It is widely held that the beef and dairy sectors will suffer greatly from a no-deal Brexit, but some have been reporting that the sheep sector will be a beneficiary.

There may have been some element of truth in this statement if a deal was struck and a number of favourable factors fell into place, but this looks more and more unlikely.

At last week’s Bord Bia meat market seminar, sheep specialist Declan Fennell said a no-deal Brexit has the potential to greatly disrupt European markets and, in turn, the Irish sheep sector. Declan backed up this statement citing three contributing factors.

The UK is the EU’s largest sheep producer, with annual production in the region of 285,000t.

The UK is also a significant market for Irish sheepmeat, with exports of 8,900t in 2018

While the UK is, in theory, self-sufficient in sheepmeat, the seasonal nature of production means the UK is also a major player in terms of sheepmeat trading.

It exported 94,000t of sheepmeat in 2018, of which 95% or some 89,000t was destined for EU countries, while a similar volume of sheepmeat was imported, with New Zealand the main supplier.

Any deal, or lack of a deal, that creates challenges for UK exports may create opportunities for Irish sheepmeat in the markets the UK is supplying.

However, Declan points out that taking 90,000t of sheepmeat out of the market will create instability and lead to price volatility.

The UK is also a significant market for Irish sheepmeat, with exports of 8,900t in 2018.

If there are barriers restricting normal trading of UK sheepmeat with the EU, then it is likely that the same will be the case for Irish sheepmeat destined for the UK market.

The scale of these barriers was discussed in another presentation on the day by Carol Lynch BDO Customs and Trade.

Carol said that the British Customs schedule issued by HMRC is basically a cut and paste of the EU schedule.

It lists customs duties liability for Irish sheepmeat exports (fresh, chilled or frozen) falling under heading 0204 as ranging from 12.8% of the value of the product plus a charge of €90.20/100kg to 12.8% plus €311.80/100kg.

Northern imports

The second factor highlighted as causing significant disruption is the trade of live animals from Northern Ireland to the south.

In a no-deal Brexit, World Trade Organisation (WTO) rules will kick in, meaning imports from and to the UK will be subject to heavy tariffs.

Declan calculates that live sheep imports from Northern Ireland and destined for slaughter will be subject to an 80.5c/kg liveweight fixed rate customs charge.

Were this to happen, it would curtail this important source for southern factories, with 432,970 sheep imported for direct slaughter in 2018.

There was also a further 63,083 store and breeding sheep imported to farms.

The void left by this supply source would put pressure on throughput levels in factories, while also limiting their offering to EU customers.

New Zealand quota

The final factor where there is future uncertainty surrounds New Zealand’s EU tariff-free quota of 228,254t.

The proposed New Zealand quota allocation post-Brexit is a straight split, with 114,127t accepted by the UK post-Brexit and the same volume staying with the EU.

However, there are further complexities to be considered.

While New Zealand has only filled about 63% to 66% of its EU quota in recent years, it is still its highest-value market and the likely scenario would be New Zealand targeting EU markets with higher volumes

Going on 2018 estimates, New Zealand exported 79,256t of sheepmeat to the EU and 62,991t to the UK.

Were WTO rules to kick in post-Brexit, Declan says it is hard to see 90,000t of sheepmeat, which would be subject to heavy tariffs, leaving the UK.

In turn, he says it is questionable with this extra volume of sheepmeat available on the home market that the UK would be in a position to import similar volumes from New Zealand.

While New Zealand has only filled about 63% to 66% of its EU quota in recent years, it is still its highest-value market and the likely scenario would be New Zealand targeting EU markets with higher volumes.

Ireland has capitalised on lower volumes of New Zealand sheepmeat coming into EU markets in recent years and such a move would create extra competition and, at a minimum, disrupt current trading agreements.

Diversification in Irish export

Sheepmeat exports increased in value by 15% to reach €315m in 2018, due primarily to higher prices in the first half of the year, while export volumes decreased by 2% to 55,800t.

In her opening address, Bord Bia CEO Tara McCarthy said Irish sheepmeat exports have come a long way in the last 10 years.

The sheep processing industry continues to specialise and add value to exports, with in the region of 70% of sheepmeat exports highlighted as taking place in the form of primal cuts or value-added products.

The increase in the product range has also been an important factor in unlocking and growing exports to new market destinations.

Delivering an insight into how the market performed in 2018 and the outlook for 2019, Declan Fennell said that France and the UK remain our two highest volume markets, but volumes moving there remain on a downward trajectory.

Thankfully, other market avenues continue to develop, with the German market in particular continuing to record impressive growth, with volumes exported rising 30% to reach 4,910t.

Belgium has also developed as an important outlet in recent years and in 2018 imported 3,107t, a 9% increase on 2017 volumes.

The Netherlands recorded a higher percentage increase, with export volumes rising 17% to 1,130t, while sheepmeat exports to Denmark and Switzerland remain unchanged.

Gaining access to the Canadian market is also providing another market outlet.

Exports there were recorded at 838t in 2018, a 7% increase on 2017 levels. Declan commented that Irish processors are developing worthwhile market avenues.

Market pressure

As touched on previously, the French and UK markets recorded lower imports in 2018, with sheepmeat exports to France reducing significantly by 12% to 14,506t, while exports to the UK fell 14% to 8,901t.

The other market that lost some traction in 2018 was Sweden, with sheepmeat exports declining 14% to 3,579t.

Pressure in the French market is stemming from a number of areas. There has been a greater focus in recent years on supporting domestic consumption, while sheepmeat consumption overall remains under pressure.

The Spanish market is one to watch, having transformed from a net importer of sheepmeat to now playing a much bigger part in EU and global trade

The high price point of Irish lamb in the first half of 2018 also opened the door to increasing competitiveness from Spanish exports into the French market, with volumes increasing by 59%.

Declan said: “We have seen greater competition from Spain in recent years.

It started with smaller volumes of Lacaune lamb being exported into the south of France, but, in 2018, spread to the north of France, with Spanish lamb competitively priced.”

One to watch

According to Declan, the Spanish market is one to watch, having transformed from a net importer of sheepmeat to now playing a much bigger part in EU and global trade.

The transformation commenced in the mid- to late-2000s following the country’s economic crisis, with household purchases falling by 40% in the period 2008 to 2018. In the same period, sheepmeat exports have more than doubled from 20,400t to 44,000t.

There has also been massive growth in live exports to north African markets, with numbers leaving the country increasing from 311,900 head in 2008 to 992,000 head in 2018.

This has been driven by growth in live exports to Libya, which Declan says have grown from zero in 2008 to 625,000 head in 2018.

Review and outlook

The combined result of export volumes varying significantly to different markets was a 2% decline in total export volumes.

Total production was up, with throughput recording increased growth for the 11th consecutive year.

There were changes within categories, with hogget throughput increasing 3% to 829,906 head, while spring lamb throughput was down 2% to 1.65m head.

Farmgate prices in the first half of the year were 68c/kg higher and while prices levelled off for main-season lamb, the scale of the increase early in the year underpinned a 27c/kg average increase across the year.

The ewe and ram kill recorded a worrying increase of 13% to 504,246 head, with this likely contributed to by weather extremes in 2018.

With farmers still coming to terms with the knock-on consequences, it is likely that the national flock will decline in 2019, despite strong predictions once again for strong market performance in the first six months of the year.