Hard cheese: Brexit and the Irish food sector

Brexit has been a long-drawn-out saga, and it looks set to continue: the recent deadline of October 1st, 2021, for the implementation of additional trade checks and paperwork by the UK government for goods imported into the UK has been pushed out again until the new year.

Nancy Fallon, a partner at KPMG, explains what Irish food producers exporting into the UK can expect. "From January 1st, 2022, food exporters to Britain will be required to submit a pre-notification of goods moving to Britain. Furthermore, additional paperwork in respect of export health certificates and phytosanitary certificates will be required from July 1st 2022."

In addition, “physical border checks on sanitary and phytosanitary (SPS) goods are also postponed from January 1st, 2022, to July 1st, 2022. However, full customs declarations and controls will be introduced on January 1st 2022 as previously announced – noting that safety and security declarations will not be required until July 1st, 2022.”

While those who were to be affected may be breathing a sigh of relief for the reprieve, there’s no doubt that at some stage – whether July 1st, 2022, as now planned, or even later again – these requirements will be fully implemented. When that happens, how will the Irish agri-food sector, which currently exports more than €5.6 billion per year to the UK, be affected?

Brexit has already negatively affected the sector, with the export of food and drink products to Britain falling 35 per cent, from €641 million to €418 million, in the first two months of 2021, compared with the same period in 2018, according to a study from the Central Statistics Office, Food and Agriculture: A Value Chain Analysis.

What to expect

So what can food producers expect when the full regulations are implemented? Tadhg Buckley, director of policy and chief economist at Irish Farmers' Association, believes that although farmers won't be unduly directly affected by the additional checks as they primarily sell on their produce to be exported, the real impact to them will be the additional costs the regulations will incur, which will be pushed down the line on to the food producers.

“Any time you add friction to trade, it inevitably leads to extra cost. It’s passed back to the primary producer. This will be the real impact whenever the regulations come in. It will lead to friction on trade and [therefore] additional costs and that’s going to be met by primary producers,” he says.

Nancy Fallon believes that exporters are likely to be the real victims of the regulations. She says, “There is little doubt that the successful completion of new UK trade agreements will bring further pressure to Irish food exporters, in terms of competing for customers.”

Fallon adds that the introduction of these checks and controls on the export of products from Ireland into Britain will result in additional costs and the potential for delays. "It is estimated that the costs associated with these as well as other non-tariff barriers arising from Brexit are equivalent to a 6-13 per cent tariff."

These costs are not limited to goods exported to Britain, but also to goods that use the UK as a land bridge. This cost can be €500-€800 per truck, according to Meat Industry Ireland.

Eugene Drennan, president of the Irish Road Haulage Association, says there has been a concerted effort to move away from using the UK as a land bridge for this very reason. "We supported getting more direct ferries for Ireland. We couldn't rely on the land bridge any more as anything that stopped the flow of goods became a massive problem for Ireland.

“We now have direct ferries, which are lifesavers for Ireland and a big help for capacity. The direct ships lead to shorter timelines and better conditions for Irish hauliers.”

Ireland has historically had a high reliance on the UK as a market, with more than a third of agri-food exports destined for the country every year. The UK market is very valuable to Ireland, not just in terms of market size but also as their diet tends to be similar to the Irish diet.

“It’s our most lucrative market from a dairy and beef perspective, and it was the easiest market to send produce to, as we share similar dietary trends to the UK. For example, they consume a huge amount of cheddar, too, and outside of Ireland and the UK, the market [for cheddar cheese] would be much smaller,” says Buckley.

How can the sector mitigate Brexit’s effect?

The resounding response to the question of how to mitigate the effect of Brexit is to diversify the market.

Dr Kevin Hanrahan, head of Rural Economy Development programme, Teagasc, says that while the UK is a major market for Ireland, its reliance has been declining in recent years. In order to replace the UK as a major market, Ireland has to look further afield.

"With the EU market already quite saturated, Ireland is looking to places like Japan and China. The diversification challenge is enormous - it's a competitive world out there," he says.

Fallon agrees that diversification is key but is optimistic of its success. “Irish food producers have a long history of creating successful overseas markets for their product. This, coupled with a focus on continuing to produce a premium, sustainably produced product, will provide an excellent platform from which to grow markets in the EU and beyond.”