Farm Ireland

Sunday 18 March 2018

Analysis: The 5 big Brexit questions facing our beef industry

A large proportion of Irish beef into the UK is sold into premium outlets such as Sainsburys
A large proportion of Irish beef into the UK is sold into premium outlets such as Sainsburys
Darragh McCullough

Darragh McCullough

A look at the key questions and challenges which Brexit will pose for our beef industry.

1 How much are we likely to lose in the British market?

This isn't a question that you're likely to hear definitive answers to anytime soon, but it is the key issue for beef farmers.

Currently, Britain accounts for just over half of our beef exports, or €1.1bn in sales last year. While volumes were down by 2pc, the value was actually down by 12pc. That's equivalent to €140m off the top line, most of which has to be related to currency. Will we see full year figures for 2017 fall €280m lower than levels in 2015? Probably, but that's only the start of the potential losses.

Early analysis by the ESRI calculated a 21pc boost in trade between two countries being inside the EU compared to trading with a state outside the EU, but inside the customs union. That boost is almost treble that when one of the trading partners is outside the EU customs union, which looks likely following the speech by British Prime Minister Theresa May last week.

In the latter worse-case scenario, Ireland would be facing the same trade barriers, 60pc tariffs and competition, as any other country in world. Bear in mind that the world market beef price is closer to €3/kg than the current €4/kg Irish farmers are banking on.

Obviously, both of those factors would simply wipe out Irish beef exports to the UK overnight, but that's an unlikely scenario. A large proportion of Irish beef into the UK is sold into premium outlets like Tesco, Sainsburys, McDonalds and so on. They only want beef that the British public is comfortable with - local, familiar, and trusted. Apart from the British farmers themselves, there's nobody that can compete with the Irish on that front.

The anonymous food service sector - the burger and chip vans at festivals and caterers at events, sandwiches, etc - this is where we are most vulnerable to under-cutting from cheaper imports.

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Add all of that up, and estimating the price drop is tricky business. But on the basis that prices won't drop by more than 25pc (the current difference between Irish and Brazilian prices) and that level of price drop is unlikely to hit more than a third of our British exports, then an average price drop of 8pc is not inconceivable. Working off a 2016 baseline, that's equivalent to €88m.

2 How quickly will the drop kick in?

The currency drop has already hit, and prudence suggests that we shouldn't bank on that situation improving anytime soon.

Any drop as a result of taking a world market price will only kick in when Britain actually completes its exit. That process has two stages. The first is triggering Article 50, which Theresa May has said will happen before the end of March, giving her seven weeks to play with.

That then starts the clock on the negotiations which, according to the EU, have to be concluded within two years.

But given that this is entirely new territory for everyone involved, and the fact that is takes many more years to conduct any of the myriad of trade deals that already exist between the EU and other regions, all the signs point to this process taking much longer. How long?

Politics is the art of making the impossible happen, but even with 30,000 UK civil servants being appropriated for the task it is likely to be a long rather than short affair.

3 Can new markets save Irish beef prices?

No is the short answer to this. The British market is our largest for good reason - it's by far our most lucrative and profitable. It is a wealthy one that happens to be on our doorstep, and the customer is very familiar with our offering - to the point of almost considering it 'one of their own'.

The next best thing is the EU, but the prices are lower, and there will be more competition than ever as extra volumes begin to flow from the additional 2m dairy cows that have materialised on EU farms since the end of milk quotas.

EU consumption isn't going to dramatically increase any time soon, and we have the biggest surplus of beef in the whole of the EU.

Looking further afield won't give Irish farmers much cause for solace given the dismal growth in exports to both the US and China after those markets were 'opened' to tremendous fanfare by successive Department of Agriculture delegations over the last two years.

African markets are growing, but from a price point that is pretty much the bottom of the barrel. We do not want to be relying on African markets to shift all our surplus beef.

Japan might fit the bill, but just in case you hadn't noticed, it's an awful long way away…

4 Is more support likely?

Yes. The lobbying machines of both farmers and the meat industry are at full throttle looking for help from the EU and Irish government on the basis that this is a 'structural' problem. The precedence is there in the support that the EU gave countries worst affected by the Russian ban, so the Irish politicians and officials have a good case to make.

But, as Prof Alan Matthews pointed out in his Oireachtas briefing last week, Brexit is irreversible so taxpayers won't be happy to take on a new cost of supporting Irish farmers indefinitely. Supports aimed at 're-orientating' beef farmers and their exports are more likely. Expect lots of campaigns extolling the virtues of forestry and long-term land leases.

5 Should beef farmers should prepare for a price drop regardless of what happens next?

Yes. As Teagasc economist Kevin Hanrahan highlights, the 10pc rise in prices last year was likely to be reversed even without Brexit ever happening. He says that there is an extra 100,000-120,000 stock in the system compared to last year that will dampen prices. With all the additional factors such as currency and trade deals in the air, an additional 5pc drop for 2017 would be a conservative estimate of the impact.

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