Saturday 16 December 2017

Dan O'Brien: Hard facts reveal Irish food exporters are facing dire future after Brexit

Worryingly, exports from Ireland are still hugely focused on the nearby British market Photo: Aidan Crawley/Bloomberg
Worryingly, exports from Ireland are still hugely focused on the nearby British market Photo: Aidan Crawley/Bloomberg
Dan O'Brien

Dan O'Brien

Size matters. Big countries with big home markets can get rich without doing much international trade. Small countries can't.

Ireland proves that rule. Its economic performance has been closely linked to its trade performance. The country was poor when it was relatively closed to international commerce up until the 1950s. The opening to trade (and investment) in the following decades led to an improved overall economic performance. Since the 1990s, and in parallel with accelerated globalisation and Europeanisation, exporting has been central to driving Ireland's prosperity levels closer to those of our peers in northern Europe.

But understanding the dynamics driving trade is far from easy. There are many factors at play. A recent study*, using unpublished statistics, casts new light on Ireland's merchandise export performance, including by product and by foreign market. (It is important to note that all discussion below is of goods exports only. The important services sector is not included.)

The study, by economists at the ESRI, is particularly timely given the challenges of Brexit, which make market diversification (away from the UK) something close to a national imperative.

What makes this study different is the level of detail it goes into on export performance by firm ownership - Irish and foreign. Up to now, the only reporting on the differing performances of the two sectors was the Annual Business Survey of Economic Impact (ABSEI), carried out by the Department of Jobs, Enterprise and Innovation.

But as that survey only includes client companies of the IDA and Enterprise Ireland, its sample does not include all exporters. The new ESRI study is based on unprecedented access to the Central Statistic Office's relevant data, which makes the sample used wider than that of the ABSEI.

The major takeaway from the study is the (further) proof it provides to show that foreign companies account for almost all of Ireland's exports - the authors politely describe this as "Ireland's unique position with respect to different export behaviour by indigenous and foreign-owned firms".

The hard facts in the report are starker. It finds that 87pc of export earnings in 2015 were generated by foreign companies. That, as it happens, is in line with the results of the ABSEI figures over many years.

The historically poor export performance of Irish-owned companies reflects a wider issue that needs to be highlighted so that as much as possible can be done to address it.

As this column has said a number of times in the past, often to the annoyance of those who would prefer to believe that Ireland's entrepreneurial culture is in rude health, available comparative data show startup rates are not high. Irish companies have too often sold out instead of scaling up. Nor is the level of innovation in Irish companies what it should be given our levels of education and the spillover effects of decades of high tech foreign direct investment. Penetrating foreign markets is about the most important innovation a company in a small economy such as Ireland's can do, and clearly that is not what it should be.

If addressing the causes of weak entrepreneurialism has long been a challenge that has not received enough attention, a much more recent challenge - Brexit -is getting plenty in the short term. On that issue, the findings of the new ESRI report can only heighten concerns. Here are some of its most important and relevant findings:

nBritain remains by far the most important market for Irish-owned companies. Over the course of the current decade (2011-15) the UK market absorbed 42pc of their non-food exports. It took just under half of their food exports.

nBeef accounts for almost one-quarter of the value of Irish companies' exports, making it by distance the single most valuable product sold abroad by the indigenous sector. Not only does beef top the export list, it has become more dominant over the past two decades. In 1996 it accounted for 14pc of homegrown companies' exports.

nThe second-most valuable export in 2015 was also meat. What is described in the detailed classification as "prepared or preserved meat, meat offal and blood" accounted for 8pc of indigenous exports. Its share of the total has remained stable over the past two decades.

nIn the rest of the top 10 exports, other meat products take the fourth, fifth and ninth slots. Other kinds of food products take a further five of the top 10 positions. Only one of the top 10 indigenous exports is non-food.

These points underscore just how massive a threat Brexit is. As the home-grown export sector is still hugely focused on the UK, a British exit from the single market will mean new tariff barriers.

If there is also an exit from the customs union, there will be non-tariff barriers too. If post-Brexit Britain unilaterally cuts tariffs on meat from outside the EU, as it will be entitled to do, the implications for everyone involved in that industry look dire.

There is no rosier way to put it.

Sunday Indo Business

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