Why is the Irish food sector so exposed to a no-deal Brexit?

Reliance on UK market combined with tariffs and bureaucracy represent nightmare scenario

The Irish beef market is particularly exposed to a no-deal Brexit, but the dairy industry could also face massive upheaval. Photograph: iStock

The Irish beef market is particularly exposed to a no-deal Brexit, but the dairy industry could also face massive upheaval. Photograph: iStock

 

Why is the food industry so worried about Brexit?

The UK is the biggest market for Irish food exports, accounting for €4.5 billion of our total food exports of €12.1 billion. The beef sector is particularly reliant on the UK, where it sends more than half of all exports, and it is also vital for the dairy sector.

After a no-deal Brexit, food exporters to the UK would face a range of immediate and serious issues. For many, the most serious is the threat of tariffs, special import taxes which would face food products entering the UK from the EU. Exporters would also face a whole new range of bureaucracy and checks and the risk of delays at ports and in transit as new customs and regulatory arrangements are introduced overnight. This is clearly most serious for those sending fresh food products, often on tight timescales to major retailers.

Why is a no-deal Brexit so bad?

A no-deal exit is the worst possible outcome because everything would change overnight on March 29th – or possibly at a later date if the EU and UK agree to extend the departure date but still can’t reach a deal. This means the introduction of customs and regulatory checks immediately on goods entering the UK market and the imposition of tariffs.

On Tuesday, Michael Gove, the UK environment secretary, said that the UK would indeed impose tariffs on food imports after Brexit to protect its food sector, even thought this would lead to higher prices for consumers. There had been speculation that it might pursue a “ cheap food” policy – allowing tariff-free access. This would have posed a different threat to Irish exporters – having to compete with cheap beef from South America, for example. Gove’s comments suggest that the UK is not going down this road, though he has not clarified the level of tariffs planned and this would be crucial.

Michael Gove, the UK environment secretary, said that the UK would indeed impose tariffs on food imports after Brexit. Photograph: Reuters
Michael Gove, the UK environment secretary, said that the UK would indeed impose tariffs on food imports after Brexit. Photograph: Reuters

If the UK imposes the same level of tariffs as the EU does currently on food coming from outsider the Union – levels set by the World Trade Organisation – then this will mean particular problems for beef and dairy and also serious threat to other parts of the food industry.

If a withdrawal agreement was finalised between the EU and UK then it would remain possible that the food sector could face tariffs at some stage in the years ahead and new competition in the UK market, depending on what future trade deal was done. However before that there would be a lengthy transition period lasting until at least the end of 2020, offering much more time to adjust.

Why is beef so exposed?

Around 52 per cent of Irish beef exports go to the UK, which offers the best price in Europe and where consumers are used to the kind of product coming from our grass-based system. Major retailers such as Asda, Tesco and Sainsbury rely on Irish beef. Some 60 per cent of Irish beef exports to the UK are of fresh product, with tight delivery times, and the rest frozen. So any Brexit-related delays or transport disruption would be a big problem,while exporters would also face expensive new customs and regulatory requirements.

Meat Industry Ireland, the Ibec body representing the sector, estimates that UK tariffs would be valued at €750 million on Irish beef exports worth around €1.4 billion. This would effectively price a lot of Irish beef out of the UK market. The cost of a tariff is paid by the importer, but UK supermarkets would not be able to pass this on to consumers, nor would Irish suppliers be able to absorb it.

A massive upheaval in the sector would thus be likely, with a much lower level of Irish beef sales to the UK, barring some massive scheme of official support for the sector here. This would knock on to significant job losses and to much lower prices for beef farmers, delivering a big hit to the rural economy. Some higher value Irish beef might still sell in the UK, some would sell at lower prices in other markets and there would be some new opportunities on the domestic market for Irish producers.

Other sectors are also exposed – for example cheddar cheese sales into the UK and many consumer foods exports which would face lower tariffs, but still enough to cause serious difficulties. There are also question marks about cross-border trade in Ireland, notably the supply of milk from Northern processors to the Republic and whether this could face new delays and checks. Must of this will depend on what regulatory regime is introduced.

What could be done?

The industry and farmers are calling for a major programme of support from the Government and the European Commission. Food exporters say a tariff stabilisation fund is needed to deal with the €1.7 billion in tariffs which the UK could put on the €4.2 billion of total Irish food imports. This would allow Irish food products to stay in the UK market, effectively via a subsidiary. Farmers are also calling for a big increase in EU supports and a setting aside of current EU state-aid limits. There is precedent here for support for special factors, notably the support from the EU to farmers and food producers hit by the closing off of the Russian food market in 2014 in response to EU sanctions related to the Russian military intervention in the Ukraine. Total EU exceptional support provided arising from the Russian ban on EU imports has been €1.7 billion with a further €200 million to be provided in 2020. Of that, €770 million was specifically allocated to the dairy and livestock sector.

Farmers are calling for a big increase in EU supports, and there is some precedent for this. Photograph: iStock
Farmers are calling for a big increase in EU supports, and there is some precedent for this. Photograph: iStock

The Republic the the European Commission have been discussing the issues, but it is not clear yet what cash might be available from EU funds or what flexibility Ireland could be allowed in relation to state-aid rules to spend Irish exchequer cash.

What does this mean for consumers in Ireland?

The EU would impose tariffs on UK imports after a no-deal Brexit. This would push up prices for consumers and could add around €1,000 to a typical Irish shopping basket, according to research undertaken by the ESRI. As well as tariffs, prices will rise due to the extra cost to businesses of moving products from – or through – the UK to Ireland. The ESRI found that if tariffs were introduced and other trade cost also increased following a hard Brexit, the price of bread and cereals could rise by up to 30 per cent, while milk, cheese and eggs prices could increase by 46 per cent. Price rises elsewhere would be less dramatic,as tariff levels are highest on food.

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