Farm Ireland

Sunday 18 March 2018

Sterling fall 'bad news' for Irish farmers

A weakening Sterling has potential to wipe €50m off exports, writes Caitriona Murphy

Caitriona Murphy

Caitriona Murphy

The threat of a further weakening of sterling against the euro is "unambiguously bad news" for Irish farmers, one of the country's leading economists has warned.

Sterling could move back into the 90-95p/€1 range quickly, Jim Power from Friends First has said.

Mr Power warned that as quantitive easing gathered momentum in the United States over the coming six months, the dollar would weaken and there was a strong possibility that sterling would follow the dollar down.

"Quantitive easing basically means the US government is printing more money and that is undermining the dollar," he explains. "Sterling tends to follow the dollar."

The economist suggested that sterling could weaken to the 90-95p/€1 "pretty quickly".

"From an Irish agriculture and food point of view, this is unambiguously bad news," he pointed out.

"The UK is the biggest export market for Ireland and a weakening of sterling would make Irish food exports less competitive and make UK imports into Ireland much cheaper," he said.

"At the moment in Ireland, it seems that anything that can go wrong, will go wrong," he said wryly.

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Mr Power maintained that sterling's weakness increased the chances of import penetration and once again raised the "spectre of cross-border shopping".

The economist insisted that sterling's weakness was not good news for farmers, and put the onus back on operations inside the farm gate.

"It does make the environment more challenging and creates an imperative for farmers to control costs very carefully," he said. "It's all about becoming more productive."

However, IFA chief economist Rowena Dwyer maintained that the magnitude of sterling weakness was difficult to predict.

"It is very difficult to know what will happen in the UK," she explained. "Their latest growth figures were much stronger than expected."

"These growth figures could indicate that sterling may not weaken further," she said.


Nonetheless she agreed that sterling's weakening, particularly since August/September was detrimental to Irish exports.

"Over 40pc of our food products go to the UK and the effect of sterling moving from 82p to 87/88pc, where it is at the moment, is hugely negative," she said.

"Pigs, for example, have been very hard hit by the effect of weakening sterling, especially at a time when their input costs are rising," she said.

"Around one-third of our dairy goes to the UK and more than 50pc of our beef, or 250,000t, is exported to the UK," she said.

"At a price of €3,000/t, a move from 83p/€1 to 88p/€1 would reduce the value of annual exports by €50m, without any other price reduction," she explained.

Referring to imports, the economist pointed out that weaker sterling would also affect areas like liquid milk, where there was significant import potential from Northern Ireland. "All imports into Ireland from the sterling area will be made less expensive and that will be felt particularly in fresh produce such as liquid milk, mushrooms, horticultural and fruit products," she said.

On a positive note, Irish farmers could expect to benefit somewhat from the euro's strength when it came to buying inputs, she said.

"A weakening dollar should translate into a reduction in the price of energy-related products such as fertiliser and fuel," she said.

"Those are usually traded in dollars and so there should be a beneficial effect from dollar weakness in those products."

Irish Independent