Mr. Paul Kelly:

I thank the Chairman and members of the committee for the opportunity to appear before the committee today. My name is Paul Kelly, director of Food Drink Ireland and I am accompanied by Philip Carroll, chairman of Meat Industry Ireland. Ireland’s largest indigenous sector is facing an unprecedented challenge following the UK vote to leave the EU. The agrifood sector has already been hit hard by the depreciation of sterling, resulting in a reduction in the value of trade to the UK by €570 million in 2016. This equates to 5,700 job losses. The continued depreciation of sterling is a major concern, now that the UK Government has triggered Article 50 of the EU treaties and formally set out its approach to Brexit negotiations.

A further weakening of sterling will give rise to greater trade losses, enterprise and job losses for companies most exposed to UK markets and downward pressure on farm incomes. The future value of UK goods exports, valued at €4.1 billion in 2016, will be determined by exchange rate losses in the short term and ultimately, post Brexit, by the nature of the trading relationship that will exist between the UK and EU. In a worst case, hard Brexit, scenario, the ESRI has estimated that there will be a disastrous outcome for trade with the UK for many food sectors, including 80% reductions in primary and processed meat exports, a 68% reduction in dairy and reductions of more than 70% for many other food preparations.

It is critical that Government take action now and introduce measures to assist the sector, which is of strategic importance to the Irish economy, in overcoming these challenges at national level while also making a strong case at EU level that Ireland will require support that recognises where Brexit represents a serious disturbance to the Irish economy.

We believe that various measures are necessary to support the Irish agrifood sector in the face of the fracture already being experienced in our trading relationship with the UK since June 2016. Such measures would include the relaxation of state aid restrictions at both farming and industry level that impact on the ability of Ireland to address critical stabilisation support measures and strategic transformative initiatives, direct support for farmers through CAP market support and the re-introduction of the employment subsidy scheme and the enterprise stabilisation measures which were last applied during the financial crisis in 2009 to 2011. Also required is additional support for market diversification and product innovation measures, administered by the relevant State agencies as well as trade support measures, including export trade financing and export credit guarantees, to support the continued development of international export markets. The Irish agrifood sector also requires access to sustainable financing via the Irish Strategic Investment Fund, ISIF, and the Strategic Banking Corporation of Ireland, SBCI, supported by the European Investment Bank, EIB.

In the context of the forthcoming negotiations, we welcome the Irish Government's position that to succeed as an open and a welcoming society, we must remain at the heart of Europe. We acknowledge the Government’s acceptance that the agrifood sector is facing particular risks and challenges and that the sector is among Ireland’s priorities in the Brexit negotiations. We believe that delivering an outcome that continues the closest possible economic and trading relationship between the EU and the UK requires that Ireland seeks the inclusion of a range of measures in the EU mandate for negotiations. In order to minimise economic uncertainty and the potential for major economic damage for exposed sectors, discussions on the future EU, UK relationship must be commenced early in the negotiating process. The retention of free access to and the maintenance of the value of the UK market are of critical importance to the Irish agrifood sector. Given the UK’s stated determination to leave the Single Market and the customs union, this will require a comprehensive free trade agreement between the EU and UK. In that context, all sides must commit to negotiate an ambitious and balanced agreement that prioritises continued tariff free and barrier free trade, long-term growth, investment and stability. The agreement should take account of the special case of the island of Ireland, ensuring that the highly integrated supply chains can continue to operate with free movement of goods and services. In acceding to a free trade agreement with the UK, the EU must ensure that the value of the UK market is not undermined through lower cost imports which do not meet the standards required of the EU agrifood sector. We must see the continued application of the common external tariff for agriculture and food imports to the UK and the maintenance of equivalent standards on food safety, animal health, welfare and the environment.

Transitional arrangements must be of sufficient length for businesses to plan and prepare for any new free trade arrangements that may be required to bridge the gap between the completion of the UK two year exit process and the point at which the future EU-UK agreement enters into force. There can be no reversion to high WTO, most favoured nation, MFN, tariffs on EU and UK imports of food, drink and agricultural products in the period between the UK leaving the EU and a new agreement being finalised, as this could permanently damage trade and livelihoods in the most affected sectors here in Ireland. Overall, customs procedures must be dealt with as part of the first phase of the article 50 negotiations

Food Drink Ireland and Meat Industry Ireland are committed to working with the Government and the EU Commission to achieve an outcome from the Brexit negotiations that represents the closest possible trading arrangements to those that exist at present. We appreciate the complex nature of these negotiations. We also accept that tough negotiations lie ahead in achieving our overall objective of continued free and unfettered access to the UK market post-Brexit. We urge the Government and the European Commission to be relentless in defending our interests and to stand firm in resisting conclusions that would lead to a hard Brexit, an outcome that serves nobody’s interests, least of all Ireland’s.

Mr. Philip Carroll:I thank the Chairman for the invitation to contribute to the discussion on this important topic. I wish to underscore some of the points made by Mr. Kelly in his introductory statement. Members will recall that in October and November 2015, seven or eight months before the Brexit referendum, sterling was trading at around 72 pence to the euro. It is now trading at around 85 to 86 pence to the euro. In the period immediately after the referendum in June, it hit a peak of about 92 pence. We have seen a very significant devaluation of sterling in the period in question. In the immediate aftermath of the result, the currency was particularly volatile. Our real concern in the short term, as the negotiations proceed, is that there will be further volatility in sterling. Of course, that has an immediate impact on the returns available to Irish food processors from their exports into the UK market. As Mr. Kelly has said, we have already seen the impact of that. Brexit has already happened. It has happened in a very significant way in that there has been a loss of almost €600 million in returns from the UK market in the relevant period.

I note that in recent days Enterprise Ireland, in its review of 2016, has indicated that the growth in value of the UK market has declined from 12% in 2015 to 2% in 2016. That is indicating that over a full year this year, the likelihood of significant growth in the value loss that was recorded for 2016 will be something of the order of €1 billion. If such a loss were sustained for any period of time in the agrifood sector, it would equate to 10,000 job losses. That is the very significant impact that Brexit is having already, even before it has actually taken place.

Data shows that there has not been a significant decline in volume of exports into the UK but the value decline has been huge. Were we to reach the point where we have a hard Brexit, then we are in a completely different ball game. We are not just talking about the relative value of sterling but also about the impact of very significant additional costs through the tariffs and quotas that would be applied in a hard Brexit scenario. As Mr. Kelly has said, because Brexit has happened, there are two immediate challenges. One is the current challenge to respond to the market signals that we are getting but the second stage challenge centres on how we engage in the negotiations and the result we get from them.State aid is critical in that regard. The issue here is about getting some sort of enabling approval from Brussels that will allow a set of measures to be activated by the Irish Government to support the industry through the difficult period of the two year negotiating cycle. We are not asking anyone to sign a blank cheque. Rather, we are asking that the Irish Government be allowed to intervene at critical junctures if sterling hits a scale that could be substantially damaging to the interests of the Irish meat processing, dairy processing, drinks and prepared consumer foods sectors over a lengthy of period. Of course, the immediate impact of all of that is on farmers' incomes. We are looking for supports that will enable the Government to intervene and to invest in the efficiency of the agrifood industry in response to Brexit. We also want it to be able to introduce short term measures that will support jobs, prevent potential job losses and stave off those risks for a period until we have greater clarity on what the aftermath of Brexit will be for Ireland.

In a wider sense, we are looking for free and unfettered access. That seems a bit of pipedream at this stage, given the position taken by the UK which looks more likely to lead to a hard rather than a soft Brexit. The British Government has indicated that it believes that the divorce proceedings can be settled relatively quickly.

Yet we hear a huge narrative about the cost of that, the figures coming out of Brussels and how they would be rejected in the UK. It does not seem likely that can be settled as quickly as was envisaged a few months ago. They have also talked about leaving the single market and the customs union, yet having some rights of retention of access to the EU market in respect of financial services and none of that seems to be compatible with the freedom obligations within the European community. They will be difficult negotiations as well. The third one which it seemed to be suggested could also be resolved before the end of March 2019 was the respective rights of EU citizens living in the UK and vice versa. The community has responded by saying all of these negotiations will be dealt with in their totality at the end, and there will be no short-term decisions taken on any of these issues. That leaves a lot of room within which there will be serious volatility in sterling. That means we need to have these enabling provisions put in place to support our industry during that critical period.

On the wider issue, Mr. Kelly is right that we need as close to unfettered access as we can get. We all know that Brexit will do damage. There is no question about that, whether it is soft or hard. It is the scale of that damage that concerns us most. In that context, we would like to think that there would be negotiations on the future relationship with the UK at an early stage. We think the Irish Government has done an excellent job in bringing that to the forefront. That needs to be reinforced as we proceed and those negotiations need to take place later this year or at the very latest in the early part of next year otherwise we will be heading towards a difficult cliff edge in March 2019. To avoid that we need a transition period because it is unrealistic to expect that a trade agreement can be negotiated in less than a year. The Comprehensive Economic and Trade Agreement, CETA, took approximately seven years to negotiate and that is one of the most recent trade agreements negotiated by the EU. There has been considerable talk about negotiating an EU Japan agreement and the expectation was that would have been finalised before the end of December 2016 but now in May 2017, the expectation is that it might be completed by the end of this year. That has been going on for six or seven years as well. There is no real expectation that a trade agreement can be negotiated within the period we are now considering and, therefore, we need a transition agreement which will be pretty much what we currently enjoy in the relationship Ireland has with the UK.

The part of the meat sector most exposed is the beef sector. We export 52% of output to the EU market, in a hard Brexit if tariffs are imposed a tariff on a tonne of beef would be of the order of €3,600. That shows the scale of the problem we will face. Will the British consumer be willing to pay that extra amount? That is unlikely. We will then try to sell our product to the European market and potentially depress prices in an oversupplied market. It is a very difficult situation and I wanted to highlight that area.