What would a no-deal Brexit mean for the biggest sectors of the Irish economy?

With a little over 48 days to Brexit, and UK prime minister Boris Johnson determined that the country leaves the EU, deal or no deal, Irish businesses in every sector of the economy are facing into an uncertain future.

So what would a no-deal Brexit mean for the biggest sectors in our economy?

Retail

A no-deal Brexit would have a massive impact on importers and particularly on the grocery sector. It stands in the frontline for two reasons. Firstly, many groceries, for example prepared foods, particularly those including meat, face significant tariffs, or import taxes in a no-deal Brexit.

Secondly, perishable grocery products are particularly vulnerable to delays, either those coming directly from the UK, or through the UK from continental Europe.

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UK papers published this week warned of the risk of a two-day delay at Dover for trucks in a worst-case scenario for a period after a no-deal happens. This would cause chaos for perishable products coming through the landbridge to Ireland.

While the delays could be expected to ease in time, the impact of tariffs and the cost of new regulations would be longer-term factors, though they could conceivably ease in time from whatever EU-UK trade deal is eventually agreed.

The retail sector has put extensive work into looking at its supply chains and vulnerable products, according to Thomas Burke, head of Retail Ireland, the IBEC group representing the sector.

This has included opening up new supply routes from Europe via ferry – which is slower than using the landbridge – and assessing whether some products that currently come from the UK and are subject to tariffs could be replaced by local goods.

In some cases, tariffs could amount to between 30 and 40 per cent of the price of import, so certain goods will simply be priced out of the Irish market. In other cases, retailers will have to choose whether to absorb some of the tariff and how much might be passed on to customers.

Work by economists Martina Lawless and Edgar Morgenroth for the ESRI estimated that prices for consumers could rise 2-3.1 per cent – or €892-€1,360 per household annually. Lower-income households, which spend proportionately more on food, would take a bigger percentage hit to their spending power.

Prices would rise because of tariffs, but also because of higher costs to business from new bureaucracy and regulations. As well as food, price rises are likely for clothing and for larger products such as cars.

The 'booze cruise' could be back in the event of a no-deal Brexit

However, increasing prices for groceries will not be easy. Burke notes that average price levels remain around 1999 levels and consumers are extremely price sensitive. Some products may also disappear from our shelves either temporarily or permanently, as Taoiseach Leo Varadkar noted recently.

Among the products we rely on the UK to provide are cereals, biscuits, tea bags and a variety of prepared foods.

In terms of products coming through the landbridge, perishable foods such as vegetables and fruits from southern Europe and beyond are vulnerable, though some of these do already come via ferry from Rotterdam.

Two other changes for Irish consumers are also on the horizon if a no-deal Brexit transpires. One is the return of duty-free shopping at Dublin airport and on ferries to an from the UK. The “ booze cruise” could be back.

The other is new rules for online shopping.

In addition, if consumers are buying from a retailer based in the UK, then existing rights under EU law will not apply. This may affect the right to make a return of a product, though some retailers may offer this, or to cancel an order before it is dispatched.

As happens now with goods coming from the US, VAT is also payable on items valued at over €22 and customs duties would have to be paid on items over €150. Refunds should be possible if goods are returned, but will require the consumer to apply.

Exporters

Exporters to the UK market are directly in the line of fire if there is a no-deal Brexit. Many put preparations in place last March, the original date for the UK’s departure from the EU, and have now had to repeat the exercise. With no clarity on whether a no-deal might happen at the end of October, the end of January 2020, or not at all, this is a frustrating and expensive exercise.

An issue for many, according to Fergal O’Brien, director of policy at IBEC, is that international markets into which they sell are already softening, with slowdowns in the UK, US and continental markets.

A no-deal Brexit adds another threat to this cloudy outlook, which O’Brien feels is already set to be reflected in growth and investment plans in the fourth quarter.

The real challenge will be for companies selling perishable products into UK markets or those facing large tariffs. These two problems coincide in the food industry and particularly the beef sector, which is hugely vulnerable to a no-deal Brexit.

This is likely to lead to heavy tariffs on its products in the UK market – the exact levels have still to be confirmed by the UK but indications are that on many products they could by 50-60 per cent or more.

This effectively prices much of Irish beef out of the UK market and, as this is where 50 per cent of our beef goes, this is a huge problem for the sector and will threaten factories and prices to farmers.

“The UK market has offered the highest returns for many years for Irish farmers,” according to agrifood economist Ciarán Fitzgerald, with the UK a major importer of beef as it does not produce enough to meet its needs. A hard-Brexit with high tariffs would lead to a situation which is “just not sustainable”, he said. An eventual UK/EU trade deal could free up the market in the years ahead – though the UK could also choose to import cheaper beef from South America.

Supporting the beef sector will be a major issue for the Government in the event of a no-deal – and one where it will also hope for some EU support. Already, the impact is being felt in cattle prices because UK retailers are understandably slow to confirm orders for after October 31st.

A no-deal scenario and the expected immediate imposition of penal tariffs would be devastating. Fitzgerald notes out that while some market diversification is possible, many of the major EU markets are already largely self-sufficient.

The other main agrifood area exposed is cheese, according to Fitzgerald, with the UK being the main market for Irish cheddar in particular. Again, tariffs threaten the future of this trade. Glanbia, one of the major processors, has invested in producing other cheeses, with major sums put into gouda and mozzarella. The hope is to reduce the amount of milk that goes into cheddar production and target new markets with other cheeses.

Beyond the food sector, many SMEs have the UK as their only export market and face new bureaucracy and, in some cases, tariffs. Many have not yet even applied for the official EORI ID needed to export outside the EU. Studies have shown that the type of smaller companies worst affected are more likely to be in rural Ireland and, as well as food, operate in areas such as engineering.

IBEC says the Government has still to provide clarity on how companies will be supported and it is hoping this will come in the budget. O’Brien says that as well as investment supports, it is vital the companies get support to keep employees on their books through the initial disruption.

A concern for business is that the necessary EU state-aid clearances be obtained in time to allow these supports to kick in quickly. The reality is that, for some firms at least, immediate “life-support” will be needed.

Aviation

Anyone travelling from the UK following a hard Brexit will have to go through the green, rather than the blue, customs channel at Irish airports. This will apply to anyone, including Irish citizens, as the UK will no longer be part of the single market or customs union.

The common travel area, a free-movement agreement between the Republic and the UK, means that little will change at immigration. Passengers from the UK will still go through the lanes reserved for EU and European Economic Area (EEA) travellers at Irish airports. However, they will be re-labelled “EU, EEA and UK”.

DAA, owner of Dublin and Cork airports, says it will have new signs and staff to direct passengers ready in case of a hard Brexit.

However, a spokesman for the company noted that nobody yet knows the likely economic impact on aviation. A hard Brexit could hit both countries’ wealth and incomes, potentially cutting passenger numbers, hitting both airlines and airports. Around one-third of the 31 million people who travelled through Dublin airport last year were going between the Republic and Britain. Those numbers could fall if the UK left the EU without a deal.

As a hard Brexit would exclude the UK from the EU’s air travel treaties, it was feared that this would freeze travel between the two jurisdictions, including the Republic. However, Brussels and London agreed that flights could continue for 12 months at least.

A hard Brexit would cut the entire island off from the EU electricity market, pushing up wholesale costs

The Republic’s safety regulator, the Irish Aviation Authority, confirmed that there would be no disruption to flights. “Safety of passengers and flight crews is our number one priority and the existing safety standards and rules will continue to apply,” the organisation said.

Both Aer Lingus parent, International Airlines’ Group, and Ryanair, say that they have taken steps to ensure that they satisfy EU airline ownership rules post Brexit.

Energy

A hard Brexit could potentially add to homes’ and employers’ electricity bills, but network operators say it is unlikely to disrupt supplies.

Natural gas and electricity are supplied, bought, sold and transmitted through all Ireland markets and networks. Neither Eigrid, the national electricity grid operator, nor Gas Networks Ireland, expect Brexit to interfere with this.

However, some sources say wholesale electricity prices could rise. Electricity is traded on an EU-wide market, to which Ireland north and south are connected via Britain.

A hard Brexit would cut the entire island off from the EU market, pushing up wholesale electricity costs. Employers and homes would not feel the impact immediately, but it would ultimately feed through to the prices that their suppliers charge, particularly if the UK were to stay out of the Europe-wide market in the longer term.

David Martin, an Eirgrid spokesman, confirmed that the “single electricity market (SEM) would continue to operate as an all-island one in the event of a no-deal Brexit”.

He said that trade with Britain would continue via power lines running under the Irish Sea. However, in the event of a hard Brexit, EU rules would only allow Britain and Ireland to trade electricity with each other on an intraday market, that is on the actual day that power is required. However, the same rules will prevent day-ahead trading, that is, buying and selling electricity the day before it is needed.

Gas Networks Ireland said that following extensive talks between the Republic, UK and EU, no disruption to supplies is expected, even following a no-deal Brexit.

“Ireland and the UK have successfully operated in a connected and interdependent energy system since the early 1990s,” the State company said. It added that the Republic, the North and the Isle of Man received their gas through its pipelines.

“Given the interconnected nature of the markets, all parties remain strongly committed to the continued successful operation of the gas interconnectors and to ensuring that gas will continue to flow – regardless of the outcome of Brexit.”

Medicines and pharmaceuticals

Access to medicines has been one of the highest priority concerns for doctors, pharmacists and the Government, given the often critical nature of these products for patients.

The British government’s Yellowhammer report warned that a 40-60 per cent fall in the amount of traffic getting through the channel ports would inevitably pose major risks for medicine supply. But Irish industry sources are more sanguine.

Pharmacists have been concerned about the availability of medicines post-Brexit. Irish Pharmacy Union spokesman Jim Curran says they have been assured that “everything that can be done is being done to plan for and prevent any potential problems that could crop up as a result of Brexit, and to put solutions in place”.

“Most importantly, we have been told that there are several months’ supplies of medicines in the supply chain in Ireland, which will prevent any immediate interruption to supply in the aftermath of the UK’s withdrawal.”

The main concern in the immediate term relates to medicines with a short shelf life, such as those relying on refrigerated supply chains. The Irish Pharmaceutical Healthcare Association (Ipha), which represents the big, research-driven drug companies here, says the HSE has been working with the Irish medicines regulator and the industry to put contingency plans in place.

“Revenue is helping to smooth transport channels and prevent delays,” said Ipha spokesman Bernard Mallee.

He said there are about 4,000 medicines marketed in Ireland, of which 60- 70 per cent come from, or pass through, the UK.

Ibec group BioPharmaChem Ireland said most companies have made plans to access raw materials “either going around the landbridge or putting necessary stocks in place”.

“Those companies that ship product across the land bridge would have taken similar measures ,” said director Matt Moran.

Ipha confirmed that there is always two to three months’ supply of medicines in the system. “These stocks will help to absorb any short-term delays that could arise,” Mallee said, adding that there was no need for hospitals, pharmacists or patients to order extra quantities of medicines, or for doctors to issue extra prescriptions.

“That would risk disrupting existing stock levels and hamper the supply of medicines for other patients,” he said.

On medical devices, Sinéad Keogh, the director of the Irish Medtech Organisation says companies have taken steps since the Brexit vote to derisk supply chains and organise new routes for raw materials and products.

The bigger concern is that the timing of the departure exacerbates an already serious issue for medtech companies in getting all their products recertified to meet new EU regulations that come into force next year.