Our most important trading relationship UK is our largest trading partner North / South; East / West

Transcription

1

2 Our most important trading relationship UK is our largest trading partner North / South; East / West 41% of our food and drink export ( 4.4bn) 70% of prepared consumer foods 56% of total meat exports 30% of dairy exports (inc 60% of cheese exports) 32% of alcohol exports

3

4 Food surplus / deficit

5 UK exports by category v EU 28

6 51.5% have hedging or pricing arrangements in place (24% overall) Food and drink more worried, even though better prepared Ibec Brexit Survey Food and Drink Responses 64% said exchange rate movements would have a negative impact (45% overall) 42% expected negative impact on the value of export sales (26% overall) 42% identified exchange rate volatility as the biggest problem (22% overall)

7 #itsdifferentthistime Currency risk is a factor that Irish food and drink exporters have had to deal with for our nearest and largest market for a number of decades. However the rapid and recent change in currency value is different and more serious than that experienced during the major depreciation of sterling in the late 2000s. The current change is structural not cyclical. There are also many fundamental changes to the economic and business environment

8 #itsdifferentthistime Brexit means that the current Sterling weakness is different from the normal exchange rate cycle and things could get much worse Limited capacity for Irish exporters to drive efficiencies Total export values are higher, so losses could be greater Pricing strategy of UK retailers

9 #itsdifferentthistime Impact on supply chains of UK retailers and food services sector Market renationalisation UK retail food and drinks sector now more competitive Displacement by imports the Prepared Consumer Foods example

10 Economic Analysis

11 Index 2010 = Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 Index 2010 = 100 Figure 1: Industrial production in food indices (2010 Q1 = 100) Industrial Production Volume Index Industrial Turnover Index Margins have decreased and pricing pressures have increased Figure 2: Food prices in Ireland and the UK Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Ireland UK

12 Exchange rate impacts on demand for Irish food and drink exports Previous exchange rates 2009 example / exchange rate climbed by 15% Monthly Irish agri-food exports fell by 25% UK food retail sales fell by only 2.6% Shock effect 1993, 2009, Irish agri-food exports to the UK (3mma) Euro/Sterling exchange rate Sep Nov Jan Mar May Jul. 2009

13 Econometric estimates Analysis of the historical exchange rate and agri-food export relationship shows that a 1% weakness in sterling results in a 0.7% drop in Irish exports to the UK. If sterling was to weaken further towards the 0.90 mark, this would translate to losses of over 700 million in food exports and about 7,500 Irish jobs Furthermore given the export intensity of the sector it is likely that there will be substantial impacts for both employment and household income in predominantly rural communities as a result of the relative weakened Sterling

14 Business cost comparisons Ireland remains an expensive location in which to do business with a price profile that can be described as high cost / rising slowly NCC, The Costs of Doing Business in Ireland, 2016

15 Labour costs and insurance Labour costs can constitute 49 72% of business costs in manufacturing Irish manufacturing wages are about 6 per hour higher than the UK In Irish food manufacturing the difference is 5 per hour (and are also the 6 th highest in the EU) Employer liability Ibec reports that they account for 1.6% of payroll in manufacturing and annual costs rose by 7% in 2015

16 Capital costs Figure 9: Country specific interest rate premium once company specific issues removed (relative to Ireland)

17 Market and business implications

18 Market and business implications UK the real threat is a loss of confidence in Ireland as a competitive supply base resulting in loss of markets and exports Domestic currency impacts are felt not just in export markets but by displacement by imports in the domestic market as well Other export markets facing increasingly competitive UK exports and reduced competitiveness due to lower capacity utilisation in Irish factories Increased threat of cross-border shopping

19 A new trading relationship

20 A deeply entwined business and trade relationship Objective must be to maintain full unfettered access to UK market and UK access to single market is preferable to UK bi-laterals with third countries Specific trade and regulatory issues to be addressed: Avoid tariffs or other import quota regimes Avoid requirements for certification / customs All-island ingredient sourcing and labelling All-island Geographical Indications Minimising food regulation divergence

21 An immediate Brexit response package To help the Irish food and drink industry manage these unprecedented challenges, Government must urgently create the conditions to provide certainty to business in the new exchange rate environment so that it can maintain its most important export market

22 Recommendations A review of the impact of Brexit on the objectives in FoodWise 2025 A taskforce led by the Dept of the Taoiseach The re-introduction of the Employment Subsidy Scheme and the Enterprise Stabilisation measures which were last applied in m in funding for market diversification and product innovation measures. An access to finance package that includes sustainable financing via funding from the Irish Strategic Investment Fund and improved State Aid rules. An intense on-going focus on cost competitiveness led by a Department of Jobs, Enterprise and Innovation in areas such as labour, energy and insurance. A fully Brexit-proofed Budget which will address tax competitiveness against the UK

23 Paul Kelly, Director, FDII E: W: