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19 April 2016

How Brexit Could Affect Irish Agriculture

Posted By: AIB Business
How Brexit Could Affect Irish Agriculture

The referendum on UK membership of the EU on 23rd June presents a major external risk for the Irish agriculture sector, with potentially far-reaching economic, social and cultural consequences, writes Jer Bergin, National Chairman of IFA.  

The UK represents our most important agri-food export market, accounting for over 40% of Irish agricultural output. It is the destination for over 50% of our beef and 60% of our cheese exports. By comparison, it accounts for 15% of exports across all sectors. It is a high value market, and its customers share the same language and similar consumer preferences. For small and medium businesses in Ireland, the UK is generally the first destination they look to as a potential export market.

Should the UK vote to leave the EU, Irish agriculture would undoubtedly feel negative consequences, both in the short-term and longer term. Already in 2016, we have seen a weakening of Sterling by over 7% against the euro, arising mainly from the uncertainty on the referendum outcome. This has reduced the competitiveness of Irish exports, with a disproportionate impact on the Irish agri-food sector. 

In the longer term, the uncertainties presented by the changed trading relationship between the UK and EU pose a significant threat, as the costs of trading with the UK would, inevitably, rise.

 

Special Agreement

As part of the EU trading bloc, Ireland is not in a position to negotiate any special bilateral trade agreement with the UK. We would therefore be bound by whatever trade agreement was reached between the EU and UK.

It has been suggested that the UK would negotiate a trading arrangement with the EU similar to that of Norway, which has access to the EU Single Market, and makes a financial contribution to the EU. However, it should be noted that, under this arrangement, many agricultural products are outside the Single Market agreement, with restrictions in place in the form of tariff quotas and regulatory, non-tariff barriers (import licenses, rules of origin checks). The reintroduction of these barriers would increase costs, reduce the competitiveness of Irish exports and, ultimately, reduce the potential the UK holds as a destination for Irish agri-food exports.

 

Impact in UK and Northern Ireland

For farmers in the UK and Northern Ireland, the reintroduction of trade barriers could have similarly negative consequences, as tariff and quota restrictions could undermine their ability to export to Ireland and to the EU. Ireland remains the main export market for the UK agri-food sector, with almost €3.5bn of exports annually. UK farmers would also face an uncertain future for agriculture supports, as it is unknown what domestic support payments, and at what level, would replace the current EU CAP payments.

 

Other Consequences

The consequences of the changed trading relationship would extend to other areas, such as animal health. With a shared land border between Ireland and the UK, there is currently good all-island cooperation and coordination on animal health issues. However, the risks to the health of the animal population would increase, if, over time, different regulatory regimes were pursued between Ireland and the UK. This could have a negative impact on our access to key trading markets.

Another risk is the likelihood that the UK, once outside the EU, would pursue separate trade agreements with non-EU countries, including those with whom they have traditionally strong trade links, such as Canada and New Zealand. As competitors with Ireland, this would potentially displace Irish product currently going to the UK market. 

 

EU Budget

The impact on the EU budget is equally uncertain. The UK is a net contributor, and its withdrawal could mean either a reduction in the overall budget, or a requirement for increased contributions from the remaining Member States. Irish agriculture is a significant beneficiary from the CAP budget, receiving over €1.5bn annually through Direct Payments and the Rural Development programme. Any reduction in the overall EU budget would put significant pressure on CAP funding.  

The security and cost of energy supply would be another concern in the event of an EU exit from the EU. Ireland imports approximately 90% of its oil and gas from the UK, and a UK exit would potentially increase the costs of connecting to the EU Internal Energy market.  For the Irish agriculture sector, expenditure on energy products is over €400m annually (or almost 10% of total input costs). Any increase in energy costs resulting from a UK exit would further reduce the competitiveness of Irish agriculture.

Ireland and the UK entered the EU together over 40 years ago. As part of an EU of 28 diverse Member States, our shared strong economic, social and cultural links make the UK a very important partner and ally in Europe. There are many risks arising from a potential UK exit from the EU. It is IFA’s strong position that Irish agriculture, the agri-food sector, and overall economy are stronger with a UK operating from within the EU, and we hope for a positive outcome to the June referendum.

 

Written by: Jer Bergin, National Chairman, Irish Farmers’ Association (IFA)

 

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