Sterling reverse could be first Brexit setback for food industry

The Brexit-related slide in sterling wiped a potential €570 million off the value of Ireland's food and drink export trade with the United Kingdom, according to Bord Bia's latest export performance and prospects report.

When increased export volumes are taken into account, the actual hit was closer to €300 million, which is modest in the context of a sector worth €11 billion to the economy.

That said, the reverse may just be the opening sequence in what is likely to be a more prolonged and complex disruption to trade with our nearest neighbour.

Consumers and businesses are only adjusting to the new euro/sterling exchange, and the impact on consumption patterns and exporting volumes has yet to fully play out.

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The sterling factor could also be overtaken by a greater set of challenges if Britain chooses to exit the single market in 2019, raising the prospect of export tariffs and “hard” borders.

Such a scenario could be compounded if the UK opts for a swift, post-Brexit deal with Mercosur, resulting in a flood of cheap food from South America into Ireland's largest export market.

The sector has dealt with significant crises in the past, including BSE, foot-and-mouth disease, dioxins, but nothing on this scale.

No upside

As Minister for Agriculture

Michael Creed

said at the launch of the Bord Bia report, there is no upside to Brexit for the Republic’s food and drink industry.

The only real policy option is market diversification. This is how Irish pig-meat producers dealt with the Russian food embargo, by essentially redirecting their produce into emerging markets in Asia.

Bord Bia’s director of markets Pádraig Brennan said some 80 per cent of total export growth last year was driven by trade to international markets where higher demand, improved market positioning and relatively steady exchange rates helped improve the competitive position of Irish exports.

He said the share of exports destined for the UK fell by 4 percentage points to 37 per cent in 2016. This trend is likely to accelerate amid the current climate of uncertainty.

The slide in Irish food exports to the UK last year was mirrored by a similar-sized pick-up in international markets, most obviously China, which is now our second biggest market for dairy.

Biggest component

Beef remains the single biggest component of Ireland’s food export trade, valued at €2.4 billion last year, and, with 50 per cent of exports going to the UK, the most exposed to Brexit.

The opening up of new export markets such as China, where consumption rates are rising sharply, is now more urgent than ever. The Department of Agriculture says it is working closely with Chinese authorities to finalise the remaining technical steps to allow trade to commence, but progress is very slow.

Ireland’s food and drink trade may be dwarfed in financial terms by pharma and IT, but its employment footprint, roughly 270,000 people, is bigger than the other two combined, and its future health is crucial to the rural economy.