Alison Graham is European affairs executive at the Irish Co-operative Organisation Society (ICOS), the sector body for Irish co-ops.
How concerned is ICOS over the prospect of no deal or moves to amend the backstop?
ICOS is gravely concerned by the decision in the UK House of Commons to reject the negotiated Brexit withdrawal agreement and current attempts to re-negotiate the Irish backstop. We believe the withdrawal agreement, including the Irish backstop. represents a fair and workable solution to the UK’s decision to leave the EU, while ensuring trade between the EU and the UK in future remains as frictionless as possible.
We welcome and support the EU’s strong defence of the withdrawal agreement and their continued commitment to Ireland. The backstop is a necessary pillar of the withdrawal agreement, aiming to fulfil the commitments and desires of both the EU and the UK to ensure that a hard border will not be reintroduced on the island of Ireland. This is not only a matter of trade, but one of peace and joint heritage and citizenship.
Time is now fast running out and with the UK set to leave on 29 March, it is vital that the agreement is ratified and certainty is provided to businesses and citizens. A no-deal outcome would be disastrous to all, particularly for agri-food co-operatives, due to their complex highly integrated supply chains, its just-in-time processing and its dependence on perishable products. 12,000 jobs and €4.5bn in value for the Irish economy is dependent on Irish trade with the UK in the agri-food sector alone. It is not possible to sufficiently mitigate the resulting economic damage of a no deal through public and private sector contingency planning, rather a long-term and stable agreement must be reached.
ICOS’s Alo Duffy, chair of the Copa Cogeca Brexit task force, met last week with EU chief negotiator Michel Barnier and his team to relay this message. We are also calling for direct help from the Commission to address the potential market disruption resulting from Brexit, through the utilisation of market management tools in the agri-food sector, in particular private storage aid for butter and cheese, as well as trade promotion supports and structural and adjustment funding for products and businesses directly impacted.
Which co-op sectors are most likely to be affected?
The Irish agri-cooperative sector is particularly exposed to Brexit, due to our strong trade links with the UK and business structures which span north and south of Ireland. In addition, the UK’s decision to withdraw from the EU has major implications for the EU budget, and in an attempt to make up the deficit created by its departure the European Commission is proposing to cut the budget of the Common Agricultural Policy which will have marked and inestimable consequences for all agricultural markets and the rural economies in which our co-operatives operate.
Within dairy, which is our largest co-operative sector, 24% of exports (worth €968m in 2017) from Irish dairy co-operatives go to the UK. Cheddar cheese production is particularly exposed, as 66% of the cheddar produced by Irish co-operatives is exported to the UK (and 50% of all cheeses produced). In the event that the UK leaves the EU without ratifying the withdrawal agreement, a tariff of €1,671 per tonne would apply to these cheddar exports. This would result in a tariff bill of approximately €150m a year on Irish cheddar.
However, while short-term measures can be utilised for cheese exports, our cross-border dairy co-operatives, which have members and process milk on both sides of the Irish border, will be directly hit from day one in the event of a no-deal Brexit. Up to 745m litres of Northern Irish milk (36% of their total supply and up to 11% of the ROI production pool) was processed in the south in 2017. However under the current EU regulation it would not be possible to continue to import raw milk from Northern for processing in facilities south of the border. A border on the island of Ireland would entirely disrupt these north-south supply chains, which have developed organically over the last 20 years in Ireland and would do inestimable damage done to the fragile rural economies in the border counties of Ireland which rely on cross border trade.
For our co-operatives livestock trading marts Brexit poses similar challenges. Trade in live animals is common place across the Irish border, with approximately 1,000 bovines and 10,000 pigs are exported from south to north each week. Overall 33,000 live cattle were exported from Ireland to the UK in 2017. In the event of a no-deal Brexit, veterinary checks on live animal exports will be drastically increased and the UK will be excluded from the EU’s TRACES system, which allows for the exchange of data on veterinary records and therefore there would be a significant additional burden on exporters, hindering the sale of live animals to the UK and therefore potentially reducing demand and competition in Irish livestock marts.
Lastly looking at horticulture co-operatives, the mushroom sector, which send 95% of all exports to the UK is already feeling the impact of Brexit. The UK is such a big market for Irish mushroom co-operatives due to its proximity, which is essential for fresh products such as mushrooms. However a no-deal Brexit will entail customs and regulatory checks to be introduced which will result in a serious delay for shipments, bringing to an end the “just-in-time” logistic operations between the co-operative and its UK retailer customers and adding greatly to the cost of exporting. By and large these co-operatives are currently trading solely within the EU single market, not exporting to third countries, meaning they do not have expertise in customs procedures. These organisations would therefore be particularly hit by the introduction of complex customs administration and would face significant additional costs in order to comply.
What can co-ops in Ireland do to mitigate the impact of Brexit?
Despite the uncertainty that persists, Irish co-operatives have been taking measures to mitigate the potential damaging impact of Brexit.
- Market diversification: Irish agricultural co-operatives, particularly in the dairy sector, have been diversifying their export markets for many years. This process has been accelerated as a result of the UK’s decision to leave the EU, as the potential for technical and tariff barriers as well as the economic instability in the UK has increased the need and urgency for Irish businesses to rely less on its market for their exports. The value and volumes of Irish agri-food exports to international markets are steadily increasing, reaching 32% in 2017, up from 31% the previous year. In comparison 35% of Irish agri-food exports went to the UK market, down from 37% in 2016. However, it must be noted that it takes a considerable amount of time for businesses to access new markets and for brands to establish themselves and generate value.
- Product diversification: A lot of investment is being made by co-operatives in new facilities to enable them to also diversify their product portfolios. In particular, dairy processors have taken steps to move away from cheddar cheese, which as mentioned above is highly exposed to Brexit due to the large volumes exported to the UK and the poor opportunities for this cheese type in other international markets. These processors aim to move part of their milk pool from cheddar production to the production of more international cheese types, including for example Norwegian Jarlsberg and mozzarella. These will be largely destined for the North American and EU markets. Also notable is the significant recent investment made by the sector in expanding dairy nutritional powder facilities, in preparation for the growth in Irish milk production following the abolishment of quotas in 2015. These powders are also already largely destined for international markets. These investments will provide dairy co-operatives with greater flexibility in their processing abilities no matter the outcome of the Brexit negotiations, so that they can better target their production to products with the greatest market returns and to export markets which are most accessible.
- Strengthening foothold in Northern Ireland and Great Britain: Although, as described above Irish co-operatives have been diversifying their export markets, the UK will remain a key market for Irish agri-food products, despite potential future trade difficulties and higher costs, due to its close proximity to us, our historical trading ties and already established distribution channels and brand positions. Therefore, since 2016, many co-operatives businesses have made moves to increase their foothold in the UK and in particular in Northern Ireland, in order to strengthen their position in the market and secure it post-Brexit. These moves have included not only investment in expanding storage and distribution facilities in Great Britain, but also the merger of two co-ops in the northern part of Ireland. Both co-operatives have members and process milk on both sides of the Irish border. This merger is an important strategic decision made by the shareholders of the cooperatives to safeguard against the risks of Brexit and it offers them a new opportunity for Brexit contingency planning.
However, these measures are not a solution to the potential economic damage that would result in the event of the UK leaving the EU without a deal. It is vital that the withdrawal agreement is ratified and we can enter a period of transition until arrangements for the future EU-UK relationship are established.
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