Mr. Aidan Cotter:

I thank the Chairman and members of the committee for the invitation to discuss the potential impact of the UK referendum vote result on the Irish agrifood sector. I am joined by my colleague, Mr. Padraig Brennan, director of marketing.

The links between the British and Irish agrifood sectors have been built over many centuries and helped to secure a mutually beneficial relationship between the two countries. The result of the referendum in June has created an environment of uncertainty as to how this relationship may change in coming years. The United Kingdom is Ireland's largest food customer for food and drink, with trade valued at €4.5 billion in 2015, representing 41% of Ireland's food and drink exports.

While the sector has recorded strong growth in food and drink exports to non-EU markets in recent years, the United Kingdom remains the core market with the value of trade growing by more than €1 billion in the last six years. The UK market is the leading destination for all product categories, accounting for 54% of total meat and livestock exports, 30% of dairy exports, 70% of prepared consumer foods exports, 30% of beverage exports and 90% of our edible horticulture exports, principally mushrooms.

Similarly, Ireland remains the main export market for UK food and drink products, accounting for almost one fifth of trade in 2015, at €3.1 billion. The importance of Ireland to UK exporters is demonstrated by the fact that trade was worth more than the cumulative exports to the next two largest markets, France and the Netherlands. Since 2010, UK exports to Ireland have grown by €700 million.

The result of the UK referendum in June has led to a period of considerable uncertainty. To date, the impact of this uncertainty has been most visible in the level of exchange rate volatility that has been evident. While there has been some relief in recent weeks as sterling recovered, it remains 11% weaker against the euro than prior to the result of the referendum vote in June and 15% lower than the start of 2016. This is severely affecting the competitiveness of Irish exports destined for the UK, as highlighted most starkly by the difficulties faced by the mushroom sector over recent months. The potential impact of exchange rate volatility is highlighted through analysis undertaken by Food and Drink Industry Ireland, which suggests that a 1% weakening in sterling results in a 0.7% drop in Irish exports to the United Kingdom.

While exchange rate volatility is not uncommon, the current volatility may also reflect a structural shift. It follows a period in which the Irish industry has focused strongly on efficiency improvement, which means the sector is not in a position to absorb the exchange rate movements evident in recent months. In this regard, there is only so much slack in efficiency to be made up. The challenge facing the sector is the extent and speed at which higher costs can be recovered from the UK market and the level of resistance from buyers to price inflation.

Aside from exchange rate volatility, the other potential implications facing the Irish food and drinks sector are the trade and regulatory policy and the UK macroeconomic performance following Brexit. Industry experts have forecast a rise in the cost of doing trade. An increase in regulatory and administrative costs due to the UK becoming a non-EU country and increased complexity of trading and restrictions in transit through the UK have the potential to add to the cost of doing business. Some experts have informally estimated a 5% rise in trade costs following Brexit.

The terms of trade agreements following Brexit will have a major bearing on trade between Ireland and the United Kingdom. In the event of favourable trade agreements being reached with international partners, it would greatly increase the level of competition on the UK market. Taking the example of beef, many Mercusor countries have cattle prices some 30% lower than those prevailing in the European Union.

Border controls following Brexit have the potential to cause disruption. Following Brexit, the Republic of Ireland’s Border with Northern Ireland could, by definition, be an external EU border which would lead to increased regulatory requirements and trading costs and result in a potential rise in travel costs between the United Kingdom and Ireland.

A considerable amount of trade takes place between the Republic and Northern Ireland. In 2015, more than €525 million worth of Irish food and drink was exported to Northern Ireland, with imports into the Republic of Ireland from Northern Ireland reaching €428 million. Every year up to 750 million litres of milk are imported from Northern Ireland by milk processors based in the Republic of Ireland. In terms of live animals, more than 1,000 bovines and 10,000 pigs are exported live to Northern Ireland each week, with around 5,000 lambs per week imported into the Republic of Ireland.

A number of Irish food and drink companies have processing facilities in Northern Ireland and parts of Britain. With regard to Northern Ireland in particular, there tends to be close synergies between operations in the Republic on a day to day basis in terms of further processing and final packaging. Any restrictions on access or new Border controls could significantly impact on the potential for such synergies to remain in place.

The Irish food and drink sector has consistently highlighted its resilience in recent years in the face of economic, regulatory and food safety issues by continuing to grow the value of food and drink exports, which today are more than 50% higher than 2009 levels. Food Wise 2025 highlights the sector's growth ambitions, with a target of €19 billion worth of exports by 2025. This requires growth of €8 billion over the next ten years.

The United Kingdom is currently slightly more than 60% self-sufficient in most food categories and the position is not likely to change post-Brexit, which means the UK will need to import. The long established links between Ireland and the UK combined with the language, cultural and taste similarities make Ireland an obvious natural trading partner for the UK. However, much will depend on the shape of any future trade agreements.

Bord Bia is undertaking consumer research in the UK to evaluate the opportunity to consolidate the market position of Irish beef and other sectors, including dairy and mushrooms. This involves testing the potential for a consumer focused campaign to highlight the strengths of Ireland as a food producer and our sustainability credentials, with a view to protecting us from the threat of lower priced competitors in the UK market post-Brexit.

Since the results of the referendum, Bord Bia has been implementing a strategy for supporting the Irish food and drink industry through the Brexit process based on five pillars. These are to assist companies to ease market volatility impacts; provide consumer and market insight; deepen customer engagement; extend market reach; and address risks to the Irish market. Activities under these headings have been boosted by increased funding provided by the Department of Agriculture, Food and the Marine in 2016 and 2017. This will allow Bord Bia to increase its investment in key areas, including retail promotions, market prioritisation studies, export marketing strategy programmes, image building activities, industry talent development and direct support to client companies. This includes increased beef promotional activities in markets such as the UK where spend will be doubled in 2017 and the roll-out of a new promotional campaign for Irish beef in Germany. In addition, Bord Bia has successfully secured €3 million in EU promotional funds for beef and lamb campaigns in China and south east Asia over the next three years.

A survey of more than 200 Bord Bia client companies in the immediate aftermath of the referendum showed that exchange rate volatility was their number one concern and around half of them had limited or no plans in place to deal with it. In recent months, Bord Bia has held four currency workshops that have focused on helping companies access the right information and manage volatility through negotiation as well as financial and contractual considerations.

Bord Bia is rolling out a market intensification programme to provide targeted marketing supports to companies with a high dependency on the UK market. The support assists companies to strengthen their position in the UK market and in their efforts at market diversification. A total of 41 applications were received and 32 companies were approved grants totalling €655,000 in a specific new programme instituted in October.

Bord Bia runs a number programmes to help companies develop business in the UK and best position themselves in the market. These programmes have been reviewed to strengthen their financial, competitive, contractual and regulatory modules. We have doubled our one-to-one mentoring with UK food service and retail experts since the referendum result.

Bord Bia is also increasing the number of market and consumer insight projects being undertaken by our insights team in our new dedicated insights centre, The Thinking House. Examples of project currently under way or planned include a market prioritisation study to identify opportunities in emerging regions; deep dive category analysis of European private label opportunities; dairy opportunities in south east Asia and west Africa; prepared consumer foods in the Middle East; alcohol in the United States; and seafood in south east Asia.

Utilising its long-term, strong relationships with UK trade customers, Bord Bia is enhancing existing trade events and pursuing opportunities to promote Irish products in the retail and food service environment. The Bord Bia London team was recently boosted with a new dedicated member of staff to Brexit support measures for Irish companies in the market. Later this week, we will hold a Brexit seminar in London at which we expect more than 100 attendees from Irish food and drink companies to engage with UK market experts on the issue. This will be followed by a trade reception, an annual event at the Irish Embassy in London, which will be attended by 400 representatives of UK and Irish food and drink businesses.

Bord Bia is also continuing to support client companies to overcome barriers for market diversification through the provision of market and consumer insight and brand guidance, while enhancing market and trade visits, particularly to emerging markets. The latter has included trade missions to Asia and north Africa led by the Minister for Agriculture, Food and the Marine, Deputy Creed, and participation at leading trade fairs ranging from CIMIE and China Fisheries in China to SIAL in Paris in October. Bord Bia’s strategic priority of developing new routes to market is underlined by the opening of two new offices this year, in Warsaw to expand our support in eastern Europe, and in Singapore to service eight emerging markets in south east Asia.

The weakening of sterling relative to the euro has the potential to significantly increase competition on the Irish market. Bord Bia is undertaking shopper mission research across key categories on the Irish market to help client companies better understand consumer needs and position themselves on the market in a way that can enhance their ability to withstand the threat posed by lower priced competition.

The decision by the United Kingdom to leave the European Union has led to a large degree of uncertainty around the future trading relationship for Ireland with the UK and the competitive environment likely to be faced by Irish exporters. However, the Irish agrifood sector has proven its resilience in overcoming serious challenges previously and, with the right supports and guidance, can do so again.

I thank the Chairman and members affording me and my colleague, Mr. Padraig Brennan, the opportunity to address the joint committee today. We will be pleased to answer any questions members may have.