Farm Ireland

Monday 22 January 2018

Game of risk after Brexit

The threat to thousands of food processing jobs because of potentially cheaper UK imports is one of the biggest Brexit dangers for Ireland, reports Richard Curran

A Union Jack hangs alongside an EU Flag. Photo: PA
A Union Jack hangs alongside an EU Flag. Photo: PA

The potential risks for farmers and agri-business on both sides of the border following last week's Brexit referendum results are truly dramatic. It is a lot harder to find potential good news for farms and food processors than it is to find bad.

Everything brings an opportunity for somebody, but this one isn't obvious - perhaps except for some enterprising smugglers.

Farmers south of the border will continue to benefit from existing EU supports, unlike their counterparts in the North who stand to lose out on £3bn per year in CAP payments which provide close to three quarters of UK farm income.

Of course most, if not all of this money, will come from London in a post-EU Britain, but the question is for how long?

The agricultural lobby in Brussels is incredibly powerful, with CAP representing €58bn per year or 40pc of the entire EU budget.

Agricultural interests will be a lot less influential in Westminster, where British farmers might find it even harder to have their voice heard in the demands for a bigger share of decreasing pot of money.

Northern farmers, who trade with the South directly and vice versa, could find a new wall of tariffs and two different sets of production standards in operation.

Ultimately that will depend on the nature of the trade deal that is eventually worked out between London and Brussels.

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The real dangers for Irish farming will come through food processing.

Half of all Irish beef produced is on the shelves in British supermarkets.

Some 60pc of our cheese exports go to the UK, along with 84pc of poultry exports and close to 100pc of mushroom exports.

If there is a new tariff regime in place after Brexit is enacted, there are few guarantees about the competitiveness of these goods on British shelves, especially with the double whammy of cheaper sterling.

In fact, many major Irish food processors already have production facilities inside the UK and perhaps it will involve less future risk for them to commit future expansion to their UK facilities where they are used to supply the British market.

This would be bad for jobs in Irish towns up and down the country, and bad for farmers.

Currently, Ireland imports around €4bn of UK food products each year. Even if there are not tariffs in place, a weaker sterling into the future will make those British food products all the more competitive in Irish shops, thereby effecting Irish jobs.

With one third of our total dairy exports going to the UK, the uncertainty brought about by the Brexit vote last week, casts its own shadow over what happens in the future.

A UK recession would see consumers buy less or seek out cheaper options from elsewhere, while uncertainty also discourages businesses from investing. If it takes the UK several years to negotiate a trade deal with the EU, as expected, it will be very difficult for Irish agri-food companies to make investment decisions during that period.

This is a huge potential setback for the sector in Ireland.

Assessment of the implications of Brexit for the Irish ­economy vary but there is general agreement that the only real possible upside is in attracting new foreign direct investment that might otherwise have gone to the UK or even to poach some of what is already there.

Even if this has real potential, it will most likely occur in a few specific sectors, namely financial services, IT and other services, which will see new jobs located in Dublin and possibly one or two other cities.

The biggest threats are to indigenous exporting companies located up and down the country and in many of the towns close to where Irish farmers live and work.

Five thousand new jobs in the IFSC and elsewhere in Dublin is good for our overall GDP and tax take, but it will not offset the damage done to the regions where every job counts.

It is also true that jobs in indigenous companies are less mobile and more embedded in the economy than Foreign Direct Investment (FDI). This is where the real threats will be felt and none more so than in border counties, especially if even a soft border re-emerges.

The dust is a long way from settling in the UK in the aftermath of its decision but perhaps our best hope on this side of the Irish Sea is that they won't actually leave at all.

It is hard to see a second referendum being run. It is also hard to see a new deal being offered by the EU.

Yet, there is a strong and growing sense in the UK that a massive mistake has been made and that people were conned.

It may take a general election next year.

The route to reversing Brexit isn't clear yet in the fog of confusion, but I wouldn't rule it out.

Indo Farming