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02 October 2017

Brexit & the Irish Food and Drink Industry

Posted By: AIB Business
food-and-drink-245

In the fifteen months since the UK made the historic decision to chart its future outside the EU, much ink has been spilled on fathoming the political and economic implications for Ireland and the food and drink industry in particular.

The UK is by far our largest food and drink export market, worth over €4 billion in 2016, and while our trading relationship predates the EU and the Single European Market, it has flourished to an exceptional degree within the framework of both. This relationship is very much a two-way street: Ireland is also the UK’s most important food and drink export market, with imports from our nearest neighbour valued in the region of €4 billion last year. 

While geographical proximity and a finely matched profile of supply and demand underpin this relationship, so too do shared cultural values and complementary worldviews: we are uniquely well suited to support and meet each other’s food needs. It is against this backdrop that Brexit, and particularly the variant that puts the UK not only outside the EU but also the European Economic Area and the Customs Union, presents itself as a deep and unparalleled challenge.

Bord Bia laid the preparatory groundwork for addressing the challenge of Brexit in advance of the June referendum and, notwithstanding the fact that, a year later, no greater clarity has emerged on the ultimate form departure will take, our response has evolved into a strategy and series of supports that takes into account likely short, medium and long-term impacts.

In early 2017, Bord Bia launched their Brexit Barometer, an analytic tool designed to help individual companies assess six specific risk areas associated with Brexit – routes to market, customs and tax, supply chain, trade, currency and human resources. An expression of our commitment to provide supports that are based on facts and data rather than speculation or anecdote, the barometer is designed to give individual, tailored feedback to companies with regard to their risks and vulnerabilities, and to flag those areas where pre-emptive action can and should be taken.

The development of the barometer is further underscored by recognition that, while Brexit remains, in a granular sense, a series of unknowns, there are many ways to prepare for its eventuality and to mitigate the risks that will come from its possible permutations.

Among these permutations, few raise more concern than the possibility of a hard Brexit, where punitive WTO tariffs could conceivably shut out our dairy and beef trade from our oldest and largest market. While no eventuality can yet be ruled out, there are several reasons why this ‘Doomsday scenario’ should not assume undue prominence in our preparations for what lies ahead. Firstly, to allow it to do so would feed into the incorrect, and highly counterproductive, assumption that planning for Brexit is simply a matter of awaiting and responding to a tariff and customs regime, whatever that might ultimately be. Secondly, it ignores the more fundamental question as to what alternative trade relationship could meaningfully supplant that which currently prevails between Ireland and the UK, as well as our peers in the EU. The UK is a country that proudly claims some of the highest retail and food safety standards in the world. To willingly expose itself to the massive operational and reputational risks that would come from routing entire supply chains outside the EU would be, to say the least, politically and economically unprecedented. It would test the concept of food security in a modern industrial nation to its limit.

None of this is to take from the fact that a new and daunting reality is about to unfold. Brexit will demand a nuanced and concerted response from every level of the food industry. It will require new skills, new approaches and new thinking. It is a battle that will not be fought on one front but on many, and it will demand a deep immersion in the areas of risk mitigation, diversification, customs and tariff management, currency hedging and relationship building. We will need to be agile, informed and prepared as never before.

To talk of the impact of Brexit, it is well to note, is not simply to speculate on future scenarios. Currency fluctuations in the aftermath of the June referendum quickly brought home the cost of the decision to Irish food and drink exporters, as it reduced the value of exports to the UK by €570 million over the course of 2016. Against this, however, must be set the counterweight of market diversification, which contributed to an overall picture of export growth of 2% in the same year. The record €11.15 billion achieved by Irish food and drink exporters in 2016 was built in no small part on strengthening performances in continental Europe and the international market. Emblematic of this is the fact that China is now Ireland’s second largest dairy export market, a position directly attributable to our high quality supply base, our world class R&D and our strengthening investment in marketing. 

Ireland’s food and drink industry has weathered significant challenges in the past. It has done so demonstrating a firm conviction that our best response is a collective one. As we await the first evidence of how Brexit will take form, neither Bord Bia nor the industry will observe passively. The global context in which Ireland has set out to be a premium supplier of quality food remains a positive one, while our actions in sustainability, through the Origin Green programme, confirm Ireland’s ability to provide international leadership on the future direction of the food and drink industry.

An enduring commitment to be the source of the highest quality food and drink and to develop trade relationships built on trust and responsiveness have been the platform on which our industry’s success has been built to date. This is one certainty that will not change as we embrace and manage the challenge ahead.

This article was written by Tara McCarthy, CEO Bord Bia Find out more about Bord Bia Brexit Barometer here.

 

Please be aware that all of the views expressed in this Blog are purely the personal views of the authors and commentators (including those working for AIB as members of the AIB website team or in any other capacity) and are based on their personal experiences and knowledge at the time of writing.

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