IBEC fears effect of pound rise on D-mark

AS the pound surged again against the deutschmark yesterday, business organisations warned of ever-tighter margins for Irish exporters to Germany. The employers' lobby IBEC said the food sector was suffering most and An Bord Trachtala said that, while there was no sign of panic, if the trend continued margins would be eroded.

The Republic exports more than £1 billion worth of food to Germany and the Benelux countries, whose currencies are effectively tied to the deutschmark.

Last year, Germany alone bought £506 million worth of processed food and drinks concentrate from the Republic, £117 million of dairy produce and £65 million of meat. The Netherlands bought £260 million in dairy products and £100 million of meat and processed foods, and Belgium bought food products totalling £70 million in value.

"Irish food exporters are now in a position where their margins are under pressure and it's difficult to maintain market share," said Mr Ciaran Fitzgerald, director of IBEC's food sector.

"In order to stay in the market you have to reduce costs. But costs are more and more difficult to reduce," he continued.

An Bord Tractitala said it had been monitoring the rise of the pound against the deutschmark and noted a 5 per cent jump since mid-summer.

An economist with the board, Mr Alan Fitzgibbon, pointed out that as well as food, the Republic's major exports to Germany included automobile parts and engineering and electronic subcomponents and sub-contracting.

"Our exports mix to Germany is not highly price-sensitive," Mr Fitzgibbon said. "Our basket of exports to Britain, for example, would he far more price-sensitive." Exporters to Britain have gained from the recent fall in the pound to close to parity with sterling.

For the moment, he said, despite the gap that had opened up between the pound and the deutschmark, Irish exports to Germany appeared to be holding up quite well.

"We haven't had evidence of panic from our companies as yet, but obviously if it continues margins will be eroded," Mr Fitzgibbon continued.

One of the Republic's highest-profile exports to Germany is the liqueur, Bailey's Irish Cream. The company said last night that, although Germany was one of its top five markets for the liqueur, its product was not being squeezed by the rise of the pound against the deutschmark.

Our policy is to sell forward, by 15 to 18 months," said Mr Peter Murphy, Bailey's company secretary, so it has had no effect on us yet.

But he added that although Bailey's Irish Cream was marketed to German consumers as a premium product, it could suffer in the long term if the pound continued to outrun the deutschmark.

"There's no doubt that there is price sensitivity in the market," Mr Murphy said.