With the departure of the UK from the EU getting ever closer, the likelihood of a no-deal Brexit looms. Negotiations are planned to continue over the summer but the reality is that Brussels and Westminster seem to still be on different pages when it comes to hammering out a deal. Even if consensus could be reached, there is no guarantee that the UK parliament would approve a deal. So, for farmers who are most exposed to trade with the UK, it is time to take stock.
Farming in Ireland revolves around a two-and-a-half-year production cycle for beef, several months for grain and pigmeat, and nine months to get the dairy cow back in calf, less than the time between now and the day the UK departs the EU. Where does Irish farming stand in the case of being prepared for a no-deal Brexit? All categories of agriculture currently send at least half the production to the UK, but so far we have heard plenty of use of the cliché on the need to diversify into new markets and little else.
Alternative markets?
The reality is that every business and industry sells its produce in the most valuable market it finds for that product and only switches either when that market is no longer available or it finds a better one, something that every successful business is always on the lookout for. So, assuming the imposition of WTO tariffs in a no-Brexit situation, what happens Irish agriculture?
The tariff burden on agricultural produce is the highest of all the products that are listed in the WTO tariff guide and are at up to 100% for some beef products. It is inevitable that trade between Ireland and the UK for these products would be reduced to a trickle after Brexit, so what would the alternatives be?
Without doubt the most problematic category of Irish agriculture in a no-Brexit deal is the beef sector. Currently over half of all Irish exports go to the UK, as is the case with many other sectors of Irish agriculture. However, the major difference is that there is no real alternative for beef whereas there are options for the other categories even if they are costly and very much second best choices.
Irish beef has made good progress in developing international markets but remains constrained in many places by the legacy of BSE and even where there is market access such as China and Japan it is limited to beef from cattle under 30 months old. That is not an issue in the UK or rest of the EU, but the biggest problem in trying to replace the UK for beef exports is the fact that there is no other market anywhere near as lucrative for high-value cuts of beef.
Other markets won’t replace UK
Similarly it is not possible to use the variation of beef cuts in alternative products for international markets without causing serious devaluation. Beef is one of the most complex products from Irish agriculture due to the many component parts that make up the carcase, all of which are sold in different markets across the world. This makes it impossible to switch from one market to the other.
The EU has been a tariff-protected market though this has been weakened as favourable access to external countries has been widened through free-trade deals with generous tariff quota rate access. This is only likely to increase in coming years, with a Mercosur deal inevitable and discussions under way with Australia and New Zealand, both with significant ambitions for access to the EU market for their beef and lamb.
Reduce production
So where does that leave Irish beef production? The reality is that in the medium term, an alternative market will not be found other than by collapsing the beef process across the EU 27 member states. If the UK is effectively closed to the 250,000t of Irish beef that goes there annually, then the immediate alternative is to sell that product in the rest of the EU. However, the reality is that Ireland would have to buy its way into that market at completely unviable prices which in turn would collapse the beef price for farmers across the EU.
That is before we contemplate what the impact would be of a generous Mercosur, Australian and NZ quota on the EU 27 market.
All of this leads to the reluctant conclusion that a specialised Irish beef industry isn’t viable in the short to medium term and a serious reduction in capacity in both farming and processing of specialised beef would be inevitable. In time China, Japan and other Asian markets may be developed to allow a future rebuilding but for now, there is no alternative to the UK for present production volume and product mix.
The EU is a net importer of sheep meat so there should be market opportunities if there was a no deal Brexit.
The sheepmeat sector in theory is best equipped to cope with Brexit south of the border in terms of selling the produce. The processing sector would be seriously disrupted as would northern farmers if the 440,000 lambs or so were effectively blocked by tariffs from coming south. But the EU 27 market already has a deficit in sheepmeat supplies, and this would be increased should UK lamb be excluded by tariffs as well as live sheep from Northern Ireland. Therefore, while it would be massive disruption, at least there would be an alternative continental market to replace the current UK market.
Irish dairy depend on the UK, particularly for cheddar. However we are a globally competitive dairy producer and therefore may be able to look elsewhere.
There is no alternative market for cheddar as it is a product with particular appeal to British and Irish consumers. However, it is a product made from milk and, while it would be seriously disruptive, there is at least the option of doing something else with the milk. The butter and skim milk combination would come more to the fore and, while butter is trading well, skim milk powder is the lowest-value powder and will do little to boost premium prices. Other types of cheese would have to be developed and maybe that is the shock the Irish cheese industry would need to diversify the stubbornly cheddar-only cheese mix. Glanbia’s new mozzarella factory in Portlaoise is partly a move along this line while Dairygold is also investing with Norwegian company TINE in Cork on alternative cheeses.
Irish dairy is fairly competitive in global markets, going head-to-head with the big global exporters of New Zealand, other large European players and the US across the commodity products. Product and price premium status with Kerrygold butter in many markets helps and quality Irish powder products are a major ingredient supplier to the growing infant formula market in China. With favourable trade deals concluded recently between the EU and Japan as well as Mexico, it is possible to visualise how Irish dairy could diversify its markets outside the UK, though it would require significant marketing and processing investment in changing the product mix.
The UK is the biggest market for Irish pigmeat, but we also export across the world.
A major disruption would be the tariff barrier to pigs travelling north to Cookstown for processing though processing capacity could be added that would accommodate their slaughter south of the border. Again, the UK is the main export market for pigmeat, but it is also a product that Ireland trades in the global market. Japan and Mexico are importers and Ireland could in theory develop these further, aided by the trade deals referred to above.
That means in the event of a no-deal Brexit, a contingency plan has to be put in place for a serious reduction of production to a point that is in line with what the market would accommodate. The starting point for this is the half of current production that is sold in the UK, though there could be some variation to this reflecting the product mix from the carcase that is sold there and what alternatives could be found.
A no-deal Brexit would require a complete redirection of our tillage sector.
While this sector doesn’t trade the volumes or value that beef, dairy, pigmeat, or sheepmeat do, it is nevertheless a sector that has multiple cross-border and east-west trade dimensions.
On a WTO trading basis, the main sectors of tillage output carry a tariff implication.
Straw, much of which is traditionally sold in Northern Ireland, would carry a tariff of almost 3% while vegetables including mushrooms trading across the Irish border to going to Britain would carry a tariff of approximately 7.5%. This would also affect seed potatoes, and Irish imports from Scotland. There is also a substantial cross-border element of animal feed trade which under WTO trading arrangements would carry a tariff of just under 20% which would make continuation of this business uneconomic.
The biggest WTO tariff in relation to tillage output applies to flour, which would carry a tariff of approximately 26%. Ireland imports a huge part of its flour need from Britain and Northern Ireland but this level of tariff would make it prohibitively expensive.
For the tillage sector, there would be major disruption to current trading patterns with the market for straw in Northern Ireland likely to disappear. We would also have to find another flour supply and develop our own seed potato business, things that aren’t impossible but require a very different business model in relation to tillage than we have at present.
From this assessment, the impact on all Irish livestock categories will be severe. Tillage would be less affected. However, all sectors apart from beef can at least contemplate alternative markets though less valuable and more costly to service. For beef, there is simply no alternative to accommodate the volume of current production. It has to be either a deal, comprehensive support package using all instruments that were in use historically or think the unthinkable and reduce production. Only the first of these is a palatable option.
With the departure of the UK from the EU getting ever closer, the likelihood of a no-deal Brexit looms. Negotiations are planned to continue over the summer but the reality is that Brussels and Westminster seem to still be on different pages when it comes to hammering out a deal. Even if consensus could be reached, there is no guarantee that the UK parliament would approve a deal. So, for farmers who are most exposed to trade with the UK, it is time to take stock.
Farming in Ireland revolves around a two-and-a-half-year production cycle for beef, several months for grain and pigmeat, and nine months to get the dairy cow back in calf, less than the time between now and the day the UK departs the EU. Where does Irish farming stand in the case of being prepared for a no-deal Brexit? All categories of agriculture currently send at least half the production to the UK, but so far we have heard plenty of use of the cliché on the need to diversify into new markets and little else.
Alternative markets?
The reality is that every business and industry sells its produce in the most valuable market it finds for that product and only switches either when that market is no longer available or it finds a better one, something that every successful business is always on the lookout for. So, assuming the imposition of WTO tariffs in a no-Brexit situation, what happens Irish agriculture?
The tariff burden on agricultural produce is the highest of all the products that are listed in the WTO tariff guide and are at up to 100% for some beef products. It is inevitable that trade between Ireland and the UK for these products would be reduced to a trickle after Brexit, so what would the alternatives be?
Without doubt the most problematic category of Irish agriculture in a no-Brexit deal is the beef sector. Currently over half of all Irish exports go to the UK, as is the case with many other sectors of Irish agriculture. However, the major difference is that there is no real alternative for beef whereas there are options for the other categories even if they are costly and very much second best choices.
Irish beef has made good progress in developing international markets but remains constrained in many places by the legacy of BSE and even where there is market access such as China and Japan it is limited to beef from cattle under 30 months old. That is not an issue in the UK or rest of the EU, but the biggest problem in trying to replace the UK for beef exports is the fact that there is no other market anywhere near as lucrative for high-value cuts of beef.
Other markets won’t replace UK
Similarly it is not possible to use the variation of beef cuts in alternative products for international markets without causing serious devaluation. Beef is one of the most complex products from Irish agriculture due to the many component parts that make up the carcase, all of which are sold in different markets across the world. This makes it impossible to switch from one market to the other.
The EU has been a tariff-protected market though this has been weakened as favourable access to external countries has been widened through free-trade deals with generous tariff quota rate access. This is only likely to increase in coming years, with a Mercosur deal inevitable and discussions under way with Australia and New Zealand, both with significant ambitions for access to the EU market for their beef and lamb.
Reduce production
So where does that leave Irish beef production? The reality is that in the medium term, an alternative market will not be found other than by collapsing the beef process across the EU 27 member states. If the UK is effectively closed to the 250,000t of Irish beef that goes there annually, then the immediate alternative is to sell that product in the rest of the EU. However, the reality is that Ireland would have to buy its way into that market at completely unviable prices which in turn would collapse the beef price for farmers across the EU.
That is before we contemplate what the impact would be of a generous Mercosur, Australian and NZ quota on the EU 27 market.
All of this leads to the reluctant conclusion that a specialised Irish beef industry isn’t viable in the short to medium term and a serious reduction in capacity in both farming and processing of specialised beef would be inevitable. In time China, Japan and other Asian markets may be developed to allow a future rebuilding but for now, there is no alternative to the UK for present production volume and product mix.
The EU is a net importer of sheep meat so there should be market opportunities if there was a no deal Brexit.
The sheepmeat sector in theory is best equipped to cope with Brexit south of the border in terms of selling the produce. The processing sector would be seriously disrupted as would northern farmers if the 440,000 lambs or so were effectively blocked by tariffs from coming south. But the EU 27 market already has a deficit in sheepmeat supplies, and this would be increased should UK lamb be excluded by tariffs as well as live sheep from Northern Ireland. Therefore, while it would be massive disruption, at least there would be an alternative continental market to replace the current UK market.
Irish dairy depend on the UK, particularly for cheddar. However we are a globally competitive dairy producer and therefore may be able to look elsewhere.
There is no alternative market for cheddar as it is a product with particular appeal to British and Irish consumers. However, it is a product made from milk and, while it would be seriously disruptive, there is at least the option of doing something else with the milk. The butter and skim milk combination would come more to the fore and, while butter is trading well, skim milk powder is the lowest-value powder and will do little to boost premium prices. Other types of cheese would have to be developed and maybe that is the shock the Irish cheese industry would need to diversify the stubbornly cheddar-only cheese mix. Glanbia’s new mozzarella factory in Portlaoise is partly a move along this line while Dairygold is also investing with Norwegian company TINE in Cork on alternative cheeses.
Irish dairy is fairly competitive in global markets, going head-to-head with the big global exporters of New Zealand, other large European players and the US across the commodity products. Product and price premium status with Kerrygold butter in many markets helps and quality Irish powder products are a major ingredient supplier to the growing infant formula market in China. With favourable trade deals concluded recently between the EU and Japan as well as Mexico, it is possible to visualise how Irish dairy could diversify its markets outside the UK, though it would require significant marketing and processing investment in changing the product mix.
The UK is the biggest market for Irish pigmeat, but we also export across the world.
A major disruption would be the tariff barrier to pigs travelling north to Cookstown for processing though processing capacity could be added that would accommodate their slaughter south of the border. Again, the UK is the main export market for pigmeat, but it is also a product that Ireland trades in the global market. Japan and Mexico are importers and Ireland could in theory develop these further, aided by the trade deals referred to above.
That means in the event of a no-deal Brexit, a contingency plan has to be put in place for a serious reduction of production to a point that is in line with what the market would accommodate. The starting point for this is the half of current production that is sold in the UK, though there could be some variation to this reflecting the product mix from the carcase that is sold there and what alternatives could be found.
A no-deal Brexit would require a complete redirection of our tillage sector.
While this sector doesn’t trade the volumes or value that beef, dairy, pigmeat, or sheepmeat do, it is nevertheless a sector that has multiple cross-border and east-west trade dimensions.
On a WTO trading basis, the main sectors of tillage output carry a tariff implication.
Straw, much of which is traditionally sold in Northern Ireland, would carry a tariff of almost 3% while vegetables including mushrooms trading across the Irish border to going to Britain would carry a tariff of approximately 7.5%. This would also affect seed potatoes, and Irish imports from Scotland. There is also a substantial cross-border element of animal feed trade which under WTO trading arrangements would carry a tariff of just under 20% which would make continuation of this business uneconomic.
The biggest WTO tariff in relation to tillage output applies to flour, which would carry a tariff of approximately 26%. Ireland imports a huge part of its flour need from Britain and Northern Ireland but this level of tariff would make it prohibitively expensive.
For the tillage sector, there would be major disruption to current trading patterns with the market for straw in Northern Ireland likely to disappear. We would also have to find another flour supply and develop our own seed potato business, things that aren’t impossible but require a very different business model in relation to tillage than we have at present.
From this assessment, the impact on all Irish livestock categories will be severe. Tillage would be less affected. However, all sectors apart from beef can at least contemplate alternative markets though less valuable and more costly to service. For beef, there is simply no alternative to accommodate the volume of current production. It has to be either a deal, comprehensive support package using all instruments that were in use historically or think the unthinkable and reduce production. Only the first of these is a palatable option.
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