Farm Ireland

Sunday 18 February 2018

Sterling collapse poses threat to 7,500 food industry jobs

Bank of England governor Mark Carney. Photo: Bloomberg
Bank of England governor Mark Carney. Photo: Bloomberg
Declan O'Brien

Declan O'Brien

More than 7,000 jobs and €700m in food exports are in the firing line due to the collapse of sterling against the euro.

The dire warning was issued by employer group Ibec as sterling's exchange rate against both the euro and dollar took another tumble last week.

The latest fall came on the back of the Bank of England's decision to cut interest rates from 0.5pc to 0.25pc - a record low and the first cut since 2009.

Bank of England governor Mark Carney also signalled that rates could go lower if the British economy worsened.

The move prompted a further drop in sterling against the euro, with the euro now trading at close to 85p, up from 72p over the last 12 months - a 15pc change.

Ibec's director of policy, Fergal O'Brien, warned that the continued appreciation of the euro against sterling will have devastating consequences for the Irish agri-food exporters as it makes Irish produce more expensive for British buyers. "The analysis of the historical exchange rate and agri-food export relationship shows that a 1pc weakness in sterling results in a 0.7pc drop in Irish exports to the UK," Mr O'Brien said.

"If sterling was to weaken further towards the £0.90 mark, this would translate to losses of over €700m in food exports and about 7,500 Irish jobs in that sector alone," he warned.

While the euro-sterling exchange rate was in the region of 85p back in 2010, Mr O'Brien said the latest collapse was different.

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He said there were well-founded fears that the latest fall was likely to be more long-lasting and could get worse.

In addition, Mr O'Brien said there was not the same scope in the food industry for efficiency improvements compared to 2010, and that food companies were less likely to be able to pass on the added costs of doing business in the sterling area to UK consumers.

Teagasc economist Kevin Hanrahan said the latest move by the Bank of England had been well flagged and had not come as a surprise.

He said the move was clearly an attempt by the Bank of England to stop Britain going into recession.

Irish food and drink exports to the UK are worth €4.2bn annually, with beef sales to Britain and Northern Ireland particularly important. British buyers take more than half the country's total beef exports and the trade is valued at close to €1.2bn.

While processors have warned that exchange-rate changes could hit finished cattle prices, Joe Burke of Bord Bia said recent beef price hikes in Britain had offset the impact of currency fluctuation.

He pointed out that the differential between British and Irish beef prices had held at around 30c/kg over the last six weeks, despite the slide in sterling's value. The average steer price in Britain last week stood at 409c/kg compared to 377c/k (VAT exclusive) in Ireland - a difference of 32c/kg.

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