Irish grocery sector could be hardest hit from Brexit - study

The Republic's grocery sector could be the hardest hit from Brexit with more than two-thirds of products on Irish supermarket shelves either manufactured in the UK or imported through Britain, a new report has revealed.

As UK cabinet ministers hold crucial talks to try and agree a Brexit strategy, the latest research suggests the administrative burden of customs checks in the event of the UK exiting the EU customs union - even if handled electronically - would be extremely disruptive for the retail sector here, resulting in increased costs, which may prompt some operators to pull out of the market.

While much of the focus to date has been on the likely fallout for Irish exports, the latest study, conducted by economists John FitzGerald and Edgar Morgenroth for the Institute of International and European Affairs (IIEA), examines the impact of Brexit on Irish imports.

It comes as a separate report from the Economic and Social Research Institute (ESRI) highlights the exposure of Irish-owned businesses, which rely on the UK as the source of intermediate inputs, to Brexit. Currently about 26 per cent of the State’s goods imports comes from the UK either as materials to be used as inputs in Irish business or as consumer goods for the retail sector.

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Because the effects of Brexit would be much milder if the UK remains in a customs union, the IIEA report, which will be officially launched on Monday to coincide with the UK’s latest Brexit white paper, concentrates on the worst case scenario where the UK leaves the customs union.

It notes that the retail sector here and across the EU is based on a system of centralised distribution channels.

Rather than suppliers delivering to every shop, they make deliveries to central warehouses, and then regular deliveries are made from these to each shop by one lorry carrying multiple product lines.

This system is “incompatible” with customs checks, the report concludes. “Where there is some form of customs checks, every different item in a lorry will have to be separately identified for customs, to ensure that the correct tariff [or none is applied],” it said.

With so much produce either manufactured in the UK or imported through the UK, the grocery sector here was highlighted as one of the most vulnerable to this sort of upheaval. “Some existing retailers, which organise on a joint Ireland-UK basis, may pull out because of the significant increased costs of supplying the Irish market, and it will also make future new entry for UK retailers more difficult,” it said.

The study suggests restrictions on UK imports here would be transmitted through several channels, directly in the form of tariffs, which would increase the price of imports, and indirectly in the form of non-tariff barriers

The report also cited a previous study by the ESRI, which suggests that, depending on the nature of Brexit, it could raise consumer prices here by 2 to 3 per cent “with the effects being greater for those on low incomes than those on high incomes”.

This price increase will eventually be passed through into higher wages. “Thus a permanent increase in the price level due to Brexit would have a permanent effect on Irish labour costs, and a resulting long-term negative effect on Irish output and employment.