Irish agribusiness is in a period of considerable trading uncertainty because of the imminent vote in the UK on continued membership of the EU. While this will be resolved one way or the other by the end of June, a series of trade discussions are ongoing to which another could be added if the UK does in fact vote to leave.

Irish agribusiness is bracing itself for the outcome of the UK vote on continued membership of the EU on 24 June with considerable apprehension. The UK remains our prime market outlet, accounting for a third of our dairy exports and over half our total beef exports. In the context of our overall trade, exposure to the UK market is 16%, which suggests other sectors will be able to adapt more easily should Brexit happen.

The founding treaty of the EU provides for two years of negotiation if a member decides to withdraw. There are suggestions that a UK exit from the EU wouldn’t be that significant and that there are examples of other European countries, typically Norway and Switzerland, which are outside the EU but enjoy the free-trade benefits. However, these aren’t as simple or straightforward as they may at first seem.

UK options post Brexit

In the case of Norway, it is part of the European Economic Area (EEA). This allows it trade with the EU on a tariff-free basis with the exception of agricultural and fisheries, which Norway excluded. However, in return, Norway has to accept into domestic legislation all EU law and is therefore bound by all EU controls without being in a position to influence or shape them as a member. Furthermore, they have a cost, being liable to pay several billion euros to the EU budget annually so their position isn’t an attractive option to a member who wants out.

Switzerland has a variation of this model, the difference being that it adopts EU legislation into Swiss law on a case-by-case basis. This doesn’t operate as smoothly as the Norwegian model, and it is most unlikely the remaining EU 27 would extend this facility to the UK in the event of them leaving. Similarly, being part of the free trade area like Turkey is unlikely to appeal to an exiting UK as they would be bound by EU international trade treaties without being in a position to influence. It is most likely that a specific deal between the EU and UK would be negotiated, but whatever this is, there is no way that it could be better than the present single market.

Ireland has a further complication in that there is a land border with the UK across which businesses north and south trade daily. With this being an entry and exit point to the EU, some level of checking and therefore disruption seems inevitable, all of which would hinder agribusinesses both sides of the border in their daily operations as people trading between north and south before the Single European Market in 1992 will recall.

While the possibility of Brexit is an immediate threat to Irish agribusiness, ongoing negotiation of various international trade treaties between the EU and various global trade blocks present several threats but also some opportunities for Ireland.

Trans Atlantic Trade and Investment Partnership (TTIP)

This discussion between the EU and the US has been ongoing since the middle of 2013 and there is a big push coming on, particularly from the US side, for a deal this side of the US elections. However, uncertainty will prevail as the main presidential candidates are cool about free trade, though that may change after the election.

For Irish agribusiness, TTIP is a mixed bag. The Irish Government commissioned Copenhagen Economics to do a TTIP impact study and the only real loser was judged to be the beef sector. With the US the second-largest exporter in the world, there is a threat to the EU market of an inflow of steak meat in particular, which in turn would make Irish steak meat more difficult to sell and the price would likely be depressed.

However, there could be some opportunities as well for Irish companies which started doing business in the US last year. These are particularly for supplying manufacturing beef for the burger market and increasingly popular fajita dinners in the US.

Meanwhile, the US is a major market already for Irish dairy companies, many of which have invested considerably there. There is an issue with US support for milk production through subsidised margin insurance, but overall a TTIP would be positive for our dairy industry. Ireland is a major importer of grain, so a trade agreement will make this easier but do little for the value of domestic production.

The US is also a huge exporter of pigmeat so there is likely to be little opportunity there. It is a more positive picture for lamb once veterinary issues are sorted as the US is New Zealand’s most lucrative export market and Irish lamb exports could complement our beef offering.

Free Trade Agreement (FTA) Japan

While these are the lowest profile of the various trade discussions the EU is involved in, it is the one that has probably the most positive potential for Irish agribusiness. Irish dairy is well established in the Japanese market with cheese, despite high tariffs.

Butter potential is curtailed by a 200% tariff barrier, though some government contracts have been won by Irish companies. Beef exports are limited to relatively low volumes, while a reduced or eliminated tariff barrier on pigmeat would present considerable growth opportunities.

EU Commissioner for Agriculture Phil Hogan recently led an EU business delegation to Japan and was very upbeat about the opportunities, especially if there was an EU-Japan FTA.

Discussions have slowed, however, given the difficulties the Japanese government is having getting approval of the TPP trade agreement. It is also likely that there will be Japanese elections this July, so little by way of meaningful negotiation is likely to resume before the autumn.

Mercosur

Discussions with Mercosur, the group of South American countries including Brazil, Argentina, Paraguay, Venezuela and Uruguay, have gained considerable momentum since the election of a new free trade-inclined president in Argentina at the end of last year. He is the polar opposite from his predecessor, who actually imposed export tariffs on beef to keep it cheaper for the domestic market.

This resulted in a collapse, with Argentina falling from being the number three exporter in the world in 2005 with 750,000t to less than a third of that a decade later in 2015. Mercosur, established in 1991, had a vision of being the EEC of South America, but in practice has been a much looser association.

They began trade talks with the EU in 1999 and relaunched in 2010, but much of the rest of the time they have been dormant. Now, with Argentina back on board and under the ambitious Uruguayan presidency, there is renewed vigour in discussions, which isn’t being discouraged in the EU.

These talks have potential to hit Irish agribusiness hardest of all, particularly the beef sector. The industry trade association, Meat Industry Ireland, has highlighted this on several occasions. If the threat to beef is immediate, dairy will in the longer term also be exposed. The reason why agriculture is so vulnerable with Mercosur is because it wants to trade agricultural products with the EU, while the EU is anxious to trade industrial products including cars and various manufactured goods, pharmaceutical and financial services.

There is a fear in the industry that agriculture could be sacrificed as Mercosur is the opposite of Japan, which wants to trade industrial goods with Europe and is likely to offer agriculture in return.

Long-term good trade deals are to the benefit of Irish agribusiness. The problem is making sure they are good and living with the uncertainty while they are being negotiated.

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