Brexit talks between London and Brussels have ramped up in recent weeks with the hope that a free trade agreement can be reached before the clock runs out on negotiations when the transition period comes to an end on December 31st. No deal is bad news for Ireland and in particular Irish farmers, who since the Brexit vote in 2016 have faced huge uncertainty.
The fact that half of Irish beef exports go to the UK and sterling volatility has played havoc with the prices paid to producers here, Irish farmers have had a “torrid” time according to Tim Cullinan, Irish Farmers’ Association (IFA) president and this type of market disruption is only a foretaste of what is to come without a free trade agreement by year-end.
"No country and no sector is as exposed as we are. Irish farmers face the threat of a 'no deal' scenario, where the proposed tariff rates would be very punishing. Irish beef that goes to the UK market would cost €8.5 million more each week under World Trade Organisation (WTO) rules," he says.
If there is no free trade agreement between the EU and the UK, the UK will introduce their global tariff (UKGT), on January 1st, 2021, at the end of the transition period. The UKGT replaces the UK’s temporary tariff schedule. The UKGT falls under the WTO most favoured nation duty rates that will be applied to goods entering the UK from third countries.
Bord Bia has completed an analysis of the tariff regime. Using CSO 2019 trade data, it estimates that the combined impact of all UKGT duties, based on the €5.5 billion of agri-food exports to the UK in 2019, would be in the region of €1.55 billion, which is an ad valorem equivalent of 28.3 per cent .
They have also attempted to estimate the cost of non-tariff barriers, for example customs agents and revised supply chains. Bord Bia has been quoted customs agent fees of €20-€50 per consignment which would have a significant impact on the cost of Irish goods being exported to the UK.
Retail chains
Currently big retail shops in the UK such as Tesco, Sainsbury and Asda buy Irish beef but the largest volume is sold in the catering and food service sector.
“Irish dairy exports are less reliant on the UK than beef exports, although the UK is the largest single market accounting for €396.9 million in exports so far this year. This is a fall of 10 per cent on the same period last year, while volume is down just under 7 per cent to 160,283 tonnes,” Emmet Doyle, British meat market specialist for Bord Bia says.
While the UK remains the most important market for Irish beef, farmers are exporting successfully into other countries and sales continue to grow year on year.
“Beef exports to the US have doubled in the first half of 2020 to 3,874 tonnes. The Philippines is a strong market for lower-value cuts of Irish beef with 12,151 tonnes exported in the first half of 2020. Following the EU-Japan trade deal of 2019, Irish beef exports to Japan have enjoyed some success with 2,800 tonnes exported between January and June this year – compared to virtually nothing last year,” Doyle adds.
So far 6,105 tonnes of beef have been exported to mainland China this year and were performing well in 2020, “until a single case of BSE was discovered in Ireland which resulted in a temporary suspension of Irish beef exports to mainland China. As of yet, exports have not resumed,” Doyle says.
In relation to Irish dairy, many efforts have been made in recent years to find alternative markets for products as a result of the anticipated trading tariffs and customs challenges.
“Punitive tariffs of 52 per cent on cheddar cheese would be very severe as we send half our cheese to the UK market. On butter, the rate of 43 per cent would have a dramatic effect on the market. It is clear that the ability of our exporters to continue trading with the UK would be put into question. This would, in turn, have a deeply damaging impact on the incomes of dairy farmers,” Cullinan says.
South East Asia
The cumulative markets within South East Asia are of strategic importance to the Irish dairy industry, with a strong desire from there for dairy products.
“Indonesia, Malaysia, Philippines, Thailand and Vietnam combined have doubled their importation of Irish dairy products since 2015 and, last year, total exports of Irish dairy to these markets were valued at €163.7 million. Skim milk powder, fat filled milk powder, whey powder and buttermilk powder all feature in this market diversification effort by Irish exporters which has seen ongoing and increased interest from buyers in this region,” Mary Morrissey,senior dairy manager Bord Bia says.
Tracking consumer sentiment in the UK throughout 2019 to understand how Brexit has impacted on perceptions and attitudes towards the Republic of Ireland and food and drink categories, “showed affinity towards Ireland’s food and drink remained as strong as ever, with the proportion of shoppers considering Ireland as a ‘friend’ of the UK and over half of UK shoppers claiming they would miss Irish beef and dairy products if there became limited availability or an increase in price. Some 87 per cent of shoppers are open to choosing Irish food and drink,” Doyle says.
The most successful outcome for farmers would obviously be in maintaining full access and frictionless trade between Ireland and Britain, while retaining the full value of the UK market. “The ideal way to achieve this would be for the UK to remain within the single market and the customs union, but their government is taking a different approach. The UK’s stated intention of leaving the single market and the customs union and pursuing an independent trade policy including agri-food, makes it impossible to retain the kind of frictionless trade we have today,” Cullinan says.
Covid-19 effects
As a result of Brexit preparations, valuable skills in risk management have been learned by the agri-food sector and there is evidence that the industry has been better able to manage the impact of Covid-19 because of the actions it has taken over the past three years.
“Irish food and drink exporters are focused on dealing with the trade implications of Covid and Brexit, however the sector and Bord Bia continue to pursue alternative export growth opportunities. In Bord Bia’s recent ‘Risk Readiness Radar’ report, a comprehensive risk assessment study involving 128 companies, 91 per cent of respondents cited the trade implications of Covid-19 as a top priority, while export market diversification was ranked the second-biggest focus area for the industry, with over 70 per cent of companies actively pursuing diversification opportunities,” Shane Hamill,strategic projects manager, Bord Bia says.