict market access?

At a broader level, the European Union and its institutions, including the Parliament and Commission, have been hugely important supporters of bringing Northern Ireland from a highly volatile and difficult period towards an era of peaceful living.

It was Europe that stood alongside the United States in marshalling key forces to help opposing traditions to form an understanding that took Northern Ireland to its current position.

Can anyone seriously suggest, aside from the issue of excessive red tape and regulations that have now been addressed in tough negotiations, that Northern Ireland will be in a better place outside Europe in three months time?

Most industry leaders we know in the agri-food industry see a single European market, including Britain, as a highly valued and structural advantage for both manufacturers and primary producers when competing in the global marketplace.

Radically changing that dynamic now would be an unequivocal negative for the food sector on both sides of the Border.

Joe Gill is director of Corporate Broking with Goodbody Stockbrokers. His views are personal.

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