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Saturday 20 April 2019

Richard Curran: 'Brexit Brazilian beef battle won't be a de Valera Economic War II'

If the UK were to hit Irish beef exports, it wouldn’t be facing down Dev’s Ireland, it would be confronting the entire EU bloc
If the UK were to hit Irish beef exports, it wouldn’t be facing down Dev’s Ireland, it would be confronting the entire EU bloc
Richard Curran

Richard Curran

Don't bank on the European Union to bail out our beef industry if the UK decides to favour a cheap meat policy after Brexit. Suggestions that the British government may allow low tariff Brazilian beef into the country, while punishing Irish beef exporters with higher tariffs, are worrying.

So it was no surprise that Tanaiste Simon Coveney was quick to point out that our EU colleagues could come to the rescue with some kind of financial supports for the sector.

We definitely should not rely on a package of supports. The EU would only be willing to provide some kind of compensation or subsidy package for a limited period of time. It would not form the basis on which to rebuild our beef industry which would undoubtedly be very badly hit, given that 52pc of exports go to the UK.

The issue prompted comparisons with de Valera's Economic War between Ireland and the UK in the 1930s where we slapped tariffs on each other's produce for several years and we came off the worst.

But the world is a very different place than it was in the 1930s. First of all, slapping tariffs on Irish beef imports to the UK would involve slapping tariffs on EU beef. This would have to be factored in to any wider future trade deal yet to be negotiated between the EU and the UK after Brexit.

We have become so focused on the diplomatic tension around the backstop, it is easy to forget that Britain's future trading relationship with the EU has yet to be negotiated. Even if they crash out, at some point they will have to sit down and negotiate a trade deal.

Flooding UK supermarkets with cheap Brazilian beef while taxing Irish beef would have reciprocal consequences in what the UK could sell to the EU.

The Economic War involved tiny Ireland going up against the buying power and financial resources of the UK. Would the British jeopardise a better trade deal with 500 million EU citizens in order to give the Irish beef sector a slap? Maybe, but the situation is a little more complicated these days.

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In fact, the economic might of the EU could come to the rescue of Irish farmers in this scenario a lot more effectively than a temporary compensation package.

If the UK crashes out without a deal, then in the immediate short term there would be extensive tariffs placed on Irish beef imports to the UK. This would require short term financial assistance for the sector.

But any move by Britain to flood its supermarket shelves with cheap Brazilian beef would have to be weighed up against the needs of a future trade deal with the EU which would involve everything from food and car manufacture to financial services.

In a worst-case scenario, where Irish beef exporters are sacrificed on the altar of Tory expediency and the need for cheap food on British shelves, Ireland would have to look further afield for new markets.

China holds some prospects, but there would be no easy win here. Other countries have got a bigger foot in the door although Ireland is catching up.

The EU has been steadfast in keeping Brazilian beef imports to relatively low numbers. There is of course the question of consumer taste preferences, food safety and traceability. Brazil may be the biggest exporter of beef in the world, but it still has lots of questions to answer around health and safety in the industry. Surely questions would be asked about the wisdom of such an approach even if it kept beef prices down.

How would consumers, politicians and the farming industry in the North feel about it? It is hard to see that the wider British public would be given the "mushroom treatment" by their own government i.e. kept in the dark and fed lots of sh**e.

 

Datalex triple whammy

Bad news comes in threes, they say. Travel software group Datalex had the third instalment of a triple whammy this week when its chief financial officer Donal Rooney said he was leaving the company after just three months in the job.

The first instalment came in January when Datalex issued a profit warning and announced that it may have misstated its 2018 results based on difficulties recovering certain costs on a piece of service work with a client.

The shares crashed by 59pc on the day as the market doesn't like negative surprises and it raised obvious questions about how this happened, and was it just a one-off. Datalex said it was calling in PWC to do a review of what went wrong. The inference seemed to be that much of the costs would be recovered but just not in 2018 as had been accounted for.

The second instalment came when Datalex's stock took another hit ten days ago as it disappointed investors with its earnings guidance for 2019 and 2020. It also unveiled plans to cut jobs and contracted positions to save up to $10m annually from next year.

This was a smart and positive response from management but it also suggested that the previous issue wasn't just a minor blip.

This week saw the third instalment when Rooney announced he was leaving. It was reported that Rooney had taken the view in recent times that the job was vastly different to the one he signed up to last year.

If that were the case, one can see how slashing costs and headcount numbers, dealing with a PwC review and battling a shattered share price, would represent a very different job to what appeared last year.

Or perhaps there were other issues around this whole saga that changed his perspective towards the company.

Datalex will have to beef up its management team with a new CFO, at a time when lots of questions still hang over what happened. It is hard to see how much can change or move on until PwC reports back.

During the week the shares were trading at 72c, well below the €1 they sank to in the aftermath of the profit warning in January.

 

Hotels escape Vat apocalypse

January can be a tough month for a lot of businesses, including hotels. But this year hotels faced a 4.5pc higher Vat rate, which led some in the sector to make apocalyptic predictions about what would happen.

No apocalypse yet it seems. Revenue per available room (Revpar) figures published last week showed that hotels in both Dublin and regional Ireland reported higher RevPARs in January, despite the Vat headwind from January 1.

Dublin RevPAR grew 0.9pc in January, with occupancy down 0.8 percentage points, and average daily rate up 2.1pc. In regional Ireland, RevPAR increased 4.9pc in January, with occupancy up 0.5 percentage points and average daily rate up 3.9pc.

A single month's figures are hard to read but it seems that lower occupancy in Dublin hotels might have been due to higher prices but the sector could still manage to take in more money. If the occupancy rates were to fall further however, Dublin hoteliers would sit up and take notice.

Visitor numbers and continued growth in the economy suggest that Dublin hotels will continue to rake it in. Hotels elsewhere have managed OK in the first month but it is early days. No figures are available for restaurants which stood to take a bigger hit in what is a more competitive business in the capital city.

German visitor numbers were up 18pc last year. This should be seen as a positive response to Brexit as the industry and Tourism Ireland pursue a better result from markets outside the UK. Continental Europe now accounts for the larger portion of foreign visitors having overtaken Britain.

Willkommen to you all.

Sunday Indo Business





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