Hello all!

Welcome to the first Cúl Dara Consultancy monthly newsletter. This month, we focus on Brexit: deal or no deal, trading conditions will deteriorate from 1st January next, and the sector will need a lot of support.

Catherine Lascurettes,
Director,
Cúl Dara Consultancy
+353(86)269-1197.

This is the November newsletter. If you would like to receive future newsletters, you can subscribe here.

I would like to take this opportunity to introduce Cúl Dara Consultancy. We specialise in analysing food and agricultural policy and the global climate targets and societal expectations which influence them. Hence I am currently working on the negotiations of the Common Agricultural Policy, the Farm to Fork and Biodiversity strategies of the EU Green Deal, and I have researched and drafted the Irish Farmers’ Association IFA’s Brexit Emergency Plan. The Nitrates regulations, international trade negotiations to the national Climate Action Plan are also on my agenda. Those policies will impact production systems and volumes in Ireland and elsewhere.

Cúl Dara Consultancy aims to help farmers, co-ops, companies and organisations involved in the food sector understand in detail those policy evolutions and integrate them into their strategic decision making.
You can see here the Brexit Emergency Plan Cúl Dara Consultancy researched and drafted for the Irish Farmers’ Association last month.

Do feel free to contact me to discuss how we might be able to work together!

catherine@culdaraconsultancy.ie

CÚL DARA NEWS
NOVEMBER 2020 – BREXIT SPECIAL

Biden election may well help achieve a UK/EU post Brexit trade deal, but damaging logistical and cost issues will remain

New US President elect, Joe Biden, has made no mystery of his views on Brexit. Senior Democrats including Speaker of the House Nancy Pelosi and Philadelphia Congressman Brendan Boyle have clearly stated that they believed the UK’s Internal Market Bill endangered the Good Friday Agreement and the UK government recognises it broke the internationally legally binding Withdrawal Agreement signed 12 months ago with the EU. The US Democrats warned that, should the UK persist with the Bill, the return of a hard border on the island of Ireland would become necessary, and there could be no trade deal between the UK and the US.

Hence, with the Democrats returning to the White House in January, the UK may be more willing to compromise, and with the next EU Council meeting planned for 17th November, a limited trade deal may be struck in coming days.
However, with or without a trade deal between the EU and the UK, trading conditions will seriously deteriorate at the end of the Brexit Transition Period on 31st December 2020.

Delays at customs, logistics, transport and supply chain challenges

With or without a deal, the UK leaving the EU Customs Union from 1st January 2021 will require customs administration and product inspections for exports to or through and imports from GB, causing costly delays.

A study from University College London published in September shows that even an increase of 70 extra seconds per truck for inspections would cause a 6-day queue at British ports. An extra 80 seconds would lead to irretrievable, permanent gridlock.

The Irish Maritime Development Office (IMDO) warns that to replace a 20 hour Landbridge journey across Britain to the continent — the current method favoured for 83% of all roll-on/roll-off traffic — shipping direct out of Dublin or Rosslare ports would take a 40 hour RORO ferry journey, or a 60 hour lift-on/lift-off (LOLO) container ship journey.

That said, inspection delays at British ports will add hours to the Landbridge journey, so that the direct route may become comparatively appealing.
The ferry companies have started to respond. Both Stena Lines and Irish Ferries will go from three weekly sailings between Dublin/Rosslare and Cherbourg to daily connections from January. Good news, as this will increase RORO capacity for direct shipments and offer a solution for many goods — including live calf exports.

However, Cherbourg is a 8 to 9 hour truck journey from the German/Belgian borders, in addition to the longer sea journey. Perishable food exports, and just-in-time distribution chains cannot cope with such delays, which also add cost, damaging competitiveness.

In the absence of a comprehensive deal which allows for tariff-free trade — and there is most likely insufficient time to achieve this — the UK Global Tariff, published last May, stands to cost Irish food exporters between €1.35bn and €1.5bn per annum, according to the Irish Government’s Brexit Readiness Action Plan. That is around a quarter of the value of our €5.5bn food exports to the UK.

We estimate this would add almost €1.5/kg additional cost to the export of Irish Cheddar cheese (around 20% of current average retail price), and an average of €2.68/kg for beef (approx. 74% of the product value). The Central Bank 3rd 2020 Quarterly Bulletin warns that, assuming the tariffs are fully passed in product prices, we could see a fall of 75% in Irish food exports at the end of the Transition Period.

Ireland imports €4.1bn worth of food and drink from the UK, of which €3.4bn comes from Great Britain. This too will be affected by transport delays and potential import tariffs.

Many Irish food exporters have reported that their UK clients are demanding Delivery Duty Paid (DDP) terms — i.e. that any import tariffs be paid by the exporter. In addition, they are often unwilling to undertake any customs or import related administration, so that some Irish exporters are now finding they may have to establish some sort of structure in the UK to be their own importers. All of this will add significant cost pressure back up the chain which will cost farmers as well as processors.

Currency fluctuations and UK cheap food policy will damage Irish agricultural income

On the day before the 2016 Referendum on Brexit, €1 was worth around £0.76. Today, it is around £0.90, with parity in sight. Currency volatility has challenged Irish exports’ competitiveness for the last four years, with beef bearing the brunt over that period.

Meanwhile, the UK has also opened trade talks with New Zealand, Australia, the United States and Canada, all of which are seeking lower tariffs and increased access to the UK food market, including the accommodation of potentially inferior standards of food safety, animal health and welfare and the environment. The pursuit of a “cheap food” policy by a state which currently imports 26% of its total food consumption from the EU clearly motivates those negotiations.

The impact of Brexit without a comprehensive free trade deal with the EU, together with UK trade deals with those other countries, would be a disastrous scenario for Irish agriculture. Brexit will also likely cause market disturbances and product displacement globally, which, especially mid-pandemic, could destabilise agricultural commodity markets for quite some time.

Teagasc’s assessment of a no-deal Brexit presented at their Outlook event in November 2019, suggested that, compared to a no-Brexit baseline, overall Irish agricultural goods output in 2030 would be down €630m (€500m from beef) due to lower volumes and prices. Agricultural sector income would be down €330m (-10%) by then. The price of products compared to the same baseline assumption would be down 20% for R3 steer, 2.5% down for milk and down 7% for poultry.

EU response to the Russian embargo on food imports in 2014 – a useful precedent?

In August 2014, Russia introduced an embargo on food imports from the EU among others, in retaliation to sanctions over its aggressions towards Ukraine and Crimea.

The common point between Brexit and the Russian ban of 2014, is that they are both geopolitical events outside of our control, but in which the agriculture sector, especially farmers, take the brunt.
However, while the EU Russian ban affected just over €5bn worth of EU food exports, mostly from the Baltic States, Finland, Poland and the Netherlands, Brexit will hit over €40bn — eight times more — with Irish exports joint third worst affected in value with France – behind the Netherlands and Germany.

Also, while the UK accounts for 18% of total Dutch food exports, 9% of France’s and 8% of Germany’s, it represents 38% of Ireland’s — despite many successful efforts at diversification.

Fresh fruit and vegetables, pigmeat, and most of all dairy products were severely affected by the Russian ban — and it took close on two and a half years for dairy prices, also affected by lower Chinese imports and increased global output, to recover after the market disturbance kickstarted by the ban.

The EU responded to the Russian embargo with close on €1.5bn worth of market and farmer supports. Those included extended intervention purchases and private storage subsidies, direct financial supports to farmers, matched by national funding, subsidised voluntary reduction in milk production, promotion campaigns, incentives to green harvesting and free distribution of perishable produce and the provision of funds which in Ireland were used to seed low cost cash flow and investment loans.

Much of the funding for these schemes came from outside of the EU’s CAP budget.

Brexit will strike harder than the Russian ban, and the EU recognises Ireland will be worst hit.

Last July, the EU Council agreed on a €5bn Brexit Adjustment Reserve Fund, the detailed spending of which was to be finalised this month, as the EU Council then expected clarity on Brexit by now.

Our government must secure the lion’s share of it for Ireland’s agriculture sector. The EU must seek right to the 11th hour to mitigate tariffs, standards and logistics problems with a deal which provides for the closest possible trading relationship.

However, the types of supportive EU measures provided in 2014 to 2017, accompanied with laxer EU State Aid regulations and a temporary suspension of imports and trade negotiations with third countries will be crucial to manage and minimise the hit on Irish agriculture, and provide the necessary income supports for farmers.

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