Your business: Exporters squirm as Sterling bites
Small firms are crying out for Government action as their competitiveness starts to crumble
The Jelly Bean Factory was the overall winner of the Small Firms Association National Small Business Awards 2008 earlier this month. Peter and Richard Cullen are the principals at Aran Candy, branded globally as The Jelly Bean Factory
The euro's recent sterling records may mean more money in our pockets for that long weekend in London, but it's not such good news for the 70pc of small companies who export to the UK market.
There has been a 7pc fall in the value of sterling against the euro since the start of January, which has prompted business groups to voice their concerns about the effect of currency movements on small firms.
Many small Irish exporters to the UK are now seeking some alleviation from what the Small Firms Association (SFA) calls a "crisis" situation.
For Avine McNally, assistant director, SFA, two particular complaints highlight the problem being encountered.
"The first involves a company in Roscommon employing 24 people which exports 100pc of its product to the UK. The company, at its last management meeting, stated it will relocate to England. According to the owner of the company the effect of the loss of 24 jobs will be devastating for one of the country's unemployment blackspots. However, this outcome is inevitable should the unrelenting rise continue.
"The second situation involves a company employing 33 people located in the north- western region only 12 miles from the Border. The owner has stated that for all intents and purposes it might as well be located across the Border. It operates almost entirely on a sterling account and conducts the vast majority of its transactions through sterling. The company has discounted the option of hedging as the costs associated with buying forward are prohibitive."
The crisis for small firms does not stop at the sterling/euro rate as highlighted by the Irish Exporters Association (IEA).
John Whelan, chief executive of the IEA, Ireland's main export organisation, said: "The deepening credit crises in the US is putting over €15bn of our exports at risk. At today's euro exchange rate to the dollar, exporters have had to deal with an 8pc fall in the value of their exports since the start of January 2008."
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"The reality is that exporters large and small can handle a short- term swing in currency -- however, we have had a two-year continuous slide in the dollar, with a 20pc fall in the period since January 07 alone.
"There is a real concern amongst the large number of small exporters, whose main source of income is the UK market, as sterling is now falling in tandem with the dollar, both being locked together in the spiralling credit fallout. The UK accounts for 18pc of total Irish exports, and last year this totalled to €16.4bn. A continued fall in the value of sterling against the euro would have a severe impact on the indigenous exporters in Ireland, who are under cost pressures from continued high inflation, and record fuel price levels. These smaller exports do not have the resources to handle a continued overvalued euro and are much more likely to have to exit the export markets than the larger multinational corporations.
Approximately 60,000 jobs in small companies are dependant on UK trade links and both the SFA and IEA have called for immediate Government action on the issue.
"The Government cannot afford to sit on the sideline on this issue. Irish exporters are the more exposed than our European neighbours and positive action must be impressed on the ECB to reduce the overvalued euro in the interests of stabilising the international trading system.
"The euro is overvalued at current levels and if our wide range of small exporters are to survive the current exchange rate and fuel price turmoil, Government action is urgently needed, both in terms of reducing inflation at home as well as ensuring lower interest rates from the ECB," Mr Whelan said.
The UK accounts for 42pc (€3.62bn) of Irish food and drink exports, according to the Food and Drink Industry Ireland (FDII), the IBEC group that represents the food and drink industry.
The association warned that the sharp rise in the euro against sterling was placing food and drink exporters under further competitive pressure particularly in the UK market.
FDII director Paul Kelly said: "It is having a dramatic effect on the industry's competitiveness in our most important export market, which accounts for 42pc (€3.62bn) of Irish food and drink exports. CSO trade data for December shows a 10pc drop in food exports to the UK compared with the same month last year.
"The trend is continuing into this year with preliminary data for January showing a 7pc drop. This is a clear indication that sterling weakness is starting to bite badly into exporters' competitiveness. Controlling Irish business costs such as energy, waste and transport is now becoming critical."
Case Study: Aran Candy
Currency no sweetener for candy maker
Aran Candy, branded throughout the world as The Jelly Bean Factory, now has to source a lot more of its raw materials in sterling in order to combat the negative effect on the loss of revenue, it said.
The company, which was founded in 1998 by father and son duo Peter and Richard Cullen, does a very sizeable proportion of its business in sterling.
It distributes its produce throughout Europe, Scandinavia, the Middle East, Far East, Australia, New Zealand and Canada.
As the business has continued to grow, the company is due to open a larger plant in Blanchardstown.
Peter Cullen said, "Any currency movement that moves against you has a potential negative effect.
It is a worrying time for any manufacturer. If we can buy raw materials and packaging in sterling and in dollars it protects us against losses that we incur on the revenue side because of the weakness in sterling."
The company, which recently won the overall Small Firms Association's National Small Business Award 2008, is dedicated to producing gourmet jelly beans.
- Sharon Lynch
