The Food and Drink Industry Ireland (FDII) this week published a report warning that Brexit-borne pound sterling weakness will hinder Irish cost competitiveness.
Merely a 1% weakness in sterling means a 0.7% drop in Irish exports to the UK, according to analysis of historic exchange rates.
“If Sterling was to weaken further towards the £0.90 mark, this would translate to losses of over €700 million in food exports and about 7,500 Irish jobs,” FDII said in its report.
FDII is now calling for measures including €25 million in funding for market diversification and product innovation measures; a taskforce led by the Irish prime minister, the Taoiseach, to engage with the food and drink sector on safeguarding their business; and a review of the national agri-food strategy Food Wise 2025.
“A major objective of the upcoming budget must be the provision of support to those industries for which the immediate fallout of Brexit is greatest – (the) food manufacturing and the SME sector,” Paul Kelly, FDII Director told FoodNavigator.
“The government must ensure that enterprises do not face any regulatory, labour cost or tax increases. The need to level the playing field in relation to UK tax offering requires radical reform of the entrepreneurs Capital Gains Tax regime, along with improving incentives for investment, innovation and upskilling in SMEs.”
Other measures called for include an intense Department of Jobs, Enterprise and Innovation focus on cost competitiveness for labour, energy and insurance.
“In the short term (…) the government’s objective must be to put in place mitigating measures to help companies manage their businesses and safeguard farmer incomes through the ongoing uncertainty caused by the currency shift and the exit negotiations,” FDII added.
“Urgent action is now required to protect our vital exports to the UK market, limit damage in the domestic market from imports and address competitive pressures arising from the decline of Sterling.”
However, it seems Ireland could be facing a long battle with many changes needed to fix incoming Brexit issues.
Kelly warned “there is no silver bullet,” adding the Brexit package called for will need a range of measures to stand up.
The UK is Ireland’s largest trading partner for food and drink, with 41% of exports from the industry -- worth €4.4 billion -- sent to the UK. The goal is to maintain “unfettered” access to the UK market, the FDII said.
“The real threat is a loss of confidence in Ireland as a competitive supply base resulting in loss of markets and exports,” as UK buyers restructure their supply chains to account for Brexit-related trade risks and the subsequent drop in Sterling, it noted.
“It is crucial that Irish firms don't lose out.”
Yet, beside changes Ireland can make to counteract short term threats of the Sterling’s decline, the FDII fears further weakening is likely as the full economic consequences of Brexit become clearer.
Therefore, long-term, the entire basis of Ireland’s trading relationship with its biggest export market will need to be renegotiated, the organisation stresses.
“The UK will continue to be our largest export market due to its large size, closeness and the highly integrated nature of the food chain across Ireland, Northern Ireland and Britain but a weak sterling has had a significant impact on cost competitiveness,” Kelly told us.
“It is therefore very important that any UK/EU settlement on Brexit minimises the impact on this trading relationship in order to allow us to continue to trade with our most important partner.”
Ireland still exports to 175 countries as well as the UK, and plans also include continued development of these export markets from continental Europe to China and further afield, Kelly added.
“The focus must be on maintaining markets in the UK, developing other markets as well as ensuring that in the domestic market, companies remain competitive against imports and the threat of cross-border shopping,” FDII said.