While Brexit and what it might do to exports to the UK occupies the minds of Irish farmers, there are other global scenarios that arguably present as great a risk. Among these is the prospect of a trade deal between the EU and the group of South American countries that make up Mercosur. A further round of negotiations took place in Uruguay last week and, while both sides will continue talking, conclusion of a deal is considered unlikely during the Brazilian presidency which runs for the rest of this year.

Hogan hits out

Last week’s negotiations were overshadowed by the spat between the Brazilian foreign minister Aloysio Nunes Ferreira and European Commissioner for Agriculture Phil Hogan ahead of last week’s talks. The EU was accused by the Brazilian foreign minister of blocking a deal over beef and sugar access to the EU, with 12 chapters out of 15 agreed. Hogan hit back immediately, accusing the South American group of not addressing the EU offensive interests around dairy and wine access, with protection for European GIs. Commissioner Hogan said these have been on the table since January and a meaningful response is still awaited.

The threat to Irish farmers from a Mercosur deal is primarily confined to the beef sector. There has been a formal offer of 70,000t beef quota to the Mercosur countries on the table which was expected to rise to 99,000t in the endgame of negotiations. In volume terms, this is more than Ireland exports to any country apart from the UK.

What’s more, it is thought that the EU has weakened on the need for carcase balance in the quota whereby the South Americans could prioritise steak meat exports to the EU, which would do most damage to EU producers.

Currency angle

When the EU looks at the threat to the market from South American supplies, we tend to focus on the cheap production systems available an the huge quantities of meat they produce. However, there is another dimension to global trade outside the eurozone that has potential to affect Irish farmers. With the Brexit uncertainty in the UK, we have noted the weakening of sterling from a point before the vote when €1 bought £0.75 to the present when it is worth £0.89. This means Irish exports to Britain are 15% more expensive than before the referendum in 2016.

Brazil currency weakens

The currency turbulence has been even more dramatic in South America. In Brazil, the Real (BRL) has fluctuated between €1 = BRL2.68 in September 2008 to BRL4.45 in September 2015 before strengthening to €1 = BRL3.37 in April 2017. In the time since then the Brazilian currency has weakened again and this week a euro buys BRL4.65. The Brazilian currency has weakened in a similar proportion against the US dollar, which is the main currency of the global trade in agricultural produce outside Europe.

Argentina’s currency collapse

The collapse of the Argentinian peso (ARS) against the euro and US dollar has been even more dramatic. Ten years ago, a euro bought ARS4.08 but by 2014, the value of the ARS has fallen to the point where a euro bought ARS9.00.

By the end of 2017, the value of the ARS against the euro and US dollar had more than halved again with €1 = ARS 20.50 and the collapse continued to accelerate throughout this year to the point where a euro now buys ARS 46.00, making the Argentinian currency worth less than 10% of its value a decade ago!

Impact on trade

The consequence of the collapse in the currency value of two major exporters of agricultural produce is that their products are very attractive to EU buyers. This exacerbates further the threat of a trade deal offering a generous beef quota to Irish farmers. This year, Argentine exports of beef are at 184,000t, 65% ahead of the first seven months of 2017, while Reuters reported that Brazil was expected to grow its exports this year to 1.68mt, up 10% on 2017. Currently Irish and EU farmers are protected by quota restrictions but any relaxation of quotas would lead to an immediate flood of South American beef on the EU market.