While some agri-food businesses may have planned for Brexit, like many of us they probably thought it was unlikely to happen. It now seems the eventual departure of the UK from the EU is more than 2 years away but the uncertainty alone has already impacted businesses operating in the food and agriculture sectors.
Exports of agri-foods to the UK account for 41% (€5.1bn in 2015) of total food exported from Ireland, making it a key market in comparison to other Irish export sectors. This is reciprocated in that Ireland is also the UK’s largest destination for food exports, worth €3.8bn in 2015.
Given the significant need in the UK for agri-food imports there is no doubt trade with the UK market will continue but in what form and will there be a cost for businesses? Teagasc in their April 2016 Brexit Report noted that Brexit could mean a reduction in the value of Irish agri-food exports of anything from €150 million (1.5%) to €800 million (7.2%) per annum.
Planning for your business’ future includes both responding to the immediate short-term issues and more importantly, ensuring that your competitive position in the coming years allows you to build a sustainable and profitable agri-food business.
The immediate impact facing businesses in this sector has been currency fluctuations. The falling value of sterling has affected prices in the meat and dairy industry for our primary producers, at a time when pricing pressures are already a concern and the EU are looking at new measures to control milk supply. Measures put in place by the Minister for Agriculture to support the sector include a dedicated unit, in the Department of Agriculture, to focus on “relevant sectoral issues” arising out of Brexit and a Consultative Committee of stakeholders to ensure full exchange of information as negotiations proceed.
Bord Bia, at its recent Brexit briefing, also confirmed it will play a part in assisting businesses maintain competitiveness by advising on managing volatility, providing market insight and research and deepening customer engagement..
For food processors their immediate concern is around competitiveness also impacted by the weakening of sterling, albeit this has strengthened somewhat in the last week. There are likely to be continuing price pressures for Irish products being exported to the UK and businesses need to consider how they can maintain competitiveness. Another challenge arising in certain food sectors is the likely competition from UK food producers looking to export into the Irish market to compete with domestic suppliers. As well as the likely competition from Northern Irish retailers as Irish consumers travel to benefit from a weaker sterling.
However, it also provides Irish producers with the opportunity of sourcing product ingredients in the UK at a lower price, allowing them manage the cost of production and creating flexibility within the business models on the sales price side while creating a natural hedge on the current foreign exchange risks.
Movement of goods
Long term, the impact on the movement of goods (in the form of trade borders and tariffs), people and capital will all need to be considered for businesses and will be very dependent on what agreements the EU and the UK reach. The UK’s own agricultural policy will also have an impact on how the Irish agri-food sector is impacted.
The changing environment also brings opportunities to the Irish agri-food market and we may well see additional foreign investment into Irish agri-food businesses and relocation of key talent with relevant skills sets within the industry.
Irish food producers need to ensure their offering remains relevant to UK consumers and that they continue to innovate so that they can differentiate themselves from their UK competitors.
Grant Thornton, as an all-Ireland practice, are available to discuss any concerns this raises for your agri-food business.