The UK's intention to exit the EU will have profound effects on our agri-industry. This we know. According to a report just published by Ibec (formerly the Business and Employers Confederation) and the Food and Drink Industry of Ireland, our exports to the UK have already dipped by 5.6% in the last twelve months. The report claims that “a 1% weakness in Sterling results in a 0.7% drop in Irish exports to the UK.” It goes on to suggest that if Sterling “was to weaken further towards the £0.90 mark, this would translate to losses of over €700 million in food exports and about 7,500 Irish jobs.”
Forty-one percent of Ireland's food and drink, worth €4.4 billion, is destined for the UK market. The UK buys 70% of Ireland's prepared consumer food exports, 56% of all meat exports, 30% of dairy exports including 60% of cheese and 32% of alcohol exports. The importance of this market to our farming sector cannot be underestimated.
The Ibec report presents a strong argument that there is a correlation between Sterling exchange rates and Irish exports to Britain. It draws drastic conclusions about job losses and the cost to the Irish economy if sterling does not recover, which makes for grim reading. But can we be sure Ibec is right?
Irish exports to the UK fell dramatically in the first half of 2016, partially influenced by the fall in sterling, but they have recovered since September, even with a weakened Pound. It's been a terrible year for cattle and dairy prices, but these too have recovered of late. This would seem to contradict Ibec's position that a recovery in sterling is necessary, given that sterling is still slipping downwards, currently at £0.82 to €1.
Ibec recommends that the government put financial supports in place, similar to the €200 million distributed during the economic crisis by the Enterprise Stabilisation Fund and the Employment Subsidy Scheme. It also calls for stable access to a €500 million agri-food fund from the Irish Strategic Investment Fund, so businesses can update technologies and expand if needs be. In addition the report calls on government to diversify target markets through a €25 million Budget 2017 allocation, which would be used to help businesses identify target markets and to carry out whatever changes they need to access them.
Ibec denounces the cost of doing business in Ireland, with high interest rates for borrowing and high costs for labour, capital and materials. The report recommends that no increase in minimum wage is granted in the coming budget. In short, Ibec wants to provide financial support to businesses who are already suffering from lower profitability as a result of the fall in sterling.
It is true we have a high-cost economy with many impediments, but we have natural advantages too. Our reputation is such that we can price our goods at a premium and produce it relatively cheaply given our terrific grass-growing ability. Many of the problems Ibec identifies affect export businesses more than they affect farmers. Our problems stem from getting a fair deal from processors who use every excuse in the book to deny us our slice of the pie.
Ibec wants support to be put in place for exporting businesses so they will be insulated from the shock of further slumps. This is fair enough so long the businesses are in genuine need of it. Large companies like Glanbia, Dairygold, ABP, Dawn etc have cash reserves to cover such eventualities. Rather than giving it to those who don't need it, this money, if it becomes available, should assist genuine diversification efforts, by supporting smaller businesses with niche products and good ideas, especially in terms of sustainability.
The UK market will always be important to Irish producers, but we cannot now be sure of its future form. The outcome of negotiations is impossible to predict at present and a lot will depend on the way in which regulations on trade settle.
Ireland's best aim might be for a separate trade deal with the UK, especially if Westminster insists on a hard border in the north. Such a demand would give Irish negotiators traction to demand some certainty on trade. The difficulty would be in getting the EU to sanction it. Our historic ties to Britain and geographical imperatives of a shared land border stand in our favour. Other states have negotiated provision for their own special status like Norway, which is not an EU member but is part of the common market.
In conclusion, we need to expand our horizons and search out international target markets; but most of all, we need to re-educate supermarkets and consumers about the true value of good quality food, because this would make all the difference to farm gate prices.