Mr. Paul Kelly:

I thank the Chair and members. Food Drink Ireland welcomes the opportunity to appear before the special select committee to discuss the EU-UK Trade and Cooperation Agreement, TCA. I will address the initial experience of the industry in the first six weeks of the agreement, some specific issues that have arisen or will arise and the measures that we think are needed.

FDI has welcomed the agreement reached between the EU and the UK as disastrous tariffs have largely been avoided but the agreement reached is still very much a hard Brexit. The UK has left the Single Market and the customs union and this has introduced a number of barriers to trade with Great Britain, in particular. Food and drink companies face substantial non-tariff barriers to trade between Ireland and Great Britain with customs, SPS, sanitary and phytosanitary, and other food safety requirements. This is happening when the sector also faces the twin challenge of the Covid-19 pandemic.

Looking first at imports, movement of shipments through the ports continues to improve but there are still teething problems, although lessening, with both SPS and customs controls. We and our members continue to communicate these problems to the authorities as they arise and they are dealt with accordingly. Dr. Pat Ivory talked about that in the last session. As stockpiles decline and we move into traditionally higher volume months, there is the potential for more delays. It points to the need to quickly resolve teething problems and for businesses to continue to adapt to the new administrative arrangements.

Exports to Great Britain have been working reasonably well. Companies were largely prepared for the new customs formalities which came into effect from 1 January. However, east-west trade flows have been impacted by difficulties for backloads from Britain, which has materialised as a major problem, leading to shortage of trailers, delays and increasing costs of transport as many trucks return empty to Ireland.

A big concern with Brexit is our reliance on the UK land bridge for trade with continental Europe. Capacity and frequency of direct sailings to the Continent has been increased. Further capacity is needed however, as the welcomed new capacity is well below the volume of traffic that has been using the land bridge. Exporters are still using the UK land bridge by necessity, focusing in the early weeks on transit through the UK to Holland, in other words, taking the east of England route, but exporters are also now trying the Dover-Calais route. Additional processes are required, some delays are experienced and additional costs are associated with the paperwork and the transit guarantee facilities which are being incurred. The land bridge will continue to be an important route to market for Irish food and drink exporters.

The rules of origin in the TCA are severely disadvantaging the food and drink sector, and Irish consumers. Here are three examples. First, there is no industrial milling capacity in the Republic of Ireland and all flour for the plant bakeries is imported. The majority of that comes from Britain. The specification for much of the flour we import has a Canadian wheat content in excess of 15%. This exceeds the tolerance level in the rules of origin and the full tariff of €172 per tonne is imposed, which is equivalent to a 50% price increase on a tonne of flour. FDI and the bakery sector are seeking a derogation for a period of time on the basis of the unique position of Ireland in not having an alternative supply as there is no industrial milling capacity in Ireland.

Second, many companies have evolved supply chains that stretch to the Continent and utilise British distribution hubs to serve the Irish market. This model reflects the most cost-effective way for many companies to serve the small and physically distant Irish market, but under the rules of origin, they now face paying a full tariff on goods despite them originating in the EU. To date some of the more immediate solutions, such as returned goods relief, are complex and costly to administer. Simplifications are needed to allow this relief to be used on a more systematic basis.

My final example would be dairy products which are processed from the mixed North-South milk pool. They will not be able to avail of the preferential tariffs in the many free trade agreements that the EU has negotiated with third countries. Additionally, there are doubts over their ability to access a number of the Common Market tools, such as private storage aid and intervention. Spirits will be similarly affected as regards free trade agreements.

One area of transport-logistics that has been severely hampered is groupage transport. Shared loads, with multiple pick-ups or drop-offs, which are important to operators both large and medium or small, have become an important part of an efficient and cost-effective delivery system from Ireland to other markets. However, experience to date is that groupage transport is severely challenged by the new post-Brexit procedures.

We are also equally focused on the forthcoming challenges for our food exports to Britain as the second phase of the UK's border operating model takes effect from 1 April. Irish exporters will face a new sanitary and phytosanitary, SPS, regime for products of animal origin such as meat and dairy with veterinary certification requirements, additional administration requirements and additional costs. From 1 July, when the third phase of the border operating model kicks in, Irish agrifood exports consignments will have to enter the UK through ports with border control post facilities and will be open to SPS controls - identification and documentary checks and physical examinations. This step presents further potential for disruption to logistics.

In the months ahead a big concern is regulatory divergence. As early as April we will see changes in European legislation in areas such as certification - changes that UK probably will not adopt or adopt completely. As these grow more frequent there needs to be an awareness of the closeness of the Irish and UK markets in terms of issues such as distribution systems and common packaging and the unique difficulties that will therefore be faced by Irish producers and suppliers. The scope for divergence in regulation and standards potentially increases further in the medium to long term, especially as the UK completes trade deals with other global partners. This presents a significant new competitive threat for our food exports to the UK.

A trade specialised committee on SPS measures is provided for in the TCA. Part of the remit of the committee is for the EU and UK to review the SPS regime. We believe it should be established quickly as it is the main route to achieve SPS easements and mitigate delays, administrative burdens and costs. However, it is subject to both the EU and the UK engaging and reaching agreement on this issue.

As we look to the future, in addition to resolving the issues I have outlined, our priorities must be to maintain our valuable UK market position and continue to diversify our exports to the rest of the EU and further afield. Last week's announcement by Government of the capital investment programme for food processing is welcome. It will need to be supplemented by a lot more funding, both from Ireland's €1 billion allocation from the Brexit adjustment reserve and from budget 2021’s recovery fund. This is needed for a number of measures: a wage subsidy scheme for Brexit impacted firms; an extension in state aid support; the budget 2021 recovery fund to be extended beyond 2021; investment aid to support competitiveness; market diversification supports; and a State-backed export credit insurance scheme.

I thank the committee again for the invitation to appear before it today and I look forward to answering the members' questions.