Brexit and Irish food industry's dependence on British market

The Irish Farmers Association (IFA) warns in a report published Wednesday that Irish farming and the agri-food sector are particularly vulnerable to Brexit. The food industry and farming have direct employment of about 160,000 people and is the principal indigenous sector in an economy dominated by American-owned firms.

The IFA says that the UK is Ireland’s largest market for food and drink, accounting for 37% of all food and drink exports in 2016, or over €4.1bn. Ireland is also a significant importer of food, with a high dependence on the UK and EU markets for its food imports. In 2016, Ireland imported almost €7bn of food and live animals, of which almost €2.8bn was sourced from the UK.

Joe Healy, IFA president, said the organisation is clear that farming and food must be at the top of the Brexit agenda, not only in Ireland but at EU level. The key priorities for the agriculture sector in these negotiations are:

1) the maintenance of the closest possible trading relationship between the UK and EU, while preserving the value of the UK market; and

2) the provision of a strong CAP (Common Agricultural Policy) budget following the UK’s departure, which is critical for farm incomes, farm output and economic activity in rural Ireland.

The IFA's report says other EU countries for which the UK is an important destination for food exports are the Netherlands (£4.7bn of exports in 2015), France (£3.9bn, similar to Ireland) and Germany (£3.5bn). "However, for all of  these countries, dependence on the UK as an export market for food products is much lower than Ireland, with the UK representing between 7-10% of their food exports, compared to 37% for Ireland.

The UK is the market for 50% of Irish beef exports, with a further 45% going to the EU and "is a high value market for beef, with prices consistently above the EU average."

In 2016, 34% of Ireland’s dairy exports went to the UK, representing 53% of cheese exports, 29% of butter and 12% of SMP (skim milk powder).

The IFA is seeking a tariff-free trade in agricultural products and food; the maintenance of equivalent health and safety standards and a common external tariff applying to EU and UK imports.

The UK is unlikely to want high tariffs on its food imports as a fall in sterling after Brexit would generate further food price inflation. However, it's unrealistic to expect agreement to a common external tariff — this would undermine a key argument of the Brexiters that they can boost trade in the rest of the world through new trade agreements.

Bord Bia, the Irish state food promotion agency, has said that:

Irish beef accounts for over 60% of imports into the UK compared to just over 50% ten years ago prior to restrictions being placed on South American beef. In 2006, over 100,000 tonnes of beef imports into the UK came from South America. The equivalent figure in 2015 was just 30,000 tonnes. Brazilian beef made up 9% of UK imports in 2015, compared to a high of 20% in 2005. Similarly imports from Argentina and Uruguay have declined substantially over the period. Any deal with Mercosur countries would lead to a significant rise in supplies and ultimately impact negatively on UK cattle prices. A trade deal across Commonwealth countries could also be undertaken leading to beef imports from Canada and more lamb imports from New Zealand, for example. Similarly in terms of dairy, Brexit could lead to more dairy trade with large Commonwealth dairy export nations such as Australia and New Zealand. For example, dairy imports, predominantly cheese from New Zealand, have almost halved over the last 10 years and as the UK is Ireland’s largest export market for cheese any trade deal would negatively affect the Irish dairy industry.

The US beef industry exports are roughly $6bn annually, representing about 15% of the total domestic beef production according to CNBC. At present, Japan, Mexico, South Korea, Canada and Taiwan are the largest US beef export markets. Last year, China agreed to reopen up its market to US beef but thus far it hasn't started any significant imports.

It's unlikely that the UK consumers would be keen on growth-promoting hormones in their beef but the US would likely insist on market access for its beef when negotiating a US-UK trade agreement.

According to The Financial Times, "at the end of the second world war, the UK imported a third of all Australian agricultural exports, including 90% of butter exports and 80% of beef exports.

A study by Australia’s Grains Research and Development Corporation notes that the UK today accounts for only 1.5% of Australian agricultural exports, and concludes that this is unlikely to increase much after Brexit."

The British-Irish Chamber of Commerce says that non–tariff barriers would be particularly impactful for trade between Ireland and Northern Ireland.

In assessing the impact of non-tariff barriers on the UK economy, the Centre for Economic Performance has estimated that the impending introduction of non-tariff barriers would lead to an overall fall of income per capita of between 1.28 to 2.61%. Taking Diageo — owner of Guinness — as a practical example, their trucks make approximately 13,000 border crossings each year. A customs check could potentially delay each truck by between 30 minutes to one hour resulting in additional costs of approximately €100 per journey or €1.3m per annum.

The Chamber says in respect of the likelihood of high tariffs:

It should be noted that this is an extreme scenario as the UK has a food trade deficit of approximately £26.8bn and, a Production to Supply Ratio (formerly known as the “SelfSufficiency” Ratio) of 61%. The UK sources 29% of its food from the European Free Trade Area and only 10% from outside of Europe, Agriculture and Horticulture Development Board (AHDB, 2016). As a result it is doubtful that the UK would apply the maximum bound tariffs. Therefore, it can be concluded that although agri-food trade will be impacted and exports from the EU and Ireland will reduce, it is unlikely that it will be ‘wiped out.’

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