Mr. Trevor Donnellan:

Deputy Lombard asked how we would view the food inflation issue in the UK and Deputy Cahill asked about the effect it might have on the demand for food. We have colleagues in Northern Ireland, who do similar work to us, who have models for the United Kingdom. Our intention would be to collaborate with them to examine issues such as that one. That is one we will be capable of examining. I agree with the member's remark about the timeline involved in constructing new processing facilities. That could not be achieved in a short timeline of two years. To plan, commission and construct a plant would involve a longer timeline. The great uncertainty about that is whether it would be needed. There is still the question of what the relationship between the UK and Ireland and the wider EU will be and whether that would be necessitated. That is a challenging issue in itself.

On the question of whether we have yet seen the impact of the sterling reduction, that is difficult to say. The committee probably needs to interrogate the food industry on that, as we are not in the food industry. There are few issues involved. One is the forward contract arrangements that might have been in place. We do not know the detail, or what the duration, of those might be. Another issue is the hedging arrangements these processors might have had in place. In other words, they may have in the short term at least addressed the risk of the sterling depreciation. Eventually they will have to do new hedging arrangements which will be at exchange rates which are much closer to where we are at present and then we will see the real impact on the processing industry of the sterling reduction.

Another factor to bear in mind is the type of agrifood sector there is in the UK. As well as producing its own primary products, it imports quite a lot of primary products and converts them into finished food products for consumption in the UK and in Ireland as well. Another factor to bear in mind is changes in the value of primary products in percentage terms. In other words, the higher prices they might have to pay in the UK for basic raw materials might not transfer into the same percentage change in the finished product. There is also the range of other cost items in the production of a food product. Therefore, the type of percentage changes we might see in raw materials might be much higher than the type of percentage changes we might see in the finished product at a retail level, which is an important distinction.

The type of inflation in the short term, as was mentioned, is in the range of 5%. Some people have been talking about that in a relatively short-term period. Over the longer term, I am not sure we can say anything about the level of food inflation we will see in the UK. Traditionally, the UK has pursued a relatively low cost food policy. Rampant inflation in food at retail level in the UK would be hugely politically unpopular. We need to keep in mind that if UK policy was leading to very high food inflation, at some point governments would need to revisit the basis for that food inflation. I do not imagine the UK population would tolerate high levels of food inflation over the long term.