Monday, 12 September 2016Food and Drink Industry Ireland (FDII), the Ibec group that represents the food and drink sector, today published a comprehensive new review (pdf attached) of the challenges posed to the sector by Brexit, and warned of a substantial threat to thousands of jobs if the Government failed to respond decisively to intense competitive pressures that have followed the referendum result. UK buyers are reviewing their supply chains in light of the vote and sterling's subsequent fall. It is crucial that Irish firms don't lose out.
The report recommends an immediate policy response to negative market developments, which should include: a review of the national agri-food strategy FoodWise 2025; budget tax reform to improve Ireland's competitive position; and the re-introduction of the Employment Subsidy Scheme and the Enterprise Stabilisation measures that were last applied in 2009-11.
The report, Brexit: The challenge for the food and drink sector, also includes a survey of food and drink companies: 64% said exchange rate movements would have a negative impact, 42% expected negative impact on the value of export sales, 42% identified exchange rate volatility as the biggest problem and 51.5% have hedging or pricing arrangements in place.
An economic analysis meanwhile highlights the intense pressures on margins and pricing strategies. A review 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.
FDII Director Paul Kelly said: “Urgent action is now required to protect our vital exports to the UK market, limit damage in the domestic market from imports, and address competitive pressures caused by the fall in sterling. A failure to act will compound the pressure on exporters, undermine Ireland's long-term position in the market and threaten jobs.
“In addition to an immediate response to the currency shock, we need to work towards a positive outcome in formal exit negotiations. The main objective must be to maintain full unfettered access to the UK market for Irish exporters. UK access to the EU single market is much more preferable to UK bilateral agreements with third countries.
"A structural shift in exchange rate relationship, combined with Brexit related trade risks means that UK buyers are planning significant supply chain restructuring – the real threat is a loss of confidence in Ireland as a competitive supply base resulting in loss of markets and exports.
“The Government’s short term objective must be to support companies as they reposition their businesses during this period of uncertainty. The focus must be on maintaining markets in the UK, developing other markets as well as ensuring that, in the domestic market, companies remain competitive against imports and the threat of cross-border shopping.”
Key policy recommendations:
- A review of the impact of Brexit on the objectives contained in the national agri-food strategy FoodWise 2025.
- A Government established taskforce led by the Department of the Taoiseach to engage with the food and drink sector on implementing immediate measures that will safeguard today’s business and trade flows in the face of this major challenge to our competitive position.
- The re-introduction of the Employment Subsidy Scheme and the Enterprise Stabilisation measures which were last applied in 2009-11.
- €25m 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
An Ibec survey of more than 450 companies across the economy found that food and drink companies were much more worried about the downside risks brought about by Brexit.
- Overall 45% of companies said that exchange rate movements would have a negative impact on their business, but a much higher proportion (64%) of food and drink companies felt this.
- In terms of exports, 42% of food and drink companies said Brexit would have a negative impact on the value of export sales, while only 26% of total companies said this.
- 42% of food and drink companies said exchange rate volatility was their main challenge, compared to 22% of total firms.
- More food and drink companies had a hedging or pricing arrangement in place: 51.5% compared to 24% overall
- Brexit - the challenge for the food and drink sector.pdf - 2,614 Kbytes