Brexit: Irish consumers will have to pay extra for some goods or go without
But the complex changes Brexit will bring also present opportunities to Irish retailers
Despite having more than four years to prepare, Brexit has clearly blindsided several retailers and supporting manufacturers. Photograph: Getty
Readers of a certain age with long memories will be able to recall a time when a trip across the Border to Northern Ireland not only meant lower prices but a much wider array of goods on the shelves. A whole range of sweets, snack foods, drinks and other products were available to inhabitants in one part of the island but were denied to shoppers in the other.
This was partly a result of tariffs and quotas that restricted imports of those products, but it was also due to supply chain practicalities. Sending special shipments to Ireland with the associated customs declarations and other paperwork just wasn’t seen as an attractive business proposition.
Writing in The Irish Times recently, economist John FitzGerald envisaged a similar situation arising as a result of Brexit. “Brexit has initiated a process of divorce by the Irish retail sector from its UK partner,” FitzGerald noted. “It is now easier to import directly from the EU rather than routing through the UK. However, the buying power of Irish importers is likely to be much less than that of UK firms. In addition, the costs of setting up totally separate distribution streams is significant. The results are likely to be less choice, less competition and higher retail prices here.”
There are also likely to be other quite fundamental changes when it comes to the products available on shop shelves here. The humble sliced pan is just one example. We may think of it as a quintessentially Irish product, but the majority of flour used to bake Irish bread is actually imported from England.
That would not be a problem were it not for the rules of origin in the EU-UK Trade and Co-operation Agreement, which require that a maximum of 15 per cent of such flour can come from grain from outside of the EU. In the case of the flour used by Irish bakers, a lot more than 15 per cent of it comes from Canadian and other North American wheat. This means the cost of the flour is almost doubled as a result of duty of €172 per tonne.
According to ESRI projections, that could translate into a 9 per cent increase in the retail price of bread. Paul Kelly of Food Drink Ireland also notes that it will place the Irish bakery sector at a disadvantage to UK competitors who will not have to face duty on bread exports into the country.
Those same rules of origin are also going to have a significant impact on fashion retailing here if changes are not made to existing supply chains. At present, many UK fashion retailers with Irish branches supply those shops from centralised warehouses in the UK. Indeed, several European fashion chains supply their Irish branches via UK hubs.
Where these companies source products from Bangladesh or Vietnam or any other non-EU market and deliver them to the UK, they cannot then be exported to another EU country without incurring import duties, despite the fact that they will already have been subject to duty on arrival in the UK.
Irish consumers will either have to bear the extra costs or go without.
“As widely predicted, there has been considerable disruption from day one for certain businesses, particularly for retailers,” says KPMG retail and manufacturing lead Niall Savage. “Irish businesses already heavily impacted by the Covid pandemic now need to understand and mitigate the immediate risks arising from Brexit, but equally need to be aware of the potential opportunities presenting themselves.”
Despite having more than four years to prepare, Brexit has clearly blindsided several retailers and supporting manufacturers, he adds. “In their defence, the final detailed agreement was only reached on Christmas Eve 2020, so they had just over a week during the pandemic-dominated Christmas holidays to prepare for another new normal.”
And life will not be going back to the old normal. “The additional customs processes are permanent, additional requirements for trade between Britain and the EU,” says Savage. “They are new, complex and time-consuming. A customs declaration has 57 boxes to complete including commodity code, weight, origin and value. But time and experience should enable most businesses to understand the paperwork and get to grips with new rules-of-origin conditions.”
Among the main areas of opportunity he sees for Irish retails is the online world. “The world is moving online anyway,” he says. “We have been saying every year for the past five years that next year will be the year for it to really ramp up. It took a lot longer than that to move, but Covid has accelerated it greatly.”
Unfortunately, Ireland didn’t really reap the benefits of that growth. “Between 60 and 80 per cent of online purchases are of goods not originating in Ireland. Most of the money is spent in the UK with UK retailers, principally Amazon. Brexit offers an opportunity to change that. It makes it more difficult and more expensive to order from UK retailers. There have already been significant delays and well-publicised additional charges. That’s definitely a positive from the point of view of Irish retailers with online offerings.”
News that Amazon is considering setting up a distribution hub here in Ireland could provide another welcome boost for smaller Irish retailers and manufacturers. “This would be a massive opportunity for Irish businesses,” says Savage. “There are a number of ways to exploit ecommerce, but one of the easiest and best is to get on a platform.”
Bricks-and-mortar retailers who have been hit so much by Covid could potentially use the Amazon platform to drive their recovery.
“There is an alternative supplier for every product you want,” says Mick Curran, chief executive of the Chartered Institute of Logistics and Transport. “Retailers will find alternative suppliers in Europe and beyond. That’s a big opportunity for them.”
Those changes in supply chains could also be good news for Irish producers, according to Savage. “The retail grocery sector will source more products locally. They also have the whole of the EU to source from. Consumers will have a much greater sense of where goods are coming from, and that’s a good thing.”