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Sunday 4 December 2016

Tumbling euro offers hope for food exporters

Processors to benefit if new value holds

Declan O'Brien

Published 18/05/2010 | 05:00

Irish food companies stand to benefit from the uncertainty on financial markets as the euro's value remains volatile. The euro has fallen back to an equivalent of 85p sterling, a drop of 10pc compared to recent highs, and some financial commentators say it could fall further.

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The exchange rate movements will give Irish food exporters a major competitive advantage in their most important market.

Britain takes close to 45pc of all Irish food and drink exports. More than half of Irish beef exports are sold on the British market, while 40pc of foreign dairy sales and two-thirds of prepared foods go into the sterling area.

Although the euro's value against sterling has fluctuated significantly in the wake of the Greek budgetary crisis, Friends First chief economist Jim Power predicted that the downward pressure will continue.

"When you look at what the bond and equity markets are telling us, it is a bit surprising that the euro hasn't gone lower," Mr Power said.

Troubled

He predicted that the euro could drop below 80p unless the stabilisation package brought forward last week by EU finance ministers continued to offer support for the euro zone's troubled economies.

However, the economist was not convinced that the currency's troubles are over.

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"The outlook for the euro is pretty dire," Mr Power claimed. "I don't believe its fundamental problems have disappeared."

The EU rescue package was unlikely to prevent a Greek default, although such an event could be a year or two away, he said.

But the euro's decline offered benefits for food processors who had seen the euro hit 95p over the past year, Mr Power pointed out.

The slide in the euro's value has been welcomed as a positive development by Meat Industry Ireland (MII).

"Over the last two years the euro/sterling exchange rate has seriously undermined the competitiveness of Irish beef and food exports to the UK and the returns achievable," explained Cormac Healy of MII.

"The negative impact of the exchange rate has come on top of the fall-off in demand and trading down in beef purchases driven by the recession."

However, Mr Healy said the weaker euro will only improve Ireland's competitive position if it is sustained.

"Over the last two years we have seen short-term improvements in the euro/sterling rate, only to see sterling weaken again. We hope that current currency market developments are more sustained," Mr Healy commented.

"It should be remembered that while we have seen a 30pc devaluation in sterling over the last few years, cattle prices last year were only down 9pc. This may be of little comfort to farmers but had processors not been diversifying into Continental markets, the situation would have been worse," Mr Healy claimed.

Bord Bia business analyst Padraig Brennan said volatility was the primary cause of concern for exporters.

"Over the last week the euro exchange rate started out at 87p, fell to 84p and then jumped back to 86p. It is this sort of volatility that creates problems," Mr Brennan said.

Irish Independent



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