Eoin Lowry is the Agribusiness Editor at the Irish Farmers Journal. He worked for 15 years in the fertiliser industry and was managing director of fertiliser importer and trader, Target Fertilizers. He is a past president of the Agricultural Science Association and of the Irish Fertilizer Marketing Association. From a farm in Laois, Eoin has an MBA from Smurfit Business School and a Masters in Agricultural Science from UCD. Here he talks us through Brexit and the agricultural perspective.
Ireland’s agrifood industry is in limbo as it operates in a world that is becoming more uncertain and volatile by the week.
Although it is more than two years since the UK voted to leave the EU, Irish agriculture and associated agribusinesses are no clearer as to what Brexit will look like, let alone how it will impact their businesses. For the past two years, an industry has held its breath amidst a fog of uncertainty. This has reduced confidence, created uncertainty, slowed investments, stagnated growth and overall has not helped the agri-food sector.
Irish agriculture is crucial to Ireland’s economy. The Irish agri-food sector is the most important indigenous sector employing 8.6% of the working population.
Importance of the UK market
The UK is our single biggest market for food and drink, buying €4.4bn of food products off us every year. It is critical to every sector in Irish agriculture, accounting for 54% of our meat and livestock exports, 30% of our dairy exports, 70% of our prepared food products and 90% of our horticulture.
Agri-food between Ireland and the UK is highly integrated. For example, 750m litres of milk moves from the North to the South for processing every year. Ireland also imports more food and drink from the UK than its next two markets combined – France and the Netherlands.
The reality is that every business and industry sells its produce in the most valuable market it finds for that product and only switches either when that market is no longer available or it finds a better one, something for which every successful business is always on the lookout. So, assuming the imposition of WTO (World Trade Organisation) tariffs in a no-Brexit situation, what happens to the Irish agrifood sector?
The tariff burden on agricultural produce is the highest of all the products that are listed in the WTO tariff guide and are at up to 100% for some beef products. It is inevitable that trade between Ireland and the UK for these products would be reduced to a trickle after Brexit, so what would the alternatives be?
All categories of agriculture currently send at least half the production to the UK. While diversifying markets sounds obvious, in reality it is very difficult to do.
For example around a third of the milk Irish farmers produce is used to make cheddar. Cheddar is not consumed in such quantities as it is in the UK. The US market is limited due to domestic production. Making alternative cheeses requires huge investment and would only displace product in European markets and ultimately reduce prices. We are seeing some recent investments in this such as Glanbia’s new mozzarella factory in Portlaoise while Dairygold is also investing with Norwegian company TINE in Cork on alternative cheeses.
Also cheese is a product made from milk and, therefore (in theory) there is at least the option of doing something else with that milk. It would take serious investment and other categories such as butter and powders may not offer as lucrative a value stream for each litre of milk.
On a positive, Irish dairy is competitive in global markets, going head-to-head with the big global exporters of New Zealand, other large European players and the US across the commodity products. Product and price premium status with Kerrygold butter in many markets helps and quality Irish powder products are a major ingredient supplier to the growing infant formula market in China.
With favourable trade deals concluded recently between the EU and Japan as well as Mexico, it is possible to visualise how Irish dairy could diversify its markets outside the UK, though it would require significant marketing and processing investment in changing the product mix.
Other markets won’t replace UK
As the largest exporter of beef in the Northern hemisphere, beef is the sector most exposed in a no-Brexit deal. There is no real alternative for beef. Irish beef has made good progress in developing international markets but remains constrained in many places by the legacy of BSE and even where there is market access such as China and Japan, it is limited to beef from cattle under 30 months old.
That is not an issue in the UK or within the rest of the EU. But the biggest problem is that there is no other market anywhere near as lucrative for high-value cuts of beef as the UK.
If the UK is effectively closed to the 250,000t of Irish beef that goes there annually, then the immediate alternative is to sell that product in the rest of the EU. However, the reality is that Ireland would have to buy its way into that market at completely unviable prices which in turn would collapse the beef price for farmers across the EU.
In a no-deal Brexit, where a WTO tariff were applied to Irish beef heading to the UK, it would double the price of beef on the UK supermarket shelf. This would be catastrophic for the 90,000 beef farms and the 13,000 people that are employed in the beef processing sector.
In conclusion the impact on all Irish livestock categories will be severe. However, all sectors apart from beef can at least contemplate alternative markets though less valuable and more costly to service. For beef, there is simply no alternative to accommodate the volume of current production.
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