Irish farmers are watching on with serious concern as negotiations between the European Union and the UK on a future trade deal go down to the wire. Ultimately the profitability of their businesses hangs in the balance – particularly for beef farmers. In any given year, five times more Irish beef will be consumed in the British market than in our domestic market.
At present, agri-food exports from Ireland enter Britain without restriction – product moves as freely between Cork and Cheshire as it does Cork and Carlow. Tariffs are non-existent and the market landscape is common across all. In 15 days’ time this all changes.
In the event that talks collapse without a deal the rules of trade between the UK and EU member states will be dictated by the World Trade Organisation (WTO). With this comes the introduction of border checks and tariffs, which are effectively import taxes.
Hope remains that talks will conclude with agreement on a basic free-trade deal
The tax rate applied depends on the product, with many goods attracting a very low or even a zero tax rate. However, not so for agri-food products. In the case of cheese, a 52 per cent rate is applied, increasing to 62-72 per cent across a range of fresh beef products. This means that a typical 360kg carcass from a finished animal, currently trading into the British market at the equivalent of €1,350, would cost €2,187 under WTO rules.
Farmer concerns stem from the worry that the €837 per head tax would be reflected in the farm gate price rather than allowing the retail value of a typical steak increase by €6.
Disproportionate impact
With 38 per cent of our agri-food exports destined for the British market the total tax bill levied on the agri-food sector has been calculated to be in the region of €1.35 billion per annum – 80 per cent of Ireland’s total tariff bill, which is estimated to be €1.7 billion.
We see the same disproportionate impact at EU level. Ireland’s agri-food sector would carry about 16 per cent of the total WTO tax burden levied on all 27 member states across all sectors. This reflects both the level of exposure Ireland has to the British food market plus the scale of the taxes applied to agri-food products.
If Irish agriculture was a country it would have the second-biggest tax bill after Germany in a no-deal Brexit.
Access to a €5 billion EU Brexit crisis fund plus a financial package at national level will provide short-term pain relief for farmers in 2021
Hope remains that talks will conclude with agreement on a basic free-trade deal. Such an outcome would avoid the immediate impact of taxes. But there is no such thing as a good Brexit for farmers. While a trade deal would see east-west trade flows protected in the short term, the longer-term threat of Brexit on farm incomes remains.
Initially there will be the cost of non-tariff barriers. Increased regulator checks and inspections that would be required, even in the event of a deal, have been calculated to cost the equivalent of €40 per animal in the case of beef and the equivalent of 1.2 cent per litre for dairy products.
Erosion of value
But this is only the start. The real cost will come in the erosion of value in the UK market. It will not happen overnight but the direction of travel will be clear and sustained. A basic free-trade agreement leaves the British government free to open up its markets to third countries in a bid to achieve its global trade ambition.
With food import demand averaging close to €100 million per day, granting access to this market is one of the most valuable bargaining chips the British can bring to international trade negotiations. Despite words of comfort in relation to supporting British farmers, it is a chip that will quickly come into play.
Already we see Britain reach an advanced stage in trade negotiations with Australia and New Zealand. Both are focused on gaining access for beef and dairy products. Meanwhile the United States, Brazil, Argentina and Uruguay will all want a slice of the cake as each seeks to advance trade discussions.
The Irish dairy sector will see challenges but its international competitiveness will provide protection. Irish beef does not have the same protection and could quickly find itself sandwiched on the retail shelf between British and Brazilian beef. In this scenario a declining share of a lower-value market will significantly curtail the flow of beef exports to Britain from Ireland in the years ahead. Those believing that British retailers and consumers will resist the temptation of cheaper imports forget that it is a market that once sold six beef burgers for £1.
Against this backdrop, while reaching a deal will provide temporary relief for farmers, it will not protect them from the economic fallout of Brexit. There will be little appetite or reason within the farming community to celebrate should last-ditch talks bear fruit. Instead attention will quickly turn to how both the EU and the Government will deliver on its promise to protect farm incomes regardless of the outcome of Brexit.
Access to a €5 billion EU Brexit crisis fund plus a financial package at national level will provide short-term pain relief for farmers in 2021. But it is not a long-term solution to a problem that will steadily become more acute. Market reorientation within the EU will be required to underpin both demand and maintain value.
The most obvious way to achieve this would be to rebalance the EU market by restricting non EU imports – particularly in the case of beef from South America. Such a move is likely to face stiff political resistance. However, EU leaders are likely to become much more solution-focused on what they currently view as an Irish problem when they realise the impact that 250,000 tonnes of Irish beef displaced from Britain could have on their domestic markets.
Justin McCarthy is editor and chief executive of the Irish Farmers Journal