Last week’s Irish Grassland Association sheep conference included a panel discussion with Bord Bia’s Declan Fennell, Meat Industry Ireland’s Joe Ryan, and Teagasc’s Kevin Hanrahan.

The aim of this session, at the event held in the Bloomfield House Hotel and sponsored by MSD Animal Health and Mullinahone Co-op, was to discuss factors affecting sheepmeat markets in the coming years.

All three speakers highlighted Brexit as having the potential to greatly alter market forecasts, with a number of potential outcomes possible. Kevin Hanrahan’s presentation was focused solely on Brexit, with analysis and possible outcomes carried out by Kevin and colleagues in the agricultural economics and farm surveys department.

Kevin started by looking at the commission’s Brexit timeline. The recent triggering of Article 50 and decision by the council to open Brexit negotiations gives a window of about 18 months for discussions to take place and an agreement proposal to be delivered from the negotiator to the EU council.

However, the possibility of this being achieved was questioned, with Kevin commenting that he sees zero prospects of hitting this deadline, with a much lengthier time frame of negotiations likely.

This has knock-on effects on achieving an agreement in the European parliament, with Kevin predicting that the UK’s ending of its EU membership will be delayed well beyond the target of March 2019.

The negotiations are likely to lead to turbulent periods for Irish agriculture, with four channels highlighted as having the potential to bring about very significant changes.

Fluctuation in exchange rates was highlighted as the first and we are already seeing the effects of this, with the strength of sterling to euro weakening and fluctuating over the last 12 to 18 months. This has reduced the value of Irish exports into the UK and also made UK exports more competitive in key EU markets which Ireland is active in.

Reduced supports

The next area raised was the impact of a lower EU budget on the budget allocated to CAP. The UK’s net contribution varies from year to year, but has been as high as €10bn.

Kevin explained that the CAP budget still accounts for close to 40% of the total EU budget, with any cut to the EU budget likely to be reflected in a reduced CAP budget. This is a particular risk to Irish sheep and beef farmers, where direct payments make up 100% of the income of many operators.

What way the UK supports agriculture in the wake of Brexit could also affect Ireland’s main market outlet for beef and cheese and a significant market for sheepmeat exports.

A move by the UK to use part of their EU budget allocation to promote higher production could reduce their dependency on imports, but it is early days to predict the outcome of this.

Barriers to trade

The more significant risk highlighted by Kevin is future tariff and non-tariff barriers to trade. At the moment, he said Ireland has access to the deepest free-trade agreement with the EU, with the potential to trade goods to any EU member state. This is currently the case with the UK, but will change after Brexit.

The options currently being raised are the UK moving outside of the customs union and the potential for tariffs on goods exported to the UK or non-tariff barriers that prevent easy movement.

All of these are likely to increase costs of trading, some of which Kevin says is likely to be passed down the line to producers. At the moment, there is no clear indication on where negotiations will land between the single market, free trade agreements and World Trade Organisation rules.

Kevin said that, in an ideal world, the nearer we get to where we are now the better, but this is unlikely to be the case.

Unique circumstances

There are also a number of factors at play in the sheep trade that may actually provide some upsides. The UK is an unusual market, in that it is self-sufficient in sheepmeat, yet it imports in the region of 90,000t to 100,000t of sheepmeat and exports a similar volume to EU markets.

If tariffs are introduced on goods exported to the UK, the same will apply on goods leaving the UK. This could open up opportunities for Irish produce.

Ireland also imports about 400,000 sheep live from Northern Ireland. Barriers to trade could restrict this trade avenue, which could affect the viability of plants in the south in the absence of increased domestic production.

The volume of sheepmeat produced from these imported animals is also roughly equivalent to the volume of sheepmeat Ireland exports to the UK, so any restriction on this is a lost avenue of trade.

The final factor which is very significant is what way the tariff rate quota (TRQ) between the EU and New Zealand and Australia is negotiated.

The New Zealand tariff-free quota of 227,000t of sheepmeat came about mainly from a historical relationship between New Zealand and the UK. The percentage of this quota that will be transferred to the UK on leaving the EU will have a major bearing on the volume of New Zealand sheepmeat entering the EU.

Affect on family farm income

Kevin presented preliminary analysis on how Brexit may affect family farm income across livestock and tillage enterprises. While there may be some market upsides from the market for the sheep sector, the upside of this in this analysis is likely to be more than offset by a lower EU budget, as detailed in Figure 1.

As many sheep farms are mixed enterprises, the potential negative implications of Brexit could be even greater for these mixed farms. Kevin concluded by saying that limiting the effects on family farm income will be dependent on negotiations securing as soft a Brexit as possible and securing preferential access for Ireland to the UK market.