Living with Brexit: evolution of Irish food trade flows
The current attempts in the UK to unilaterally dismantle parts of the Northern Ireland Protocol have renewed the public focus on Brexit, and upped the uncertainty.
This month, we focus on the food trade experience of living with Brexit in the last 17 months. We spoke to Bord Bia and one of the larger retailers to get insights into the impact of Brexit on Irish food exports to and imports from the UK.
Brexit impacts British exports worst of all
2021 was the first year in which Britain traded with the EU and Ireland as a third country, and clearly, Brexit was an entirely bad news story for British exporters. Total exports to the EU were down 11.8% in value when compared to 2018. Exports of food and live animals to the EU were down 17.6% in value relative to 2018, while fruit and vegetables were down a massive 39% and seafood down 5%. In other sectors, exports of clothing were down 59%, and car exports by 29%. (Source: UK Office for National Statistics)
At the end of 2021, the ESRI produced a report, in collaboration with Trinity College Dublin and the Department of Finance, analysing the initial impact of Brexit on commercial flows for all sectors between Ireland and the UK. The graphs below say it all: Ireland has increased the value of its exports towards Britain, Northern Ireland, the EU and the rest of the world.
On the other hand, it has increased its imports from the EU, Northern Ireland and the rest of the world, while reducing dramatically its imports from Britain.
Limited impact on Irish food exports – for now
For a very long time, the UK has been the main destination for Irish food exports. Since the 2016 referendum for Brexit, Ireland has not only increased exports value by 19.5% to €13.5bn, it has also worked hard to diversify its markets. The Irish government, Bord Bia, Enterprise Ireland and Irish food exporters have strategized and invested to reduce risk and limit exposure through diversification without abandoning valuable markets.
As a result, the British market, while remaining significant, has been overtaken as our top destination by the EU 27 and the rest of the world in the last couple of years.
In terms of market share, the UK and the EU are currently equal at 33%, while the rest of the world accounts for 34% of Irish food exports in value. These figures reflect significant market diversification compared to 2016, as well as global food price increases, especially in 2020 and 2021.
According to Bord Bia, exporters have continued to trade despite the uncertainties of the first quarter of 2021, when major disruptions were expected in British ports. Demand remained robust for Irish dairy products, beef and prepared consumer foods. In addition, the supply chains between the two countries are tightly interlinked, with many operators owning multiple production sites on both islands, which has helped trade recover after initial issues.
Certain categories which used to be exported to GB from ROI have been redirected to Northern Ireland, with new clients in the area, and because Northern Ireland provides an easier route to the North of GB.
Irish exporters have no plan to abandon the UK market – it is too valuable, and too difficult to replace in any significant way. Bord Bia has helped their client companies to develop their presence in the UK, focusing on support around customs procedures. Bord Bia have stressed that, especially for prepared consumer foods, British customers value the reliability of the supply chain from Ireland.
An illustration of this is the fact that Tesco, Sainsbury’s and Asda have a sourcing strategy for meat which prioritises British or Irish meat indifferently.
Bord Bia have shown time and again through their market research since 2016 that British consumers perceive Irish food to be local and produced to the same standards as British food. Bord Bia has therefore focused much of its effort in Britain on pushing the advantages for buyers in the retail, food service or processing sectors of sourcing food in Ireland – with quite a lot of success.
Will SPS checks ever come into play?
All things considered, trade to the UK has at least until now, been little enough affected. What happens when the UK starts to implement sanitary (animal) and phytosanitary (plant) health checks – referred to as SPS checks – on imports from the EU, including Ireland, into the UK?
SPS checks require the provision and verification of health certificates for every product in a shipment, and for every relevant ingredient when it comes to processed products. They require physical inspections of at least a sample of shipments.
However, the UK has proven reluctant to introduce those checks, having earlier this year revamped the timeline of introduction to further delay and stagger checks on various products during 2022… before scrapping the timeline altogether.
The UK government justifies a postponement possibly to the end of 2023 (or beyond?) by concerns relating to the current “fragility of the operational landscape”, with labour shortages in the supply chain and the continued impact of the pandemic.
Food and energy price inflation are hitting consumers’ purchasing power hard. The British government, beleaguered by internal difficulties, does not want to be seen to be adding to the cost of the ordinary Briton’s weekly shop. Jacob Rees-Mogg, Minister for Brexit Opportunities, has ironically stated that it would be “an act of self-harm” to apply those checks, as it would worsen costs and delays in the food chain and increase supermarket prices.
In any case, in addition to being reluctant to apply SPS checks, the UK has not yet set up the infrastructure required to do so.
British farmers are deeply concerned, with the NFU warning that the delay in implementing the checks “not only leaves British farmers at an unfair disadvantage, but also poses a risk to the nation’s biosecurity, animal health and food safety”.
Food imports from the UK: a mixed picture
Ireland is far from self-sufficient for many food products, from flour to fruit and veg and ingredients for ready meals, and many of those were sourced from Britain. So the impact of Brexit is just as important for imports as it is for exports.
Between 2017 and 2021, overall food imports from GB into Ireland fell by 14% on average, but with major variations between sectors and products (see graph below).
The dairy category fell by 27% on average, with yoghurts down 67%. Drinks imports came down 46% or €36m, with cider falling 166% and whiskey a whopping 421% down to a value of €8.6m. Imports of horticultural and cereal products fell 31% on average, with amenity horticulture down 23%, vegetables 74% and potatoes 84%. Seafood also fell, by 28% or €9m. Poultry imports also decreased by 20%, mainly due to frozen poultry which fell 88% or €11m.
Prepared food imports, worth €1.5bn in 2017, dropped by 11.5% over the period. Here too there are massive variations: value added pigmeat (charcuterie and the like) is up 131% or €30m, and “meal solutions” (ready meals) by 190% or €188m. On the other hand, value added seafood is down 76% or €16m. Ice cream imports are €5m less, 56%, and sugar confectionery and sweet bakery fell 42% and 30.4%, or €16m and €23.5m respectively.
Irish food imports from GB 2017 to 2021
Retailers pivot towards local and EU suppliers
A conversation with a senior executive from the retail sector revealed that the uncertainties from a year ago have settled into a “new normal”, with the word “Brexit” now rarely featuring in business conversations. Retailers are more “choiceful” about their use of the Landbridge, because of the additional customs bureaucracy and the costs relating to the delays in delivery – though he stressed those were now considered normal for this portion of the trade. Some products, where the shelf life is less short, have been substituted with foods sourced in the EU, transported by direct maritime crossings, which take longer, but are lighter in administration.
The retail sector refers to the costs inherent in importing certain irreplaceable products from or through the UK as “trapped tariffs”. Those tend to be fresh products with short shelf-life and high added value. For branded product, retailers leave the administrative and customs headaches and costs to the supplying companies.
Many of these “trapped tariffs” are in fact on non-food items like clothing or household products often sourced from the Middle or Far East which transit through the UK. For many retailers, it is more efficient to continue with the Landbridge for these.
Sourcing policy changes made in response to Brexit by Irish retailers have benefited local producers, especially for fresh prepared foods such as fresh desserts. They have also pivoted more towards EU suppliers, for example Italian companies for pasta sauces. Importing from those countries is less efficient than importing from the UK via the Landbridge pre-Brexit, but, our contact stated, conditions are improving rapidly as the new normality settles in.
With energy and food inflation fast eroding consumers’ purchasing power, it was surprising to hear from our contact that those “trapped tariffs” were not passed on to consumers in the first six months, and so Brexit may not have contributed much to food inflation in 2021. However, with the combined impacts of energy cost increases, worsened by the sanctions against Russia, the disruption in supply chains caused by COVID and more recently the shortages of wheat and sunflower oil due to the Russian invasion of Ukraine, it is now almost impossible to isolate any Brexit effect on fast rising food costs.
Could the Trade and Co-operation Agreement fall?
As we write, the UK government’s attempts to unilaterally dismantle the NI Protocol – an intrinsic part of the international, legally binding Withdrawal Agreement, and a condition of the Trade and Co-operation Agreement signed with the EU – are making the headlines.
The UK Attorney General Suella Braverman has just ruled this could be done within the law, because its implementation by the EU is “disproportionate and unreasonable” – a view with which the EU understandably disagrees.
It is unlikely the EU will take the continued failure of the UK to respect its commitments without some form of retaliation. The EU has continuously emphasised the need to resolve the problems created by the Protocol through discussions aiming at finding practical solutions. Comments in recent days by EU Commission Vice President Maroš Šefčovič, who is responsible for the relationship between the EU and the UK, and other EU leaders like Olaf Sholz of Germany and Emmanuel Macron of France suggest a hardening of the EU approach.
The best-case scenario now is uncertainty for some months. But if the UK proceeds with a unilateral dismantlement of the NI Protocol and continues to renege on its commitments, the EU could call into question the Trade and Co-operation Agreement. This would be dreadfully damaging to the UK, and catastrophic for the Irish food trade, especially for beef and dairy.
And then of course there are the potentially disastrous political and security consequences for Northern Ireland.
Let us hope that sensible heads will prevail…
© Catherine Lascurettes, Cúl Dara Consultancy
