Wednesday 28 September 2016

We have to be masters of our own destiny in the Brexit negotiations

Eddie Punch

Published 20/07/2016 | 02:30

Photo: Bloomberg
Photo: Bloomberg

Evidently we have skin in the game when it comes to Brexit.

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Meat factories have been quick to react by cutting prices paid to farmers in response to the drop in the value of sterling against the euro.

For the time being, the exchange rate is the only tangible impact of Brexit.

We must not allow the sensationalism around the UK vote to cloud over basic facts. The impact so far is notable not for how severe is it but for how moderate it is.

In the immediate aftermath of Brexit there were headlines about global stock market collapse. However, by July 13, the Dow Jones and S&P 500 had not only recovered but reached all-time highs. As of last week, the FT250 index in London was just 3pc down on the pre-referendum high.

And while sterling hit a 31 year low against the dollar, for food exporters the really relevant exchange rate is sterling/ euro.

The fall in the pound against the euro is not extreme. In fact, a rate of €1.17 is similar or lower than the exchange rate that prevailed in much of 2013. Farmers will recall that beef price for R3 steers averaged €4.40 in June 2013.

This is not an argument to say that beef price could be €4.40 now but it does illustrate that other factors such as supply and demand of cattle are perhaps more relevant than the exchange rate.

However, when sterling gets really strong against the euro as happened in 2015, beef farmers do not get the full benefit.

The obsession with Brexit might be clouding over the fact that Ireland has perhaps too much dependency on UK exports.

Ireland's beef sector needs more than ever to spread risk by going hell for leather after other markets.

News that we have got clearance from the USA for manufacturing beef is a boost and it is vital that this translates into real volumes of beef as quickly as possible.

Live exports must be prioritised and every support must be given to ensure that the Turkish market for weanlings is capitalised on. Other live export possibilities such as Egypt must be pursued.

A recurring problem is that the live export business in Ireland is based on relatively small operations which will struggle to win large live export contracts and lack the scale to deal with the complexities of international shipping and the inherent financial and cash flow issues.

The Turkish requirement for 50,000 head to be supplied in tranches of 10,000 head demonstrates this challenge.

One slight benefit of Brexit is that the euro has also weakened against international currencies, albeit marginally, but further instability in the EU/ UK process may lead to further weakness in the euro as well as sterling.

It is when negotiations kick off to determine the future relationship between the UK and the EU that the long-term outcome for Irish agriculture will emerge. Here, it is all about the trading arrangements.

Ireland's problem is that the final trading deal must be negotiated between the UK and the EU. This means that the more the UK insists on its demands on curtailing movement of people, the less likely that we end up with tariff-free trade between the EU and the UK. That means tariffs on our exports to the UK.

Tariffs combined with a weaker sterling would be the worst of all worlds.

Regarding imports, Mercosur and TTIP talks must be reconsidered. The whole analysis of the EU position in these trade negotiations was predicated on an EU of 28 member states. An EU minus the UK's 60 million consumers is a different proposition. These talks need to be put on the back foot until we know where we are with the UK in terms of trade. Moreover, the EU Commission needs to re-set the impact analysis of combined Mercosur, TTIP and CETA trade deals on EU beef farmers to take account of the new reality.

Ireland must ensure that our interests are centre stage in any EU/UK negotiations. Nor can we allow the talks to be dictated by German or French interests.

Worse still would be the temptation to succumb to wishful thinking that Brexit will never happen. The rapid appointment of Theresa May suggests that the Tories are getting their act together and will present a unified front. They cannot afford to leave an open goal for UKIP so notions that the UK parliament can ignore the referendum or the government can tell the British electorate that they must vote again seem misguided to me.

Irish MEPs will have to work to ensure our interests stay centre stage in the European parliament but in reality the decisive interventions will have to be made at Council level by the Taoiseach and relevant ministers.

One thing that we should consider is the way in which Ireland could help with mediation in negotiations. When talks hit an impasse, could there be a role for the likes of John Bruton or Bertie Ahern to act as a go between?

Bruton, as a former EU ambassador to Washington, and Ahern, with his experience of dealing with the British in the Peace Process, could carry weight as honest brokers and at the same time keep Irish interests to the fore.

Clearly, the Taoiseach and government ministers are the principal voices for Ireland's interests, but they have a country to run and can only be involved at key intervals. These talks are going to be exhaustive and are likely to take more than the two years envisaged under Article 50.

In the meantime, farmers need to take a strong line in resisting meat factory scaremongering.

It would be foolish to suggest that Brexit is not an immense challenge with potentially unforeseen outcomes; it is alarmist and reckless to suggest that it is a disaster for Ireland and that our exports are going to take a fatal hit.

Nonetheless, we need to plan for a future where our exports are diversified significantly beyond our nearest neighbour, Brexit or not.

As Franklin D Roosevelt said: "We have nothing to fear but fear itself".

Eddie Punch is the general secretary with the ICSA

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