Hard Brexit may not be the end for Irish farmers
UK food business could shift production to Ireland to serve EU customers
Though Cadbury has been producing in Dublin for the Irish market since the 1930s, and Rowntree since the 1920s, both initially used British ingredients. Their chocolate crumb factories in Rathmore and Mallow were built in the 1940s when milk and sugar were in perilously short supply in Britain. Both companies ended up using Irish chocolate crumb as inputs to their UK products, and also their UK exports, for many years afterwards.
There have been two competing narratives concerning the impact on the Irish economy of Brexit. One concerns the number of UK-based financial services firms moving to Dublin to retain access to the single market.
Hundreds of billions of assets have already been shifted out of London. A recent UK report identifies Dublin as the favoured destination, ahead of rivals such as Luxembourg, Paris, Frankfurt and Amsterdam.
The IDA recorded 55 Brexit-related investments by the beginning of this year, with more than 4,500 related jobs. And the shift from London has yet to begin in earnest.
Who knows what would happen if Dublin were to enjoy a Brexit-related boom while the rest of the country bears the brunt of the shock?
The competing narrative relates to the agri-business industries on which so much of the rural economy depends. These industries and the agricultural jobs they support dwarf international financial services employment by a factor of five or six. About half of Irish beef and a quarter of dairy output is exported to the UK. These are the products that will attract the highest tariffs if there is a hard Brexit and the UK defaults to WTO rules. Ireland’s rural economy would be decimated.
Who knows what would happen if Dublin were to enjoy a Brexit-related boom while the rest of the country bears the brunt of the shock? We have so far managed to avoid the anti-globalisation backlash apparent in the UK, the US and elsewhere but its one possible consequence.
A solution maybe hiding in plain sight among the financial services agri-business counterparts who will also be looking for options if they are priced out of European Union markets due to a hard Brexit.
Most of the large Irish players – Kerry Group and Glanbia, ABP and Dawn Meats – already have substantial production facilities in the UK. These can be ramped up if Irish exports lose access to the British market. Other Irish firms have been taking out insurance by establishing joint ventures with UK operators.
These precautionary foreign investments mirror to a certain extent what is happening in financial services, but the flows are in the opposite direction. These moves, though they make business sense, provide no comfort to Irish farmers. The companies’ UK facilities will be processing non-Irish produce if trade barriers go up. Irish agricultural inputs will have to find new markets.
How are these excess supplies to be soaked up? Opening up new foreign markets is no easy task. Success takes years or even decades of endeavour. It cannot be achieved in a matter of months. But the parallels with the developments in financial services suggest an avenue of opportunity.
Though Britain is a net food importer it is also a substantial exporter of particular agri-food items. UK dairy exports to the EU are 150 per cent of Irish dairy sales to the UK. A large share of these UK exports are of brand-name products, and the value of a brand is measured by the loyalty of its customers.
These items include chocolate, cheese and other processed foods – the ingredients of which are precisely the agricultural inputs that Ireland will have in excess supply if the doomsday scenario comes to pass. For some of these firms Ireland will represent an attractive location from which to manufacturer for the EU market.
There are lessons to be drawn from history here, even if somewhat oblique. Though Cadbury has been producing in Dublin for the Irish market since the 1930s, and Rowntree since the 1920s, both initially used British ingredients.
Their chocolate crumb factories in Rathmore and Mallow were built in the 1940s when milk and sugar were in perilously short supply in Britain. Both companies ended up using Irish chocolate crumb as inputs to their UK products, and also their UK exports, for many years afterwards.
British agri-food firms have not yet followed their financial services counterparts in establishing export-platform operations to protect against a hard Brexit. The explanation – according to the Centre for Economic Policy Research in London – is that they believed they would have continued access to the EU market given the priority attached to manufacturing in negotiations about the UK’s post Brexit trading relationship with the EU .
With a hard Brexit now more than possible their complacency seems misguided and Ireland’s industrial development agencies can limit some of the damage here of the UK crashing out of the EU without a deal if they can attract UK-based agri-food firms to establish export-platform operations in Ireland using Irish raw materials.
Frank Barry is professor of international business and economic development at Trinity College Dublin