Last week’s Brexit referendum vote will have implications for Irish farmers and farm incomes because the UK remains the most important single destination for Irish food exports. The implications are best examined in the short and long term.
The immediate implications include currency swings, risk of recession in the UK and the effect they would have on prices for beef, dairy, grain and other farm products. These threats arise straight away even though Brexit won’t happen for about two years. Meanwhile, there is no effect on direct EU payments or other CAP payments to Irish farmers in 2016 or 2017.
Further ahead, the UK may or may not leave the EU – the referendum result is not binding on the UK government. If it does, then the key issues for Irish farmers are whether the UK remains freely accessible to Irish beef and other food exports and whether Northern Ireland and Scotland remain in the UK or the EU. There would be implications for future CAP payments to Irish farmers as the UK might no longer contribute to the EU budget.
Short-term
Sterling weakened against other currencies once news emerged of the referendum result and is generally expected to trend downwards in the short term. A drop in the currency lifts prices for UK food producers, helping them. It cuts prices for Irish businesses selling into the UK, hindering them.
After the referendum the pound fell to a 30-year low against the US dollar – Brexit is no threat to the US. But it is seen as a general threat to the EU so the euro weakened in tandem with sterling.
The result is that sterling has fallen by not as much against the euro as feared. By midweek, there were signs that the drop in sterling had tailed off.
Any slowdown in the UK economy over coming months would add to the effect of sterling weakness. In advance of last week, there were warnings from a wide range of bodies that a Brexit would damage the UK economy, including the IMF and the UK’s own central bank.
Ominously, the UK’s credit rating has been downgraded by three international ratings agencies. This will have the effect of making borrowing by the UK government more expensive.
The drop in value of sterling will make imports from the UK to here cheaper, including machinery, hardware, animal medicines and crop agrichemicals.
Long-term
Further ahead, the main question is what trading arrangements will the UK have with the EU and will there be disruption to Irish exports. The UK will have a number of different options, none perfect.
Under our least-favoured outcome it would leave and trade with EU member states under WTO rules. This could see tariffs on products traded in both directions. Ireland would seek a special trading arrangement with the UK on the basis of the importance of the trade to our economy. There is no guarantee that the UK would agree to that, or that other EU member states would either. Such a full withdrawal would free the UK from the conditions of EU membership that some voters find unacceptable, eg free entry of workers from other member states. But already we see that many in the UK are also fearful of the effects this would have on the UK economy, too.
Under a more favourable outcome the UK might retain full market access with the EU – in both directions. This would come with a political price tag: either the UK continuing to contribute fully to the EU as before or free movement of people between it and the EU, or perhaps some combination of both.
Such an arrangement would be far preferable to Ireland as it could allow our current trade with the UK to continue. Also:
There is much uncertainty about what Scotland will do and what arrangements will apply between Northern Ireland and the Republic. The referendum outcome is a further increase in sentiment against global trade deals such as TTIP, Mercosur and WTO. There are growing claims that the benefits from such trade deals bypass some sections in society, eg young males with low education living outside capital cities. The UK contributes a net €8bn to the EU’s annual €150bn budget. About half of this contribution goes to the CAP, which will be lower by that amount after a Brexit. That cuts CAP payments unless the loss is made up elsewhere.Full coverage: Brexit
Last week’s Brexit referendum vote will have implications for Irish farmers and farm incomes because the UK remains the most important single destination for Irish food exports. The implications are best examined in the short and long term.
The immediate implications include currency swings, risk of recession in the UK and the effect they would have on prices for beef, dairy, grain and other farm products. These threats arise straight away even though Brexit won’t happen for about two years. Meanwhile, there is no effect on direct EU payments or other CAP payments to Irish farmers in 2016 or 2017.
Further ahead, the UK may or may not leave the EU – the referendum result is not binding on the UK government. If it does, then the key issues for Irish farmers are whether the UK remains freely accessible to Irish beef and other food exports and whether Northern Ireland and Scotland remain in the UK or the EU. There would be implications for future CAP payments to Irish farmers as the UK might no longer contribute to the EU budget.
Short-term
Sterling weakened against other currencies once news emerged of the referendum result and is generally expected to trend downwards in the short term. A drop in the currency lifts prices for UK food producers, helping them. It cuts prices for Irish businesses selling into the UK, hindering them.
After the referendum the pound fell to a 30-year low against the US dollar – Brexit is no threat to the US. But it is seen as a general threat to the EU so the euro weakened in tandem with sterling.
The result is that sterling has fallen by not as much against the euro as feared. By midweek, there were signs that the drop in sterling had tailed off.
Any slowdown in the UK economy over coming months would add to the effect of sterling weakness. In advance of last week, there were warnings from a wide range of bodies that a Brexit would damage the UK economy, including the IMF and the UK’s own central bank.
Ominously, the UK’s credit rating has been downgraded by three international ratings agencies. This will have the effect of making borrowing by the UK government more expensive.
The drop in value of sterling will make imports from the UK to here cheaper, including machinery, hardware, animal medicines and crop agrichemicals.
Long-term
Further ahead, the main question is what trading arrangements will the UK have with the EU and will there be disruption to Irish exports. The UK will have a number of different options, none perfect.
Under our least-favoured outcome it would leave and trade with EU member states under WTO rules. This could see tariffs on products traded in both directions. Ireland would seek a special trading arrangement with the UK on the basis of the importance of the trade to our economy. There is no guarantee that the UK would agree to that, or that other EU member states would either. Such a full withdrawal would free the UK from the conditions of EU membership that some voters find unacceptable, eg free entry of workers from other member states. But already we see that many in the UK are also fearful of the effects this would have on the UK economy, too.
Under a more favourable outcome the UK might retain full market access with the EU – in both directions. This would come with a political price tag: either the UK continuing to contribute fully to the EU as before or free movement of people between it and the EU, or perhaps some combination of both.
Such an arrangement would be far preferable to Ireland as it could allow our current trade with the UK to continue. Also:
There is much uncertainty about what Scotland will do and what arrangements will apply between Northern Ireland and the Republic. The referendum outcome is a further increase in sentiment against global trade deals such as TTIP, Mercosur and WTO. There are growing claims that the benefits from such trade deals bypass some sections in society, eg young males with low education living outside capital cities. The UK contributes a net €8bn to the EU’s annual €150bn budget. About half of this contribution goes to the CAP, which will be lower by that amount after a Brexit. That cuts CAP payments unless the loss is made up elsewhere.Full coverage: Brexit
This is a subscriber-only article
SHARING OPTIONS: