Oireachtas Joint and Select Committees
Tuesday, 13 December 2016
Joint Oireachtas Committee on Agriculture, Food and the Marine
Impact of Brexit on Irish Agriculture and Fisheries Sectors: Discussion
I welcome Mr. Jim Power and thank him for accepting our invitation to discuss the impact on the Irish agriculture and fisheries sectors of the referendum result on the United Kingdom's membership of the European Union. As he may be aware, the joint committee has held a number of meetings on the issue and today we would like to hear his comments on the implications for the Irish agriculture and fisheries sectors of the decision by the United Kingdom to withdraw from the European Union.
I draw attention to the fact that witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable.
Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable.
I invite Mr. Power to make his opening statement. Members will then have an opportunity to ask questions.
Mr. Jim Power:
I thank the members of the joint committee for giving me the opportunity to address the implications of Brexit for the Irish agrifood and fisheries sectors. It is important to point out that nobody knows how the Brexit process will proceed and end. We are entering a period of intense uncertainty that will be fraught with political difficulty. My advice to interested stakeholders in Ireland, be they at a policy or sectoral level, is that they should operate on the basis that Brexit will happen and that it will be a hard Brexit. We should plan on that basis. If it turns out to be better, that would be a bonus, but we need to plan for the most negative eventuality.
The British Prime Minister, Ms Theresa May, has committed to invoking Article 50 by the end of March 2017, prior to which she will outline Britain's position. Once Article 50 is invoked, presumably before the end of March, it will set the ball in motion and bring to fruition all of the issues and concerns surrounding the process. However, it will take much longer to provide solutions. In theory, once Article 50 is invoked, a two-year period of negotiation will begin among the other 27 EU countries to determine what trading relationship the European should have with the United Kingdom. If agreement is not reached in that two-year period, the United Kingdom will have to apply for an extension, subject to the approval of the other 27 member states, or failing that, it will have to adopt WTO trade arrangements, with tariffs on trade between Britain and the European Union. It is important to point out that once Article 50 is invoked, the power in the relationship will shift very firmly to the European Union and away from the United Kingdom. Politically, the negotiation process will be extremely difficult and complicated because every member state will have strong vested interests, as well as strong objectives. It will be very difficult politically for the Prime Minister to deliver a settlement that will be satisfactory to her electorate and the political system in the United Kingdom.
It is important to remember that at EU level there will be very strong motivation to make the exit process as difficult as possible for the United Kingdom, not least to dissuade other EU countries from following a similar path. In other words, if an exit from the European Union is made remotely easy, it will create a very dangerous precedent to which EU policymakers will be reluctant to expose themselves.
The long-term issue which will arise at the end of the negotiation process is what trading relationship the United Kingdom will have with the European Union. A soft Brexit describes a situation where the United Kingdom would have access to EU markets and make some contribution to the EU budget but where, significantly, it would have to accept the terms and conditions of the Single Market, in particular one of four key pillars of the European Union - the free movement of people. The result of the referendum on 23 June was very heavily influenced by the notion that, in order for Britain to protect its borders against immigration, leaving the European Union was a necessity. The problem with a soft Brexit is that if the Prime Minister was to go back and say they had agreed to access to the single European market but had to accept the free movement of people, it would be incredibly difficult to sell politically. From the perspective of the European Union, there will be a very strong reluctance to make any concession on the free movement of people, not least because it is one of the key pillars of the Union but also because it would create a dangerous precedent for some member countries such as Hungary, for example, which has a very strong anti-immigration attitude, as demonstrated for many years.
A hard Brexit describes a situation where the United Kingdom would not be part of the customs union of the European Union and where trade between the United Kingdom and the Union would be subject to trade barriers such as tariffs and quotas. Inevitably, this would impact negatively on the United Kingdom's trade with the European Union. Ultimately, Britain would have to explore other export markets, but that would be easier said than done. The reality of trade theory is that geography is the key driver. Countries in close proximity to each other tend to trade with each other. We should never forget this fact.
They are the options - a soft Brexit and a hard Brexit. I find it difficult to see compromises between these two extremes.
A soft Brexit will be incredibly difficult to achieve, hence my opening suggestion we plan on the basis that there will be a hard Brexit.
As regards the United Kingdom's economic performance since the vote on 23 June, contrary to some expectations, particularly in the economics profession in the United Kingdom, including the Treasury, the UK economy has not died. In fact, it continues to perform strongly. One of the key reasons for this is that Brexit has not yet happened and consumer sentiment has not yet been adversely affected. The big issue in the slightly longer term will revolve around the attitude to business investment in the United Kingdom. If companies investing there believe they will not have free access to the EU market, the incentive to invest in the United Kingdom will be questionable. Nissan was going to be a key case study in this regard. There was a distinct possibility that it was going to transfer its manufacturing activities from Sunderland because it sells most of its cars produced in Britain into the EU market. In the event, however, it has committed to continue manufacturing the three marques it currently manufactures in Sunderland because it has obtained agreement from the Prime Minister that it will not be disadvantaged if Britain leaves the European Union. I find that promise incredibly strange because it will be difficult to deliver on it and it also creates a dangerous precedent for other companies.
Looking specifically at the agrifood sector, there are two aspects to consider, the first of which is the performance of sterling. Up to mid-November it had lost almost 30% of its value against the euro in the preceding 12 months. A lot of that weakness occurred since the vote on 23 June. In the past three or four weeks, for reasons related to the weakness of the euro rather than the strength of sterling, we have seen sterling regain ground. That largely reflects problems to do with the euro, particularly the Italian vote and the political agenda in Europe next year, rather than the inherent strength of sterling. From an Irish perspective, this obviously is of significant importance. A couple of issues arise from the weakness of the currency, one of which is the advent of cross-Border shopping. The last time there was a sterling crisis in 2008-09, there was massive damage was done to the agrifood and retail sectors south of the Border owing to the flow of shoppers across the Border. We have seen that happen again in the past two or three months. I recently conducted a price survey which suggested that, on a basket of groceries, one would make a saving of around 7%. If one builds in the cost of travelling and fuel, plus the time involved, it makes no sense whatsoever to shop north of the Border. It is a hugely significant issue for the retail sector in the South, particularly the agrifood sector. While it is not directly related to the Brexit issue, the reality for the retail grocery sector in Ireland is since the sterling crisis in 2008 and 2009 the grocery environment has become incredibly competitive. We have seen serious price compression which has squeezed margins for the agrifood sector. The margin of compression to which it has been exposed is one of the biggest issues facing it.
The longer term issue is the trading relationship the European Union and, by implication, Ireland will have with the United Kingdom. Some 60% of what indigenous Irish industry produces is exported, of which 40% goes to the United Kingdom. For the agrifood sector specifically, 41% of exports in 2015 were to the UK market. Therefore, the indigenous economy, including the agrifood sector, is incredibly exposed to what happens in the UK market. In the event that there will be trade barriers post an EU exit, it will create serious difficulties for the agrifood sector. There is no getting away from this fact. Last year our food exports to the United Kingdom were worth €5.1 billion, while we imported €3.8 billion worth of goods from the United Kingdom. A recent ERSI paper examined the tariffs applied between the European Union and non-trade agreement countries based on WTO trading arrangements. They range from 0% to 70%. In the food sector many of the tariffs run at between 30% and 50%. Therefore, if Britain was to leave without some trade deal, tariffs of between 30% and 50% could be applied to food exports to the United Kingdom. Obviously, that would create serious difficulties for the agrifood sector. On the other hand, an opportunity would be presented for the sector by the fact that tariffs would also be applied to imports of food from the United Kingdom.
It is clear that the Brexit process is uncertain. It will be difficult both at UK and EU level. A soft Brexit with compromises will be virtually impossible to achieve. As I said, we have to operate on the basis that there will be a hard Brexit and plan accordingly.
I thank Mr. Power for his presentation. He outlined the tariffs that might be applied, but will he elaborate on their exact nature across various sectors, including agriculture? A particular threat is that in the event that there is a hard Brexit there is a likelihood that Britain will conduct trade deals with other countries, particularly in North and South America, for food imports, in particular. How feasible and practical would it be for Britain to conduct such negotiations? Will that be a consideration in a post-Brexit scenario? If there were to be alternative proposals, for example, in the case of products such as beef, it could have a significant impact on domestic prices here. It has been said that, potentially, the outcome of Brexit could be more harmful to the Irish economy than to the British economy owing to its size and the ability of the United Kingdom to do other deals and also our exposure to it. Will Mr. Power comment on that perspective?
I thank Mr. Power for his presentation. Teagasc published a report in June this year on the implications of Brexit and the potential offered by it. The report outlined the worst case scenario as being a hard Brexit with WTO trading arrangements. In terms of the impact on exports from the agrifood sector, the figure given was about €800 million. The best case scenario involved a figure of €145 million. In Mr. Power's opinion, are these figures accurate?
There is also the possibility of the displacement of food imports from the United Kingdom. When they appeared before the committee, representatives of Bord Bia said the nature of the products imported from the United Kingdom was very different from what was produced here; as such, there would not be much of an opportunity for displacement. Does Mr. Power have a view on this and do Bord Bia's views concur with his own?
In his presentation Mr. Power said the tendency of the European Union would be to make the process as difficult as possible for the United Kingdom. However, the European Union has a huge trade surplus with the United Kingdom. For example, Germany has a trade surplus of €55 billion to €60 billion with the United Kingdom. Therefore, it will not really be in Germany's interests to make the process as hard as possible. I am sure this will come into play at some point in the negotiations. I wonder if Mr. Power has any view on that matter also.
I welcome Mr. Power. I was very interested to hear his comments on the UK economy and how it had reacted since the vote last May. It is unique that there was an initial dip and that it then picked up. There were thoughts initially that food price inflation in 2017 would be a big issue in the UK market and that, depending on to whom one talked, prices would jump by 4% to 8%. Taking into consideration the bounce in sterling in the last few weeks and months, does Mr. Power think there will still be food price inflation? Does he consider that there will be a jump in prices of 4% to 8% or that, as a result of the change in sterling, it will not be an issue?
Mr. Jim Power:
On the specific issue of WTO tariffs, there are 5,200 items included in the EU-WTO trading arrangements. In the food sector they typically average between 30% and 50%. My understanding is that the highest is on commoditised products such as beef and dairy products and could be in excess of 50%. One way or the other, depending on the tariff applied, the elasticity of demand would be strong; therefore, if one was to have a 30% to 50% tax added to any commodity exported, it would have a huge impact on the demand for it.
Deputy Thomas Pringle asked a question about Teagasc's estimate of €800 million. That is a conservative estimate of what the damage could be, but it would obviously depends on what trading arrangement was agreed to. If it is a hard Brexit and WTO rules are applied, the figure will be in excess of €1 billion at least, but it is a number that is very difficult to calculate because one is talking about so many products and markets. It would, however, be north of €1 billion, which would be a serious hit to the agrifood sector.
One of the other big questions is, outside the European Union, will Britain seek to import cheap lamb from New Zealand? Will it import beef from Argentina and Brazil? My understanding is 10% of beef imports to the United Kingdom come from South America; clearly, therefore, there will be a massive push to try to increase these imports. One of the reasons there will be a massive push is one of the problems with food policy in the United Kingdom for decades - it was instrumental in the BSE crisis - is that there has been a very strong cheap food policy. That has been the position for years and I do not see it changing. Rather than accepting higher food prices, as a result of the application of tariffs in the European Union, Britain will aggressively pursue cheaper sources in South America, New Zealand and other places. That is a very real threat.
There is a significant opportunity for the displacement of imports from the United Kingdom. If one goes into an Irish supermarket and looks at the products on the shelves imported from the of imports from the United Kingdom - yoghurt, cheese and many basic branded products that we produce in this country - there is not too much that we import from it that we do not already produce or could not produce here. That is the opportunity presented, but it is not, by any stretch of the imagination, an opportunity that would be sufficient to offset the damage caused by tariffs on our exports and by having reduced access to the UK market.
There is debate about whether it would be in the interests of Germany and other EU countries to make the process as difficult as possible. I could give the committee 100 different answers to that question because not only will the other 27 EU member countries have their own unique interests, within these countries different sectors will also have their own unique interests. For example, car manufacturers in Germany, including BMW, that sell a lot of cars in Britain will obviously want to have as easy access as possible to the UK market. The fundamental issue is that if one makes leaving the European Union remotely easy, it will open up a very dangerous can of worms. Down the road one could certainly see other countries pursuing a similar path. In the next couple of years the European Union is facing into its most difficult period since its beginning back in 1958-1959. Much of it has to do with politics at EU level and the anti-EU sentiment coming through in the political system. Against that backdrop, the European Union will be very reluctant to open any door that might make leaving the system easy because that would have a house of cards effect. If one looks at the issue from a currency perspective, the reason Greece is still part of the eurozone is not that it is an incredibly important part of it but symbolically if one country was to leave the system, the house of cards could come crumbling down. Politics will dictate that the process be made as difficult as possible.
Since the vote, the UK economy has held up very well. To me, the key aspect at which to look at is the level of business investment in the of imports from the United Kingdom, particularly by companies that service the EU market. That will be the real test in the next couple of years. Given how much food the United Kingdom imports, these currency moves - we have seen the weakness of sterling - will increase food price inflation, at least initially, but it will actually intensify the efforts made by the United Kingdom to source cheaper food and that will push the agenda of exploring South America and New Zealand as potential markets for cheaper food. The overriding point we need to remember is the attitude of the United Kingdom towards food prices and cheap food and also the total antipathy towards providing support for the UK agriculture system. That is a big challenge for the United Kingdom. If it leaves the European Union, it will lose CAP funding. What will British agricultural policy be like? It will be a lot less supportive of the UK agriculture system and perhaps that will provide another opportunity for Ireland to fill some of the gap. It will be an incredibly difficult and complicated process.
I thank the Chairman and compliment Mr. Power on his presentation. He has made a number of points which, if they come to pass, will prove extremely difficult. I agree with him that it looks like a hard Brexit will be the outcome. How will it work in practice, given the volume of trade between the two countries? On the milk processing side, the United Kingdom does not have enough capacity to process the milk it produces. Some 3 million litres a day crosses the Border. How would things work with trade tariffs in place? If having a source of cheap food is the reason it did it, it will be extremely disappointed because, leaving beef products aside, virtually everything is traded on a world market. It will not source dairy products more cheaply than it does from this country. If it thinks there is a rainbow of cheap food available for it, it is in for a huge disappointment. Will the United Kingdom just leave its farmers to go bust? The British farming sector has been under pressure for a number of years. The attitude of British farmers to the single farm payment is a lot different from the attitude here. The record of the British ministry in getting payments out is derisory. Leaving that issue aside, we have seen the red tractor and protectionism of British farmers grow in recent years, with the British consumer having a preference for a UK product.
I cannot see that changing. Scottish beef has been seriously promoted. We have seen organisations push the consumption of British milk, especially on the liquid milk side. The British are large exporters of lamb to France. Regarding the suggestion that the United Kingdom will look to New Zealand for a cheaper source of lamb, the British will have a serious job in finding a home for all the lamb they produce. I cannot see them making a decision to let their farmers go to the wall. I would be worried that the United Kingdom would adopt a more protectionist attitude towards its farmers rather than the other way round, that its attitude would be one of circling the wagons, that England has to survive on its own and that it has to protect its producers. If the United Kingdom goes down the road that Mr. Power has suggested, that will lead to land abandonment very fast because UK farmers cannot take any more punishment.
On our side there will be a €10 billion net deficit in terms of the United Kingdom's contribution to the general EU budget and the consequences that will have for us. I do not know how a hard deal in the context of the internal relationships between the two countries could work in practice. There is no doubt that our beef sector would definitely be vulnerable. The United Kingdom can source cheaper beef in other parts of the world. Mushroom growers have said that if they had a period of six to seven months, they would be able to renegotiate their deals and compensate for the fall in the value of sterling. They have said that they are getting increases in their product from the retailers. As Senator Tim Lombard said, food price inflation will become more of a factor in the United Kingdom. I believe the reverse could happen in the United Kingdom in that rather than having a cheap food policy, the British could pay more for their food with the depreciation in the value of sterling. All this is being discussed in a vacuum but the adoption of a protectionist attitude by the United Kingdom towards its farmers would be foreign to what it has done in the past, but if it does not do that, its industry will disappear off the map. I know we are in unknown territory, but I cannot see the United Kingdom or its consumers completely abandoning its farmers. The Tescos of this world have built their platform on selling British food for the British consumer and I do not see that changing just because of this decision.
Mr. Power is welcome to the committee. Is he aware of any analysis or research that has been done on brand loyalty among the British public? There has been a strong cheap food policy in the United Kingdom for a long time but the British are used to the taste of the Irish food products that they have been consuming for whatever number of years. If such research has not been concluded, it would be important to know the extent to which there is brand loyalty among the British public towards the products they know and are used to, whether that would involve Bord Bia, the multinationals, Glanbia or the Kerry Group. It would be good if some analysis were done to explore what could be done to hold on to market share beyond price considerations. It is not all about price. There is a large middle class market in the United Kingdom who do not shop in Iceland, the supermarket store that sells frozen goods. It is important we try to put some information on the table to ensure we can go down a route that will hold our shelf space, which would be of huge benefit to Irish farmers.
I thank Mr. Power for his presentation which was clear and succinct. He is right in saying that given that the European Union will clearly adopt and negotiate a stance that will send out a significant signal to any other member state that might contemplate leaving the Union, the United Kingdom will be in for a rough ride. How does Mr. Power believe we can influence Mr. Barnier, all his colleagues and fellow negotiators to reach an accommodation with us on the issues that are important here, namely, the common travel area, the free movement of goods, services and people and employment relationships? As Deputy Jackie Cahill said, more than 1 billion litres of milk are purchased south of the Border, processed and sold as value-added products. How can we argue for our case when 26 other member states will be arguing the toss as well? We have a special relationship with the United Kingdom, but those member states will be watching their corner. Mr. Barnier will have to satisfy everybody.
What would the scenario be in Mr. Power's view if tariffs were imposed and if they were combined with a weak sterling currency? Would that not be a nightmare scenario? That would be the ultimate sinking feeling. Has he made any assessment of the impact of this on agriculture, especially on the beef sector? It will be the sector that will be extremely vulnerable on foot of Mercorsur, the Transatlantic Trade and Investment Partnership, TTIP, agreement, the Comprehensive Economic and Trade Agreement, CETA, and other such agreements. I agree with Mr. Power that the United Kingdom certainly will not be found wanting in reaching out to trade deals that suit its market, given that it has imports of 10% Brazilian and South American beef, but those import levels were 18% or 19% only 11 years ago. Therefore, the United Kingdom already has a record and a history of dealing in that way; therefore, that could be significant. Mr. Power is right that we need to face up to this. If something more benign is achieved, that would be great, but it will certainly not be easy. Anyone here pontificating that this will be easy, given our special relationship with the United Kingdom, should realise that it will be a hard sell.
Mr. Jim Power:
Deputy Jackie Cahill highlighted the dairy sector and milk processing. A total of 800 million litres of milk come over the Border every year for processing in County Cavan and around the Border area. In the event of a hard Brexit that would effectively stop. The result would be that milk processing plants in County Cavan would shut down. They would have to build milk processing plants north of the Border. That is just one tiny example of just how serious this is. We have lived through a dramatic recession and recessions are cyclical by nature. They happen every six to seven years globally. I believe Brexit is a much more fundamental structural change in an incredibly important trading relationship that Ireland has; therefore, I do not believe it should be looked at in the same light as we would look at a recession. It is a structural change.
I hope the Deputy is correct that Britain will protect its farmers and that they will try to adopt a very supportive attitude and move away from a cheap food policy, but the track record would suggest there is little likelihood of that happening. The UK consumer wants cheap food and that has been the reality for decades. One of Ireland's big problems is a good deal of what we export to the United Kingdom is dominated by commodities and unbranded food products; therefore, I believe they are the ones that are very exposed because they are very sensitive to price. Perhaps it is the case that there will be some customer loyalty to brands and to the branded products we sell.
Deputy Michael D'Arcy raised the question of brand loyalty among the British public. That will help the branded products to some extent, but I believe it will to a very limited extent. At the end of the day, price will be the determining factor. If we get a combination of sterling weakness and tariffs on trade, that will have a massive impact, of that there is no doubt.
A total of 49% of our beef exports go to the UK market. That is by far the sector that is most exposed. As we move up from commoditised type products to branded products, the impact starts to lessen, but it is the commoditised products that make up the bulk and that is the part that is most seriously exposed. I skipped through my opening statement because it was too long but one of the statistics in it shows that between January 2008 and October 2016 average food prices in this country declined by 9.9%. There is a trend towards cheap food and it is being driven by competition in the groceries sector.
That is why I believe there is no logic or reason for cross-Border shopping at present based on price differentials. However, similar trends are evident in the United Kingdom and I do not envisage that changing. Cheap food will continue to be the mantra and that will really complicate Ireland's situation vis-à-visthe United Kingdom. I strongly advocate that organisations such as Bord Bia be given increased resources and funding to build other non-UK markets for Irish food exports. That is something we should begin now, not two years hence when a hard Brexit will probably become a reality.
I welcome Mr. Power and thank him for his presentation. He referred to imports substitution in his final comments. That is interesting as it has not been mentioned previously by other contributors or any commentator I have heard to date. It would mean replacing what we are importing by boosting the domestic economy. Can he give some examples in agrifood that might be good candidates for import substitution? I looked at the trade comparison figures between Britain and Ireland recently and there is not a massive difference between the imports and exports back and forth, so perhaps he would comment on that.
Also, there was a recent report at European level on food prices, and the committee will discuss that in the new year. Will Mr. Power comment on the core issue of the poor prices primary producers have been getting for their food? Is that part of the solution we must seek in Ireland in respect of a real threat to one of the most important sectors in the economy and our society? What can be done on that issue? It is a perennial issue of injustice for our farmers with regard to their produce during the years.
I welcome Mr. Power and thank him for his presentation. Many of the issues have been dealt with. Produce moving back and forth across the Border is a big issue. I come from a Border area and many dairy products that originate in the North are processed in the South. Likewise, in the case of cattle, many farmers from the North buy their weanlings in the South and move them back to the North. That movement of product back and forth is a serious issue as people are finding it difficult to anticipate what will happen to it. The broader issue is the movement of goods in general. Much of the stuff that leaves Ireland, even if it is not going to Britain, has to go through Britain to get to the Continent. I have spoken to a number of hauliers and they are extremely concerned about what will happen in that regard. The price of getting not only agricultural goods but any goods out of Ireland to other places in the world will increase dramatically because of this. Much of the talk about Brexit in this country has been focused on the agricultural sector, but that sector was the least of the worries during the debate on Brexit in Britain because agriculture represents such a small portion of its overall economy. While there is a notion that perhaps there will be loyalty to the British farmer and so forth, I concur with Mr. Power in doubting that there will be anything of that nature. I believe people will be more inclined to stick to their line of trying to find exports of other goods to other places around the world. There are other major industrial concerns in Britain.
While we are trying to grapple with what Brexit will mean, there is the broader issue of the European project, the problems there and the politics of fear, anger and resentment that we see not just in Europe but also in America and throughout the world. It might bring us to a place where we could be facing perhaps the euro being in a crisis and collapsing. Should we be preparing for that? As regards the EU project in general and where it will go, in ten to 15 years we could be confronted with more countries seeking to leave. How can we prepare or what can we do about that? I am not saying these things will happen, but it is becoming more likely that they will and it is something we must examine.
Mr. Power referred to the drop in the price of food in this country over the past eight years. Cheap food becoming the norm is the high expectation of consumers. That is the biggest problem we have globally. As long as consumers think that food should be cheap there will be a problem for the producers of food and for society, because as food gets cheaper its quality will go down and usually there will be more profiteering in the middle. I realise these issues are slightly removed from Brexit, but I believe we should be examining and trying to deal with them. Clearly, food is vital for life. It should be at a reasonable cost for people in order that they can have good food and a reasonable chance of living a long and healthy life. However, that must be reflected in the payment that the primary producer and the people who work in the industry get for it.
I thank Mr. Power for his excellent presentation. Some of the questions I had intended to ask have been dealt with already, but there is one issue on which I wish to hear his views. He mentioned the drop in the value of sterling already seeing something of a rush to the Border even though it may not make economic sense. His opinion appears to be strongly in the direction of a hard Brexit. What are his opinions from an economic perspective on the Border after a hard Brexit? We are all aware that a land border between different economies lends itself to rogue trade, smuggling and so forth. How does he think it might affect us economically if his prediction of a hard Brexit with a hard Border comes to pass? I am not referring to the policing of it but to the economic perspective. There can be a loss to the economy in more ways than tariffs or VAT by virtue of what hard land borders lend themselves to. The other questions I had have been covered.
Mr. Power mentioned that we should make more money available to Bord Bia to source alternative markets. What else should the Government and the country be doing to prepare for the eventuality of a hard Brexit?
Mr. Jim Power:
I should have said in my introduction that I am chairperson of Love Irish Food and have been since its inception in September 2009. That organisation was formed in response to the pressure on the agrifood sector from cross-Border shopping during the previous currency crisis in 2008 and 2009. A year ago I was starting to question its reason for being because of the compression of grocery prices and so forth and the fact that cross-Border shopping was not much of an issue. I wondered if it had a role to play, but in the past 12 months that question has been answered firmly for me. Now, more than ever, we should be focusing on the value our agrifood sector contributes to the economy at the primary and processing levels. I firmly believe in balanced regional economic development. I am not an economist who believes that all economic activity should be centred in Dublin and that the rest of the country should be allowed to make its own way. Hence I believe we should support our agrifood sector as much as possible. I will shortly answer the Chairman's question about what else we should be doing.
Last year, our exports of agrifood to the United Kingdom were €5.1 billion while our imports were €3.8 billion. Those imports of €3.8 billion include products such as cheese, milk, biscuits and the like which we either produce or have the capability of producing. If tariffs go up on the trade from the United Kingdom into Ireland, we definitely must start focusing domestically on producing those. I could carry out research and identify everything in that regard, but looking at the UK produce on the typical supermarket shelf, it is broadly based and widespread.
Importantly, we already produce much of it or have produced in the past.
I describe myself as an economic nationalist and believe in supporting domestic business. That is the key motivator behind Love Irish Food and my involvement in it. I introduced the whole question of price compression in the grocery and agrifood sectors in my presentation, despite the fact it is not directly relevant to Brexit. However, it is a fundamental issue around Ireland's agrifood sector. I opposed the abolition of the groceries order back in the day as I thought it was a bad idea. State intervention is necessary when there is market failure. The groceries order provided a reasonable level of support for the agrifood industry. The only thing its removal actually achieved was below-cost selling of alcohol. It is highly unlikely we will see a reversal of this.
On the question of cross-Border product trade, hauliers and Senator Mark Daly's question on the Border, I am not a political expert but I find it difficult to envisage a situation where if Britain, including Northern Ireland, were to leave the European Union that we would not have a border between the South and the North. I cannot envisage a situation where a frontier between an EU country and a non-EU country would not have a border. To have otherwise is going to be incredibly difficult to achieve. From a political and economic perspective, this will be disastrous. Most of the issues around Brexit are disastrous in any event. From a UK or an Irish perspective, I cannot see the upside. The question is about the magnitude of the downside.
Clearly Ireland is a special case but I am not sure that at EU level there will be much acceptance of Ireland as such. We found out during the collapse of the banking system how much support we will get from the European Union when the chips are down. We were hung out to dry on the whole bank bailout situation by the European Union. I would expect similar treatment on the question of a hard Brexit.
Before 1999, I argued strongly that the whole European project and the euro was not a good idea and it did not make economic sense. That got me into quite a bit of difficulty with my employer at the time. The euro was a victory of politics over economics. Ultimately, when one gets a victory for politics over economics, economics will come back to bite. Since the great recession began in 2007-08, the whole European Union, particularly the euro structure, has totally failed to deal with the crisis. The structures are not in place. Europe is now muddling through again but there are significant challenges ahead. With German, French and Dutch elections in 2017, it is not difficult to envisage a political scenario which could be disastrous for the future of the European Union. Even if we do get through 2017, Europe is just waiting for the next crisis.
What can a country like Ireland do about this? We should diversify our trading relationship as much as possible, as well as the economy, so as not to be overdependent on any single sector. There is not much we can do to influence these external developments or soft or hard Brexit. At the end of the day, we will be a small player in all of those negotiations. We need to ensure our economy is as competitive and as sustainable as possible. When I talk about competitiveness, I am not talking about a race to the bottom in wages and prices. I am talking about infrastructure, IT capability and the quality of the labour force. I am straying off on this, but if one wants to look at the long-term challenges, what will differentiate Ireland when facing all these external challenges will be the quality of the workforce. That is why investment in education has to be the priority. That is what will make our economy sustainable in the events of the shocks.
The next euro crisis is just around the corner. We have not come out of the last one yet. Joseph Stiglitz's latest book on the euro crisis is not easy reading and is incredibly boring. However, it paints a difficult picture of where Europe is at the moment. Fundamentally, it is difficult to disagree with it.
Bord Bia has done a fantastic job in marketing Ireland as a food island. The challenge for it will become much more intense over the coming years in the event of a hard Brexit. We need to build other markets and consider if Bord Bia has the resources to deal with those challenges, as well as Enterprise Ireland, another State agency which builds up the export potential and capability of Irish businesses. What else can we do? Again, we need to make sure the economy is as sustainable and competitive as possible.
I welcome the members of the deputations. From the Irish Farmers Association we have Mr. Joe Healy, president, and Mr. Kevin Kinsella, director of livestock. From the Irish Creamery Milk Suppliers Association we have Mr. John Comer, president, and Mr. Paul Smyth, policy officer. From Macra na Feirme we have Mr. Seán Finan, national president, and Mr. Denis Duggan, chief executive officer. From the Irish Cattle and Sheep Farmers Association we have Mr. Patrick Kent and Mr. Eddie Punch, general secretary.
Before we continue, I will explain the position on privilege. Witnesses are protected by absolute privilege in respect of the evidence they give to the joint committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable.
Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable.
The format of the meeting will comprise a presentation of between five and ten minutes by each of the delegations, starting with the IFA, to be followed by the ICMSA, Macra na Feirme and the ICSA. We will then take questions from members. I understand Mr. Healy will make the presentation on behalf of the IFA.
Mr. Joe Healy:
I thank the Chairman for the invitation to address the joint committee to outline the concerns of Irish agriculture following the Brexit decision. As we all know, 2016 was a difficult year for Irish farming with low product prices across almost all sectors, bad weather conditions early in the year for all and again for many tillage farmers in recent months. The UK vote to leave the European Union in June this year has contributed to greater economic uncertainty. This has impacted on Irish agriculture and will continue to do so in the year ahead.
As the previous speaker said, with 40% of our exports destined for the UK market it is clear that the Irish farming and agrifood sectors are being seriously impacted from the fallout from the UK vote. A total of €5 billion worth of our agrifood exports go to the United Kingdom. This includes 50% of our beef – the figure was 54% in 2015 - 60% of our cheese, over €350 million worth of pigmeat and in excess of €120 million worth of mushrooms. This trade is undertaken within the EU Single Market. In other words, with no tariffs applied or other regulatory barriers to trade, such as border checks, health certification checks, etc. Ireland is the only member state to share a land border with the United Kingdom. We are singularly integrated with the UK in the areas of trade, culture, language and free movement of people.
The United Kingdom is a high-value market, sharing similar consumer preferences to Irish consumers, and is generally the first export destination for Irish small and medium-sized enterprises. Farmers and processors have developed systems of production and specifications to match market requirements in the UK market. Major work has been done and considerable resources have been employed in terms of standards and quality assurance.
The sudden and sustained weakening of sterling that has occurred as a direct result of the UK vote and subsequent political declarations has had a negative impact on the price returned to producers whose product is being exported to the United Kingdom. This is primarily the case for beef and mushrooms farmers, who have been hit with severe price cuts since June this year. This has left them in a loss-making situation. Our mushroom growers made a presentation to the committee last September outlining the turmoil into which the industry has been thrown and demonstrating that growers are in continuous and unsustainable loss-making territory resulting from the sudden and significant weakening of sterling. We recognise that exchange rate volatility cannot be controlled in the short term. Since Ireland is a member of the Single Market, there are significant limits on the direct support that can be given to exporting agricultural businesses without breaching state aid rules.
In the run-up to budget 2017, the IFA identified practical steps that the Government could take to mitigate some of the worst income effects of the exchange rate uncertainty. I will outline these steps. First, the provision of increased funding for farm schemes in October's budget. These schemes support farm incomes and output and have a positive knock-on impact in the wider rural economy. Funding for farm schemes increased by over €100 million in budget 2017, with new and increased funding for the sheep, GLAS, TAMS and knowledge transfer programmes. Another step is the provision of direct support to farmers and other SMEs through lower-cost and more flexible short-term and long-term credit options. The outcome of the IFA pressure throughout 2016 on this issue has resulted in the announcement by the Minister for Agriculture, Food and the Marine of credit to farmers at a rate of 2.95%. This will be available across all agriculture sectors from January and can be used to convert merchant credit into a more sustainable loan structure as well as to purchase inputs at a competitive cash price. The IFA also highlighted the need for additional support to exporters in the form of increased promotional funding to diversify and grow our export share in the non-UK market. Increased funding in the budget for Bord Bia in this area is welcome. In addition, the market access unit of the Department of Agriculture, Food and the Marine must be strengthened as we need to see new markets for our processed and live export trade.
As I have already stated, in our beef sector over 50% of exports go to the United Kingdom. Consequently, the weakening of sterling presents a major challenge. The IFA has a clear understanding that exchange rate volatility is not the only determinant of price returns. Demand for beef in the United Kingdom remains strong. We have been in the high-demand Christmas procurement period for the last month or more. Trade and market returns have picked up and cattle prices should have risen far more. Clearly, the lack of competition in the beef sector is a major factor. At the recent beef forum, we made it clear to the Minister and the factories that prices must be restored to feasible levels. It is simply not acceptable for processors to return a practicable price to our farmers at this time. Farmers cannot continue to produce beef at a loss. Many more cattle are in the pipeline for 2017. We need more market access and in particular we need more live exports to drive competition and add additional market outlets.
The IFA has also made it clear that factories must demand higher prices from their British retailer customers to reflect the devaluation and pass these increases directly to farmers. That is what should happen in a normal functioning market. However, as producers we well know the imbalance of power in the farmer, processor and retail relationship in the food chain and we are cognisant of the need for further regulation and an ombudsman in this area.
At EU level, the IFA has looked for direct support to be provided to affected producers through CAP market support measures. The decline of sterling arising from the UK vote is a market disturbance that has occurred swiftly and unexpectedly and has resulted in significant price falls. We believe the European Commission must look seriously at providing exceptional support for sectors in respect of which an external political event has had an immediate and negative economic impact.
We are again calling on the Government to pursue this at EU level. We are also asking for the support of this committee on these issues.
In the longer term, the future trading relationship between the United Kingdom and the European Union is a great concern for the agrifood sector. A move by the United Kingdom away from the Single Market will result in increased trading costs and barriers. The imposition of barriers to trade, in the form of tariffs, border checks and additional certification requirements, would add to costs and undermine the competitiveness of our agrifood exports.
The significant cross-Border trade of agricultural produce for final processing also presents a significant challenge if we are to maintain and grow our high-value export markets. Over 350,000 lambs are imported from Northern Ireland into the Republic of Ireland annually for further processing, with 500,000 pigs from the Republic being processed in Northern Ireland. Between 800,000 and 1 billion litres of milk are imported from Northern Ireland every year, much of which is processed and then exported out of Ireland as a high-value product. Barriers to this trade, in the form of tariffs, additional certification or labelling issues, will all add to costs and may make this continued trade simply uneconomic.
Our concerns in this area are best illustrated by examining the position of countries that trade with the European Union outside the Single Market. The average EU tariff on agricultural products imported from outside the European Union is almost 15% for WTO countries. It is much higher for certain products. It is up to 30% higher for dairy products and 50% higher for some meat products. In other words, if the United Kingdom were to leave the European Union and no agreement were to be reached through a bilateral trade arrangement, it would face significant tariffs on its food exports to the European Union. The likely development is that the United Kingdom would inherit the European Union's tariff commitments, with the result that Irish exporters to the United Kingdom could have tariffs placed on their products. This is the reality of the hard Brexit scenario.
A recent ESRI report highlighted the devastating impact on EU-UK trade in the agrifood sector in this scenario, with trade in dairy products potentially falling by 60% and in some meat products by over 80%. It simply cannot be overstated, therefore, how important it is for the Irish agrifood sector that market access to the United Kingdom that is as free as possible be maintained, with the minimisation of any barriers to trade. The potential economic damage to the agrifood sector that would arise from a hard Brexit is too serious to ignore.
Our first position is that the United Kingdom should remain a full member of the European Union's Single Market, including free trade on agricultural products. This is also the position represented by our farming colleagues in the NFU in the United Kingdom, with whom we have remained in regular contact since the vote and with whom we work closely in Brussels through COPA. If this proves unworkable, the IFA is clear that the agreement of a comprehensive free trade agreement between the European Union and the United Kingdom, with favourable access for agricultural products and mutual recognition of standards, must be a priority at EU level. This must include the agreed sharing out of tariff-free imports into the European Union on agricultural products, many of which, such as New Zealand lamb and butter imports, were brought into the European Union by the United Kingdom on its accession to EU membership.
Why is an UK-EU free trade agreement important? If the United Kingdom were to pursue a trade agenda that resulted in the unilateral reduction of import tariff barriers for agricultural imports from all exporting countries into the United Kingdom, this would be very negative for Irish agriculture. It could result in a very significant reduction in the price of UK food, and consequently the price that Irish farmers receive. The IFA is clear that, in the negotiations between the European Union and the United Kingdom, there must be a strong commitment on both sides to achieve a positive trading relationship.
Another issue I wish to highlight is the concern of Irish farmers over the impact on the EU and CAP budget of the departure of the United Kingdom, a net contributor to the EU budget. In the short term, Ireland's basic payment and rural development envelopes are fixed up to 2020, through the 2013 CAP regulations and under the terms of the EU budget. Changes to these would require agreement by the EU Council, the Parliament and the Commission. The IFA is clear that there must be no changes to farm payments before the current CAP reform concludes in 2020, even if this requires additional contributions from the remaining member states. Ireland must be very clear and lead the way in highlighting the need for a strong CAP budget. This is critical for farm incomes, farm output and wider economic activity in the rural economy.
As we are all aware, farmers source the majority of their inputs locally. A reduction in spending power for Irish agriculture would have a significant and negative knock-on impact on the demand for goods and services in the rural economy.
Analysis undertaken by Teagasc shows the potential farm level impact of Brexit. It has estimated the potential impact on farm income of a 10% drop in CAP payments and a significant liberalisation of the UK market, with large volumes of imports from third countries. The figures are stark. In this scenario, farm incomes would fall in all sectors, with the income drop ranging from 20% on dairy farms to 37% on beef farms. Another key concern is what will happen with agricultural supports for farmers in Northern Ireland and for farms on both sides of the Border. They are all part of the CAP right now, but there is no assurance on the level of support that will be provided to these farmers after the UK exit. As identified in the NFU study in advance of Brexit, a reduction in supports for UK farmers will have a negative impact on their income. This is a major concern for these farms in respect of farm income and viability.
The shared land border between Ireland and Northern Ireland presents a unique challenge in regard to maintaining and improving herd health standards. The risk is that differences in regulations and standards that may emerge could have implications for animal health status in either of the economies due to the spread of disease across the land border. Continued co-operation between the Republic of Ireland and Northern Ireland on animal health standards, as currently applied, must be maintained. Coherence in regulations and standards is critical. The IFA will continue to work closely with the UFU and the NFU on this and other issues as part of our long-established relationship irrespective of the final outcome to the Brexit discussions.
The IFA is clear that it very important that free movement of goods and services be retained as far as possible, and also the free movement of people. People living near the Border work on either side of the Border, farm on either side of the Border and have family on either side of the Border. We all have family and friends who live and work in Britain and Northern Ireland. Disruption to this relationship would be a very negative step, economically and socially.
I thank the committee again for the opportunity to highlight for it the key issues concerning Irish farmers in the wake of the UK vote to leave the European Union. This is a very uncertain time for our economies and society. The number of issues identified in our presentations illustrates the complexity of the current circumstances for the agrifood sector.
I again request the support of this committee on the proposals we have put forward at national and EU level for farmers and the agrifood sector. Strong leadership and the ability to compromise will be needed, at both EU and UK level. The strength of the relationship between Ireland, Northern Ireland and the rest of the United Kingdom, at government and civil society levels, must be leveraged to minimise the economic and social disruption in the short term and to achieve the most positive and sustainable outcome to the negotiations.
Mr. John Comer:
It is a welcome pleasure to have the opportunity to address the joint committee and highlight and emphasise the potential outcomes of the Brexit vote and how we might mitigate against them as best we can and try to work together.
I will not bore everybody by repeating the statistics in the presentations by Mr. Jim Power and Mr. Joe Healy. At this juncture, everybody is familiar with them, they have them on the tip of their tongue. It is good to have the opportunity to put emphasis on where we see the problems and potential solutions. There is an onus on the committee and all our elected representatives to work very hard to position Ireland as best we can to mitigate against the downside of Brexit. I have not heard anybody outside of the city of Dublin suggesting there is an upside. I would have liked a chance, and will have one in future, to cross-examine Mr. Jim Power on the displacement in the context of the imports coming into Ireland. I do not see too many positives in that respect. With the United Kingdom being the fifth largest economy in the world and the second largest economy in the European Union, any change will be significant.
Currently, the most immediate issue is the currency volatility and the vacuum that has been referred to already and the capacity of business people to try to make decisions. There are all sorts of scenarios out there and any one of them could be right. One of the likely ones is that this process will drag on for a number of years. There is a school of thought that in five years’ time we might still not have a clear line of sight as to the final deal so it is not utopia. A bad deal might be bad but a deal that clearly outlines the terms and conditions and the path forward means we can at least deal with it as a country. We can deal with it as a rural economy and we can deal with it as individual business people that have to try to make decisions on a daily basis. The maintenance of the single market, common agricultural policy funding, input costs, costs competitiveness, trade deals, consumer confidence, on-farm challenges in the Border areas, all-Ireland health status and transit across the United Kingdom have all been touched on.
Deputy Martin Kenny mentioned specifically the race to the bottom in terms of the price of food and food quality. The committee and the Government and all the agencies of the State could offset much of that by trying to change mindsets one step at a time, influenced and backed up by the support of the European Parliament and the Commission. That is what is happening. Bord Bia has been referenced and Bord Bia’s budget is as it is but it is our policy that it should be increased in order to dilute the dependency on the UK economy in terms of our exports going there. More than 14%, or €1.1 billion, of our agricultural exports are going through Tesco. We are not only extremely heavily dependent on the UK market but on a specific multinational player in that market. We need to examine that. It is a very valuable market and it is a very valuable retailer in that regard. Tesco announced in the course of the last 24 hours that it will not be beaten on price and will not be beaten on price against the discounters. That is a significant shift in policy from a multinational that puts us in an even more precarious situation. We need to understand that and have contingency plans for it.
There will be a potential deficit in the common agricultural policy. The United Kingdom is a net contributor of £10 billion and about €1.3 billion of that is going to the CAP budget in the European Union. That equates to our basic payments. What we need to do and what we can do in this committee and in Government is to not just look for more money but to justify it and explain to consumers why it is logical. We should not dress it up because it is taxpayers’ money. Why should we put taxpayers’ money into a common agricultural policy? There is an onus on every elected representative and everybody who speaks on behalf of the agriculture sector to stand up straight and explain the reason why because it is justified. It is just as relevant today as it was when it was initiated. It is for the greater good of society to have a safe and secure supply of affordable food for the citizens of our continent. We need to reiterate that at every opportunity. Farmers should be proud of the single farm payment and that they are returning it to the taxpayer in spades. They should not shrink away from it. That is something this committee can do.
The all-Ireland health status is a tricky one. We are very vulnerable. We have achieved an awful lot as an island in terms of brucellosis and other areas of disease control. We must not underestimate the difficulties there could potentially be with transit across the United Kingdom. The on-farm challenges are nearly self-explanatory and there is a role in terms of negotiating deals.
It also needs to be highlighted that as a result of the subtraction of 64 million consumers, every trade deal needs to be re-examined, especially the issue of lamb coming in from New Zealand and so on. We could talk about that for a while. Cost competitiveness is about net margin and sustainability at farm level. As a country, we have legal costs, which, if we benchmark against our European counterparts, are very high. If we benchmark insurance against our competitors, it is very high. The costs of credit and energy in this country are extremely high. It is very difficult for a small member state on the periphery of Europe to sustain economic vibrancy at farm level if their costs are out of kilter with their competitors. We need to examine that issue.
Almost every aspect of this has been covered. The question is how we position ourselves in the context of a negotiating position when we are a small member state that is most exposed to the risk as a result of our exposure in the United Kingdom. Mr. Jim Power touched on all the aspects from the different sectors within each member state and the politics within each member state. We have to get out there and demonstrate that a fair deal that minimises the impact on trade between the United Kingdom and the European Union is good for all member states not just Ireland. That is an important point from my perspective. A deal that is good for the United Kingdom is also good for the European Union. We need to say that over and over again. The localised politics in states such as Germany and France should not override common sense. We could fall into that trap. We need to be to the forefront as a nation in emphasising that a deal is good between the European Union and the United Kingdom not just for Ireland’s sake but also for the European Union’s sake.
I will leave it at that and will be delighted to take questions.
Mr. Seán Finan:
I will begin by thanking the Chairman and the committee for giving us the opportunity to present to the joint committee. I am delighted to be joined by Macra na Feirme chief executive, Mr. Denis Duggan.
We are pleased to be here and to get this opportunity to contribute to the discussion on Brexit. As young farmers we were very disappointed, as the committee was, by the democratic decision taken by the people of the United Kingdom back in June to leave the European Union. From our point of view, the decision does not make economic or political sense. The farming and agricultural sector and young farmers are particularly vulnerable following the result due to our dependence on the United Kingdom as an export market for our main commodity products.
As a food exporting nation, we have more to lose than any other country following the result. The value of the UK market to Irish food exporters has been well articulated by previous speakers. The consequences and fallout from Brexit are the biggest challenge our industry will face in our generation. In the past we have had the BSE, foot and mouth disease and others crises, but this is bigger than all of them together. For this reason, Macra na Feirme is strongly calling on the Government to put on the green jersey and fight to protect the future of the industry, our livelihoods and, as young farmers, our future farming careers. The medium to long-term impact of Brexit for Ireland and young farmers will not become clear for some time until negotiations get under way between the United Kingdom and the European Union.
Macra na Feirme is an active member of the European Council of Young Farmers, CEJA, and we will work with our European counterparts on Brexit. Young farmers are worried about the impact on their businesses into the future in the short term with the current fluctuations in the value of sterling and the uncertainty this will bring. Any fluctuations in the value of sterling will cause problems in certain sectors, particularly forestry and the mushroom sector, although it is keenly felt across all other sectors, including the beef and the alcoholic beverage industries. Young farmers are already under a lot of financial pressure due to pressure on commodity prices. Processors cannot be allowed to use the current fluctuations in sterling to cut prices paid to farmers who are already under pressure. This will only add further to the current difficulties being experienced on the ground.
The negotiations on Brexit and on any future trade agreements between Ireland and the United Kingdom will be between the European Union and the United Kingdom. This is a real concern for young farmers as we will not be able to negotiate directly our own trade deals with the United Kingdom until such time as broader terms are agreed at an EU level. The protection of the Irish agriculture sector needs a bilateral trade agreement with the United Kingdom with none or minimal tariffs. This needs to be the top priority of the Irish Government in future negotiations.
Young farmers farming along the Border do not want to see a hardening of the Border between Ireland and the North because of some of the businesses they work with and the value and volume of product that moves over the Border, which has been articulated by previous speakers. Many young farmers' activities are cross-Border.
As young farmers, we have the most to lose from Brexit. We are establishing our careers in the sector and are more vulnerable in the short term due to the uncertainty and volatility as we do not have the financial cushion built up to protect us from this volatility. Macra na Feirme calls on the Chairman and the committee to articulate strongly our views and concerns at a government level. Macra na Feirme calls very clearly for the minimisation of any barriers to trade and for no tariffs to be imposed. We demand continuation of free, or as free as possible, movement of agricultural products between Ireland and the United Kingdom, especially between Ireland and Northern Ireland. We call for specific attention and provision to be made for cross-Border trade.
Young farmers are frustrated by the prospect of additional labelling rules that could potentially occur with trade between the United Kingdom and the European Union. Should additional regulations apply, Macra na Feirme would call for resources to be put in place to make the transition to new labelling as easy as possible for all farmers. Increases in trade costs will follow any extra labelling criteria, so provisions need to be put in place to prevent farmers bearing the brunt of any new costs.
It has been mentioned by previous speakers that Ireland imports approximately €3.5 billion worth of agricultural products from the United Kingdom. Much of this comes from Northern Ireland, is processed in Ireland and is then added to our overall export figures. Adding costs to this trade is not in the interests of consumers, producers or the economy as a whole.
Diversification of trade is very important, and while €4.4 billion, or 40%, of our agricultural exports still go to the United Kingdom, we have diversified our trading significantly since joining the European Union. In 1973, almost 70% of our food exports went to the United Kingdom. This represented about €350 million out of a total of €500 million. Today Irish exports go to more than 120 countries and are valued at about €11 billion. Expansion of access to new markets is very important, and trade missions should be accelerated further. It is important to relay the message that Ireland is not part of Brexit and is open for business. Macra calls for additional resources to be provided to bodies such as Bord Bia to sustain access to new global markets. Decreasing our dependence on agri-trade with the United Kingdom will help to lessen the impact of Brexit.
Over recent weeks, young farmers throughout the country have raised some very specific queries which I will quickly run through with the committee. They include the implications of Brexit for EU trade negotiations such as the Mercosur and TTIP negotiations which have been conducted to date on the basis of an EU of 28 member states; consumer confidence and the potential risk in the United Kingdom and its impact on Irish products; differences in EU and UK regulations regarding animal feed such as genetically modified, hormone-treated and antibiotic-treated feed; country of origin labelling and the United Kingdom's approach to this issue following its exit from the European Union; environmental targets, specifically water quality issues and their cross-Border implications; the implications of Brexit for EU research funding, particularly for cross-Border projects; issues associated with the transit of equipment, feed and livestock across any EU-UK border, which has been articulated by some members of the committee; and cost competitiveness and the cost of doing business in Ireland, which need to be considered in more detail. We have higher costs than many of our EU counterparts in areas such as insurance, energy, credit and legal costs.
Macra na Feirme welcomes the establishment of the consultative committee of stakeholders on Brexit and the all-island agri-dialogue which will take place later this week. We will take part in these initiatives, which will bring all parties in the agrifood industry together to discuss updates and developments surrounding Brexit. The consultative committee will also discuss future negotiations and issues of mutual concern to the agrifood industry following the United Kingdom's decision to leave the European Union in the recent referendum. We in Macra na Feirme look forward to working with the Minister and the committee and all its stakeholders.
A part of us all would love the United Kingdom to reverse its decision. We in Macra na Feirme work closely with our five nations colleagues: the National Federation of Young Farmers Clubs in England and Wales, the Scottish Association of Young Farmers Clubs and the Young Farmers Clubs of Ulster. I recently travelled with a colleague to a Scottish Association of Young Farmers Club conference in Aberdeen. Having also attended a meeting on Brexit in Northern Ireland hosted by the Young Farmers Clubs of Ulster, I can tell the committee there were no indications from either event that the United Kingdom's decision of Brexit would be changed. The main discussion point and focus of both events was the opportunities for young farmers following Brexit to supply the home UK market. At both events there was an expectation that payments similar to those under the current CAP and access to the free market would be maintained. This is all unknown. This match has only really kicked off. There is a long way to go and the result is far from certain, and none of us, both here and in the United Kingdom, really knows where this will end up.
Mr. Patrick Kent:
I thank the Chairman for the invitation to appear before the Oireachtas agriculture committee. We welcome the opportunity to engage with the joint committee on the topic of the implication of Brexit for the agrifood sector.
The Irish food exporting sector is profoundly concerned by the potential impact of Brexit. This is not surprising, given that 41% of our total food and drink exports, worth €10.8 billion in 2015, went to the United Kingdom. Meat and livestock exports are a crucial component of total food exports, amounting to €3.7 billion in 2015. Of this, beef exports were worth €2.4 billion, of which 52% went to the United Kingdom, 46% to other EU markets and 2% to non-EU markets.
The process of Brexit has not even commenced yet, but its impact has been very tangible in terms of instability and exchange rate fluctuations. Fear of the unknown is the key driver of exchange rate problems, and it may yet be that the outcome is less destabilising than expected. Nonetheless, we must operate on the basis of hoping for the best but planning for the worst.
From an Irish agricultural perspective, Brexit is challenging on several fronts. We see the key issues as the sterling-euro exchange rate; trade deals and tariffs between the European Union and the United Kingdom; the implications for international trade deals and global movement of food exports; the need to diversify our exports profile and the possible need to pull back from expansion plans; consequences for the CAP; consequences for other EU and Government policies which impact agriculture; and practical problems surrounding the North-South Border. Meat factories reacted to exchange rate movement by cutting prices paid to farmers in response to the drop in the value of sterling against the euro. The fear of market outlooks has helped keep beef prices low in recent weeks, even though sterling has rebounded somewhat. On the one hand, the fluctuation in the exchange rate has caused much uncertainty and the situation has been volatile. On the other, we must guard against hype. Meat factories like to keep farmers nervous, but some facts are worth considering. For example, last night's closing rate was about £1 to €1.19.
It did fall as low as €1.10 in November, but the current level is similar to the exchange rate that prevailed throughout much of 2013. Farmers will recall that beef prices for R3 steers averaged €4.40 in June 2013. This is not to suggest they could be at €4.40 now, but it does illustrate that other factors such as supply and demand of cattle are perhaps more relevant than the exchange rate. However, when sterling is really strong against the euro, as happened in 2015, beef farmers do not get the full benefit. We need to reduce our over-dependence on the UK market, but let us not fool ourselves that there are silver bullets when it comes to beef exports. Despite the huge efforts to open up the US market, exports so far in 2016 amount to some 2,000 tonnes, well below what was anticipated, and with US beef prices down 20% on those this time last year, an opportunity may have been missed.
The ICSA supports every effort to open new markets, but we are perplexed that there is little appetite to do business with Iran, even though it has been an important outlet in the past and could be important in the future. Live exports must be prioritised. We need to see Northern Ireland farmers in our marts, but even more important is the need to have live exports to Britain. Currently, they are blocked by the UK supermarkets policy on EU country of origin labelling, but in a post-Brexit world the issue willl have to be looked at again. The Turkish market for weanlings must be capitalised on. Other possibilities for live exports, including countries such as Egypt, must be pursued. One slight benefit of Brexit is that the euro has also weakened against international currencies, albeit marginally, but further instability in the EU-UK process may lead to further weakness of the euro, as well as sterling. We cannot say for sure how the euro will do in 2017, with market sentiment likely to be volatile owing to elections in key EU states and concerns about the situation in Italy.
On trade deals and the Brexit talks, it is only when negotiations kick-off to determine what the future relationship should be between the United Kingdom and the European Union that the long-term outcome for Irish agriculture will emerge. Key in this regard will be the trading arrangements. The conundrum Britain has created for itself, arguably unnecessarily, is that the war was won on the issue of the free movement of people, but the peace could be lost on the same issue. Access to the Single Market is critical for British enterprises, but are the British willing to concede on the free movement of people, given the strong emphasis on immigration during the referendum campaign? The problem for Ireland is that the final trade deal must be negotiated between the United Kingdom and the European Union. This means that the more the United Kingdom insists on its demands being met in curtailing the free movement of people, the less likely it is that we will end up with tariff free trade between the European Union and the United Kingdom. This means that there will be tariffs on our exports to the United Kingdom. Tariffs, combined with a weaker sterling, would be the worst of all worlds, particularly as the curtailment of trade would potentially further exacerbate drops in the value of sterling in the longer term as markets would see the United Kingdom being more isolationist. Accordingly, Ireland must ensure its interests will be centre stage in any EU-UK negotiations. We cannot afford to leave such vital talks to the usual process by which the European Union negotiates trade deals, whereby the European Council gives a mandate to enter negotiations and then sits back while the European Commission does the negotiating. When a deal is hammered out, member states and the European Parliament will have a say on a take it or leave it basis, at which point it will essentially be too awkward and politically impossible to roll back the unpalatable. Irish MEPs will have to work to ensure our interests will remain centre stage in the European Parliament, but in reality the decisive interventions will have to be made at Council level by the Taoiseach and relevant Ministers. Overall, we need to carefully analyse the impact on how we will do business with our British neighbours in the future and the extent to which Britain will open up to do business with the world at the expense of Ireland and other European countries.
The beef trade - we export 90% of what we produce - is particularly vulnerable. Over 50% of our beef exports are to the United Kingdom. Therefore, the ICSA is extremely anxious to ensure a hard Brexit would not result in tariffs on EU exports to the United Kingdom. While the exchange rate may stabilise, Brexit is even more problematic in terms of international trade deals. The ICSA has been campaigning against EU trade deals which sell out the beef sector. We are especially concerned with the Mercosur agreement, the TTIP and particularly the CETA which appears to be a Canadian trade deal but is very much a North American trade deal and could be very problematic for us. All of these negotiations have been conducted on the basis of there being an EU 28, with the United Kingdom being the member state with the greatest import requirements. The ICSA pressed the EU Agriculture Commissioner for a cumulative assessment of the impact of these trade deals on the beef trade. In other words, what is the potential impact of having three tariff rate quotas for Canada, the USA and South America? As expected, the Commission's analysis painted a disastrous picture for Irish beef producers, with somewhere between an extra 146,000 and 356,000 tonnes of beef coming into Europe. However, the impact analysis was made without knowing the trade deals a detached United Kingdom could do post-Brexit with the rest of the world. A possible scenario is there would be two beef import deals. This would arise where the European Union did its own deals and then the United Kingdom agreed to significant imports of beef and lamb from all over the world. This could prove very detrimental to the future of the Irish agrifood sector. The ICSA believes the European Union should park external trade negotiations with the United States and countries in South America until the post-Brexit arrangements become clear. We also have to carefully look at the quota for New Zealand lamb which we think should be taken out of the European Union by the United Kingdom post-Brexit. Overall, Brexit presents a huge challenge and we all need to work together to ensure it will be managed in the best interests of the agriculture sector on both islands. Farmers, North and South, in particular, will be hugely affected. This must be kept centre stage in all negotiations.
On the future of the CAP and other policies, we are concerned about the future funding of the CAP, given that the United Kingdom is a net contributor. Ireland must fight for adequate funding for the CAP post-2020, but we also need to assess what the outcome will be in future CAP design. While the United Kingdom was opposed to the CAP as a matter of philosophy, it tended to be on the same side as Ireland on some of the detail such as decoupling and milk quotas. The ICSA suggests all policy decisions must be aimed at circling the wagons to protect the interests of EU-27 farmers. We need policies that will prioritise the viability of farming in Europe. This means fighting against bad trade deals. It also means fighting to ensure decisions taken on climate change and renewable energy resources will not undermine EU farmers. We need to examine to where Ireland could move in the post-sugar quota era and whether the European Union's U-turn on biofuels makes any sense in pursuing the goal of farm viability across Europe at a time when tillage farmers are suffering. Above all, we need to reassess the objectives of Food Wise 2025 which is all about expansion of output, especially in dairying but with a knock-on impact on beef supplies. Given the risks posed by Brexit and the uncertainty around new markets, it is surely time to look at sustainable down-sizing until it can be sees if prices will rise to a viable level. Expansion of beef output at this point looks like a crazy policy in view of the glut of beef expected in 2017.
I thank the delegates for their presentations. As has been rightly said, this issue has been flogged to death. As such, it is difficult to come up with new questions. At Question Time last week in the Dáil I raised the question of whether it would be timely to have a review of the Food Wise 2025 strategy and its impact. We should be cautionary at this stage rather than rush ahead pell-mell. We might not like what Mr. Power had to say - more often than not I disagree with him - but we must take cognisance of what people like him have to say. This will not be a walk in the park. Whether it is a hard or a soft Brexit, as we all desire, there will be consequences. It is important that there be a review of where we are and that farmers be made aware of the realities to ensure they will not end up being led into financial difficulties that could be ruinous.
Deputy Jackie Cahill and others referred to the impact on the dairy sector.
Of course, it is accepted that the impact on the beef sector will be more devastating. Has any thought been given to that matter?
I accept Macra na Feirme's assertion that we all must wear the green jersey. That is important and there is no doubt that this committee will make its input, insofar as it can. However, while we can get representatives of all parties to acknowledge the issue and bring forward the submissions the committee has heard in recent weeks, we cannot lose sight of the fact that the negotiations will be led primarily by the European Union. That is the big bugbear. How do the delegates see us intervening and having an input at a national level? I know that the Taoiseach will be representing Ireland. He will be representing all of us; it will not be party political, nor should it be, as we are all on the one side. The Taoiseach has allies, but, as Mr. Power said, there were many allies in 2011 and we saw where that got us. It went down the tubes and there was not much sympathy for us. We carried a load for which the European Union was directly responsible in its promotion of cheap money policies and so on.
How do the agrifood and fisheries sectors see us doing what has been suggested in the four very well researched presentations, all of which were excellent? How will we get to the point where there is a soft Brexit, in the process preserving the common travel area, ensuring vital sanitary and veterinary regulations are retained and that we will have an all-Ireland animal health policy, as spoken about by Mr. Comer? This policy has proved very worthwhile in achieving our brucellosis status, etc.
The UK market of 65 million people will be lost to the European Union. There are some 6 million people on the island of Ireland. What is the opinion of the industry representatives on the negotiations that will continue for two years? Last week, according to the British Prime Minister, they would continue for about two years but yesterday there was talk about a transitional arrangement of at least four years, which is very optimistic. I have always said it will take five years or more. It took Greenland, a small country, three years to disengage from the European Union. Who is codding who? There are thousands of multilateral agreements to be considered. If work was to start on them tonight, it would not be finished in two years. It is time people stopped talking nonsense. I can confidently say there will be a new Government in Ireland before Brexit is finalised. I am not saying the Government will not last, but in time there will be a new Government. That is the scenario and I agree that the longer it continues the more uncertainty it will create. The only point on which everyone can agree is that the grave uncertainty will continue and as long as it continues, I agree totally that it will be bad news for everybody.
All of the representatives from the industries have put forward good ideas, but how can we have our voice heard in the process? It must be remembered that there are 26 other member states that must be satisfied, not counting the United Kingdom. Mr. Barnier will be involved in the negotiations. While he has indicated that he recognises Ireland's position, the point is, as mentioned by Mr. Jim Power, that the European Union will not be shy about teaching lessons and sending signals that it does not want the European project to disintegrate. That is the problem. Ireland should get a good deal, but will the political environment in the European Union permit it? That is the question.
I thank all of the organisations represented for their contributions. As Deputy Willie Penrose said, nearly everything we have talked about has been in the context of Brexit, as it was in the case of Mr. Jim Power's presentation earlier. I have a couple of points which flow from what he said in response to my question on the drive towards cheaper food imports and how it would impact on all aspects of the industries. When the chairman of Bord Iascaigh Mhara was before the joint committee a couple of weeks ago, we spoke about this issue - the need to increase the value of food exports from Ireland. We should look at their value rather than their volume. That is the direction in which Ireland needs to move. There has been too much emphasis on increasing their volume and not enough on increasing their value. I wonder if the delegates agree with me? It is strange.
I had friends home from America recently and they spoke about the image of the small family farm in Ireland. People around the world talk about it and how it is so quaint. That may not always be the case, but certainly there is that image of the small family farm in Ireland. Ireland does have small producers, grass fed animals and food traceability. These are aspects about which people may not know, but they are aware of the image of the small family farm. The image in people's minds of Ireland being a green clean environment is crucial and I firmly believe we do not use this image to its full potential when marketing our goods. It is one of the aspects that we really need to change. In the marketing of food from Ireland we need to move in a different direction to increase the value of our exports. That is the real challenge. It is said trouble is an opportunity in work clothes. Brexit may offer an opportunity in that regard. It may be the event that will smarten Ireland up to realise that if we continue to compete with Argentina, Brazil and other cheap producers of food, we will not make it. We need to look in a different direction. While we export a lot of what we produce, this is still a small island which, in a global context, produces a very small amount. Because of its image Ireland should be looking to be at the very top end with its produce. I implore the representatives to look at this aspect as a way forward in getting out of this mess.
Reference was made to trade deals. It strikes me that they are always good for the corporations and not so good for everybody else. That applies on both sides of the table, from the point of view of the Canadians or the Irish people. It is always about the corporation and the sectors involved. Usually, agriculture forms part of a trade-off. The Europeans may be trying to sell insurance services or cars to some other part of the world and will use agriculture as part of a trade-off because it is seen as a sector that can be dealt with in that way. That is why we find ourselves in this position time and again and there is a serious danger of it happening in the case of the Comprehensive Economic Trade Agreement, CETA. With the change in administration in the United States, the Transatlantic Trade and Investment Partnership agreement may be slightly off the agenda, but we do not know for sure. I suggest, however, that the farming organisations who represent primary producers take a look at these trade negotiations to see where they are taking Ireland. They need to look at the deals, not individually but as a whole, and the direction in which they are pulling the agriculture sector. It needs to be acknowledged that they are very negative.
My final point is about Brexit. We have spoken about it so many times that we have flogged it to death. We all know that it is going to be negative and everybody is trying to measure just how negative it will be. It is very hard to see where we can turn it around to find the positives. It was mentioned that we could replace some imports, but I do not know if that will be possible. It is very unlikely. I have thought of one example. On the main street of Ballinamore there is a small confectionery wholesaler. He has told me that every bar of chocolate and every item in his wholesale business comes through Britain.
I was just telling Senator Pádraig Mac Lochlainn that I remember visiting Letterkenny many years ago and there being a smell of sweets all over the town. Oatfield was the company that used to manufacture sweets in Letterkenny, but it no longer operates. Many similar companies have also closed. We need to examine whether some of these industries can be restarted to replace some imports. In many cases, that will not be possible because we cannot compete with goods produced much more cheaply elsewhere. However, we should seek to secure the highest prices in the world for our primary food produce such as dairy products, beef and lamb. That is the direction we must take if we are to overcome the problems arising from Brexit and the general direction of world trade, especially in agricultural produce prices.
Mr. Healy referred to the Common Agricultural Policy, CAP. If the United Kingdom withdraws from the European Union, it will create a gap in the European budget which, if not filled, will have significant knock-on effects for the agricultural and rural communities. This will be the main issue when CAP reform talks start next year. Not only will Brexit have an impact on trade, it will also affect the single farm payment and could sound the death knell for farming.
One of the key issues in the negotiations will be how to fund the Common Agricultural Policy. We are a net beneficiary, but the position could be reversed as a result of the role of the eastern European countries and the gap Britain’s exit from the European Union will leave. This will be a significant issue for the rural community.
Cross-Border and production issues will also be important. Will it be possible in a period of less than two years to address manufacturing on both sides of the Border, whether in milk, pork or some other commodity? If a hard Border is imposed in the timescale proposed, it will cause devastation for the agriculture industry on both sides of the Border. Is there potential for manufacturing on both sides of the Border to pick up the surplus? I do not believe that is the case and if I am correct, the knock-on effect for Border counties will be significant, to say the least.
I thank the four representative organisations for their presentations. As previous speakers noted, the implications of a hard Brexit would be stark. Given that the dairy sector is largely operating in a global market, does Mr. Comer envisage that it will be more sheltered from the repercussions of Brexit than other agriculture sectors? As the issues related to beef have been thrashed out, I am particularly interested in the issues facing the dairy sector.
On the relationship of the four organisations with their European counterparts, specifically COPA, the preferred outcome is clear, namely, a free trade agreement under which Britain would sign up to equivalence of standards and agree to adhere to the current requirements of the Single Market. In the event that a settlement of some description is negotiated, what is the current position with regard to the farming organisations’ colleagues in COPA? How much support are they receiving from COPA in securing an outcome that will take into account Ireland’s position? Is Brexit as big an issue for farming organisations elsewhere? While I acknowledge that the position varies from country to country, will the farming lobby in Europe provide significant support for the Irish farming organisations’ case and press it with their respective governments?
A review of Food Wise 2025 is required because the strategy was developed before Brexit and with highly ambitious targets. Do the delegates believe it is necessary to go back to the table and review the strategy to ensure it is fit for purpose and takes into account the new challenges arising from the impact of Brexit?
Against the background of the challenges we will face in the next three or four years, what advice are the farming organisations giving their members and the farming community in general on investment and how they should approach the next few years?
In the context of there being a hard Brexit, the farming organisations provided statistics from the perspective of the Republic of Ireland. Given that 1 million litres of milk cross the Border every year for processing, does Brexit not offer the dairy sector an opportunity to pick up the extra capacity and provide this milk for the creameries? Likewise, 350,000 lambs cross the Border for processing in this jurisdiction every year. Do farmers in the South have the capacity to step up production and provide 350,000 more lambs per annum? Every week 10,000 pigs cross the Border for processing? Does the sector here have the capacity to process these pigs in the South rather than export them across the Border? What are the views of the delegates on these potential opportunities, taking into account the fact that all of this produce would be exported to the United Kingdom and the impact this could have in terms of future tariffs on UK imports? What would be the implications for beef farmers and the beef processing sector of a decision to impose tariffs of between 35% and 50% on beef exports from Ireland to the United Kingdom?
I ask the ICSMA to expand on its statement that it is time to look at a sustainable downsizing of the sector until prices rise to a viable level. What would sustainable downsizing involve?
I apologise for missing the presentations. I was raising a Topical Issue in the Dáil.
The starting point in respect of Brexit is holding on to as much shelf space as we can and adding as much value as we can to our product. We must ensure we will lose as little as possible in terms of the potential for damage to our market as it is too difficult to pick up a greater share in these markets. Bord Bia has expressed a hope we will achieve growth in other markets. We export more to the United Kingdom than to all other markets combined. The United Kingdom takes more than 50% of our agricultural produce.
As I stated in an earlier exchange with Mr. Power, Ireland has top class agricultural products. Are the farming organisations aware of any analysis that has been made of Irish brands that have substantial shelf space in the supermarkets and multiples in the United Kingdom? If so, I ask them to pass on the information available to them. If not, are they aware of any marketing plan in place to try to ensure we will hold on to as much shelf space as possible?
This discussion has highlighted the various scenarios that could arise as a result of Brexit. Unfortunately, the Government will not be negotiating on behalf of Ireland because, as Deputy Willie Penrose noted, a deal will be struck between the European Union and the United Kingdom.
Clearly, we have serious concerns about Brexit, given that this is the only country with a land border with the United Kingdom and that 50% of our trade is with it. To what extent will the Germans and French care about our position? When I visited Brussels last week, I found little sympathy for the British. Efforts are being made to remove British MEPs from every position they hold in the European Parliament, for example. At this stage, everyone wants to get the United Kingdom out the door.
That is the reality to which we must face up. It took us a long time to reduce our dependence on the UK market for beef to the current level of 50%. How long will it take Bord Bia to find alternative markets for us and at what price?It has a budget of €45 million to €50 million. Realistically, if it is to find alternative markets for dairy and beef and other agricultural products, what level of budget will it require in the future? Food Harvest 2020 and Food Wise 2025 contain aspirations for growth. I would like to hear the views of the delegates on where we are going in these strategies. We will have to revisit the targets, given the changing environment in which we now find ourselves and the current challenges facing the beef sector, with the possibility of losing free access to the UK market, which is frightening to behold, and we do not know what the final scenario will be.
Dairy processors have large capacity and are dependent on milk supplies from Northern Ireland. The shortfall can be made up by suppliers in the Twenty-six Counties, but it will take time. We must face the harsh realities. While we will contribute to the negotiations, we will mainly be spectators. The hardening of attitudes in the European Union to the United Kingdom has to be seen to be believed. The European Parliament is starting to push UK MEPs out of all the positions they hold, including committee chairmanships. The attitude is that the United Kingdom can have no interest in the future of the European Union when it has made a decision to leave. That is the worrying reality and the context in which we must position the agriculture sector for three to five years ahead. While the longer term creates greater uncertainty, we will need a long time to adapt. I urge the four presidents to focus on what they think our targets should be for industry growth, given the changing scenario. What level of budget do they envisage Bord Bia will need to try to meet the challenges that lie ahead?
Mr. Patrick Kent:
Very useful questions were posed by various members on the direction Ireland should take. There will be choices for individual farmers because farmers have different stocking levels and densities. The advice would be different for each one, depending on his or her stocking level and his or her age. Decisions for one might not necessarily suit another. Teagasc must give some direction in that there are no stocking rate controls with which to compare intensive, high input farming activities. Some older farmers who are getting a good price for cattle on a given day are making money because they are not spending a lot. Their input costs are lower, as are their stocking levels and work rate. They might perhaps provide a model for young farmers to get involved in farming because owing to the lower intensity levels there may be an opportunity to find a part-time job or a full-time job off the farm. Different advice applies to different farmers. Teagasc must go back to the drawing board as some of the advice it has given to ramp up stocking levels and change direction and become involved in intensive dairying might not offer the best long-term solution. It might be perfect advice for individual farmers, but for others, it might not be, depending on the resources available to them.
Brand Ireland must be revisited. Food Wise 2025 must also be revisited. Some of the projections have been very ambitious. Some of the people involved have also been out of touch with the realities on the ground. The forum should probably be convened for a few days to consider what direction we should take as it does not seem to be sustainable to follow the model originally envisaged.
We have unique selling points, but we have not sufficiently pushed the purity of our food. We have dropped the ball in our food being GM-free. There is not one GM crop we can grow profitably in this country as they are all designed for use in hotter climates, but we can sell our food as GM-free at a higher price on the basis that it is healthier and glyphosate free. Glyphosate is endemic in GM crops and contaminates the entire food chain. We must revisit the issue and declare this country a GM-free growing area. We import some proteins that are GM, but perhaps we might revisit that issue also, even though there might be certain costs attached. Gaining a higher shelf price for our product is something we should examine very closely. We should also examine consumer trends. Nobody in the world would then be able to compete with us because we would have a very pure and healthy product. From a tourism point of view, we would also have a selling point. We could gain a lot if we were to go down that road.
Deputy Thomas Pringle asked a question about sustainable downsizing and I think I have more or less addressed it. Profitability is an issue.
In reply to Deputy Martin Kenny's questions, we need to speak to farmers more to see what they want. Up until now they have been told what to do. They have not been asked what they think we should be doing. There are tremendous people within Bord Bia who have been working very had during the years, but I think they have lost direction. We need to improve marketing, rather than policing farmers in terms of quality assurance and Origin Green which is based on carbon levels. German supermarkets in the United Kingdom are not carrying Irish beef and lamb products and we must change this. Bord Bia needs to redirect its personnel towards marketing. We must market our product as being the best available. Farmers are willing to provide top quality food, from which we would like to see some benefit. Our food must be unassailable. That would make it Brexit-proof, CETA-proof and, possibly, TTIP-proof.
Mr. Seán Finan:
I will address some of the points raised. Deputy Willie Penrose and a number of other Deputies spoke about Food Wise 2025. New markets must be found for additional product. A key component would be increasing live exports, potentially to North Africa and other European markets. We must show ambition for the industry. Perhaps it would be premature to reopen Food Wise 2025 until we see where Brexit will take us in the next year, as none of us knows where the road will lead us. There are some very good elements to Food Wise 2025 which, if adopted at farm level, will definitely increase profitability through improvements in efficiency and grass utilisation. There is a wide variety of measures that should be examined.
Deputy Martin Kenny also referred to Food Wise 2025 and increasing value rather than volume. I agree fully that we should increase value. The Origin Green programme and quality assurance schemes are very important in promoting the green image and benefits or Irish produced products, including traceability.
The Deputy also mentioned trade deals, all of which must be properly and economically vetted. As an exporting nation, we depend on trade; therefore, we must be very careful as we depend on international markets to sell our products. I agree that trade deals must be properly and economically sound and not disenfranchise any indigenous sector or commodity.
Senator Tim Lombard spoke about the Common Agricultural Policy. His colleague in County Cork, Mr. Alan Jagoe, is president of the CEJA, the European Council of Young Farmers, and discussions have started in Brussels on CAP 2020. We met the Commissioner recently.
There is huge pressure on the budget. Owing to Brexit, there is huge uncertainty and it looks like we will potentially have a totally different CAP the next time. We do not know what shape it will take. It is all up for discussion and will have to be discussed in the context of how Brexit will play out.
I will address some of the other points made. I think it was Deputy Charlie McConalogue who mentioned our relationships at an EU level. As I said, we are involved with the equivalent of COPA, the CEJA, but there has not been a lot of discussion at that level about Brexit. We had a discussion with our UK counterparts after the vote, but there has not been a lot of discussion since. It is probably something that will come up in the next few months.
Deputy Thomas Pringle mentioned the beef sector and asked what a 30% to 50% tariff would mean. To be honest, I do not know. The Deputy knows as well as everyone else on the committee that the beef industry and beef farmers are under severe pressure. Anything that puts a restriction on our exports to the UK market will be passed back to farmers and have devastating consequences. In terms of putting a figure on it, I do not have one for the Deputy.
Deputy Michael D'Arcy spoke about retail markets. I notice that there is an international Bord Bia report dating back to 2011 - Retail Markets Today & Tomorrow - which was produced by independently by SCB Partners. Although it is a few years old, it does give a insight into the different-----
Mr. Seán Finan:
It does. I am not sure whether there is an up-to-date report, but it does gives some insight into the matter.
I will go back to Deputy Jackie Cahill's point about market share and Ireland's dependence on the UK market. The ESRI's report gives us an indication of the share of UK imports from elsewhere in the European Union. Germany accounts for 28.34%; the Netherlands, 12.73%; France, 10.81%; Belgium, 10.5%; and Ireland, 5.05%. There are, therefore, many countries other than Ireland that have huge dependence on the UK market, including Germany, the Netherlands, Belgium and France. Ireland is in fifth place. Cars and other such products probably account for the significant percentages for other member states. I am sure, therefore, that Brexit is also a worry for all of these countries.
I think I have addressed most of the questions asked. I believe I have answered the final point made by Deputy Jackie Cahill about Food Wise 2025.
Huge work has been done by Bord Bia and Ornua in the marketing of our food. I know that Ornua has based a number of its employees in the United States in order to sell into that market. Bord Bia has identified huge potential in north Africa, China and a variety of other markets. I am not sure about its budget, but its strategic direction might need to be set by the Government. That would dictate the budget the agency would require to deliver on the strategic targets set by the Government and the Minister for Agriculture, Food and the Marine.
I am not sure whether our CEO has anything further to add. I thank the committee for its time.
Mr. John Comer:
I thank all of the Deputies and Senators for their comments and questions. The ambition of Food Wise 2025 is to increase national exports from the agriculture sector to €19 billion, which will be difficult. From a farmer's perspective, it has to happen through increasing value as much as volume. If it is all about increasing volume, farmers will go broke. It must come down to increasing value. How do we extract value from global markets when we have to export more than 90% of what we produce, leaving out our UK market share? We can only do so with value-added products. It cannot be done with skimmed milk powder, butter, whole milk powder or any of the other powders, particularly given from where we have just come, when the only buyer in the European market for a European product was the European Commission. That is a statement of fact.
Let us not overemphasise the role and function of Bord Bia. It is a very valuable organisation and completely different from Ornua. Ornua is a farmer-owned co-operative, while Bord Bia is an arm of the State which certainly needs more funding in the context in which we now find ourselves. The increase in funding should be to the tune of 20% which would give good value insofar as we could add value to Irish products.
I will not go through all of the questions again, but I was asked a specific question by Deputy Charlie McConalogue about the advice we gave farmers. Our role and functions, as a farm leader, are to try to lead the industry and individuals out of this situation in which there is the potential to have a very negative impact. All farmers have a responsibility to be as efficient as they can and adopt modern technology and practices on their farms. After that, there is very little they can do. However, I believe there is a role for farm leaders and politicians alike not to overplay the negatives and make everybody too afraid to make business decisions. We have to make business decisions, even without the certainty everybody craves. The reality is that there will be no certainty. There has to be a counterbalance.
There were many other contributions. One specific question asked by Deputy Charlie McConalogue was about whether the dairy sector was more sheltered. There are global markets and the dairy sector is sheltered from that perspective. We are on an upward trajectory. The reality is that dairy farmers will increase and expand. Whether they should is a more complex question, but let us deal with the realities. Make no mistake about it - that is what is going to happen and we must prepare for it as an industry and the Government must facilitate it as best it can. I know - I believe everybody present knows - that there has been a paradigm shift in the trading environment in which we are going to have to operate because of Brexit, but farmers will expand, particularly in the dairy sector. That is almost certain and we must cater for it in our processing. There are synergies and many symbiotic relationships have been developed between the North and the South. Spare capacity in the South has been used up. We must remember that only two years ago, before Brexit ever happened, British farmers had to ship distressed milk to Ireland to have it processed because nobody was investing in the processing sector in Britain. I often give out about processors and so on, but at least we facilitated investment in processing facilities in this country which has stood us in good stead.
On the issues raised by Senator Tim Lombard, I believe I made the point very strongly, but I will re-emphasise and reiterate it because it is key. We have to be proud of the CAP and understand why we have a CAP budget. We have to make sure that we negotiate to retain it because there will be a deficit if the United Kingdom leaves the European Union. I know that the overall total is €9 billion or €10 billion, but the agricultural portion is €1.3 billion. As an industry, farmers and a Government, we will have to figure out a way to justify why we receive that much taxpayers' money and indicate the service we are providing for it. To be perfectly honest, I do not think we are doing a great job in that regard. That incorporates Deputy Jackie Cahill's point and nearly incorporates everybody else's points.
What can Ireland do, given how small it is in the European Union? There are two things that we need to do and we are probably doing them behind the scenes. The key to getting a reasonable deal for agriculture could be what happens on the UK side because it pays no heed to agriculture. However, Scotland does and Ms Nicola Sturgeon is a very strong First Minister. I certainly believe we need to have back-room discussions with her. To enable her to protect Scottish farmers, she might be able to extract a good deal from the United Kingdom's perspective. The same applies to Ms Arlene Foster in Northern Ireland. There is leverage to work with them.
Leaving aside that issue, it was mentioned several times that France, Germany and all of the other power brokers wanted to make an example of the United Kingdom.
That is actually the real sentiment. As a small member state, Ireland can act as a counterbalance by stating how stupid that is. We do not want to see the United Kingdom on the naughty step. We need to work slowly and repetitively to build a common-sense reaction to this immediate knee-jerk reaction. A reasonable deal that allows for trade and does not make an example of the United Kingdom is in the interests of the United Kingdom and the European Union. It is as simple as that. If we are to be an effective counterbalance, we need to repeat that simple point for the next five years until we get a clear line of sight to the final outcome.
Mr. Joe Healy:
Most of the questions have been alluded to at this stage. Deputy Willie Penrose said there would be consequences. We have already seen consequences in the beef and mushroom sectors. A number of good mushroom growers have gone to the wall. As I said the last time I appeared before the joint committee, a base price of €3.60 or €3.65 for steers will have consequences. Lower prices also have indirect consequences along the line.
The Food Wise 2025 strategy was mentioned by a number of those who asked questions. Representatives of all the farming organisations are due to meet officials from the Food Wise 2025 review group which is chaired by Mr. Michael Dowling tomorrow morning. I have no doubt that strategies such as Food Wise 2025 and the plans of individual farms for the future need to be revisited following the result of the Brexit referendum. The ideas and plans that were being considered before the referendum need to be reconsidered in the different circumstances that now obtain, as will be highlighted tomorrow morning.
Deputy Willie Penrose spoke about whether this would happen over a timespan of two, three, four or five years. Some believe there will be an election in the meantime. That might happen. I set out our preference for what will happen. The uncertainty that will persist in the meantime will lead to exchange rate fluctuations. As Mr. Jim Power mentioned, since 23 June last the value of €1 increased from 76p to 89p or 90p sterling before dropping to approximately 84p. Such fluctuations are having a real impact.
Reference has been made to added-value food products. In the past 20 years value has been added to much of what we export. That must continue. When the US market opened, the IFA, the Government, the Minister and Bord Bia pushed very hard for the branding of Irish food. It was disappointing that this did not happen, but I do not think there was anything more the organisation could have done. It is a pity that the idea we were pushing did not gain traction. As someone said earlier, our image is a strong marketing point. Bord Bia is trying to push it as part of its Origin Green campaign.
A few questions were asked about the work being done in Brussels through COPA, etc. We have met other farm organisations, including French organisations, through COPA. Like Ireland, France exports agrifood products worth between €4.5 billion and €5 billion to the United Kingdom. The United Kingdom is not as great a priority for France as it is for Ireland because the percentage of French agrifood exports to the United Kingdom is a long way short of the level of 40% or 41% here. A similar point can be made about other European countries. The United Kingdom is not nearly as important a priority for other farming organisations around Europe as it is for the IFA. The Commission's civil dialogue groups refuse to discuss the issue when it is raised. I do not think they will be allowed to do so until Article 50 has been triggered.
I mentioned in my initial contribution that the adequate funding of the Common Agricultural Policy was a priority the last time and will be this time. If the United Kingdom leaves the European Union, the vacuum it will leave as a net contributor will have to be filled. The dairy sector was mentioned in this context because 60% of the cheese we produce goes to the United Kingdom. I mentioned the tariffs on dairy and beef products. We will take a big hit in that regard. As Mr. Comer said, we have to be able to defend the CAP budget. In the 1960s approximately 30% of household income was spent on food. The Common Agricultural Policy was introduced to ensure safe and traceable food could be purchased at an affordable price. Just 15% of household income is now spent on food.
Deputy Jackie Cahill rightly mentioned that there was no sympathy. We have met politicians and ambassadors from a number of EU member states. They are all the same, although one particular group stands out. The politicians from France told us that as far as they were concerned, there must be a hard Brexit to send a message to any other country that might be thinking along these lines.
I will allow Senator Pádraig Mac Lochlainn to ask a question before we conclude. I apologise for not calling him earlier. We will try to conclude as quickly as possible because a vote has been called in the Dáil Chamber.
I have a focused question. I have a sense that the meat factories, the multiples and the major retailers will seek to take advantage of Brexit by using it in an opportunistic way as leverage to drive down prices. I do not doubt that this will happen. What are the strategies of the various organisations to deal with this? I want to get a sense of what they are calling on the Government to do.
The EU agricultural markets task force recently published an important report on improving market outcomes. The report suggests legislation needs to be introduced at European level to provide legislative grounding for what it terms as an "adjudicator" or "ombudsman" because the voluntary systems generally are not working. The report recommends that written contracts be in place to guarantee rights. It also suggests the European Investment Bank play a role in providing access to finance. This issue has been mentioned by all of the organisations. The delegates probably heard the question I asked Mr. Jim Power earlier in this context. Have they seen the report and what is their view on it? Do they agree with the recommendations made in it? What do they think the Government should do at European level on this issue? When Commissioner Hogan appeared before the committee not so long ago, we asked him about the issue and he referred us to the impending report as his approach or strategy for dealing with price. It strikes me that it is now more important than ever to address this issue. I want to get the organisations' initial responses to the report. What is their advice to the committee on what we should do?
Mr. Joe Healy:
I was about to respond to what had been said about the need for a return from the marketplace and the role of farmers in supplying the food chain. We welcomed the establishment of the agricultural markets task force. We pushed the Commissioner to make sure it was worked on and that its report would be published during the year.
We had the UK Groceries Code Adjudicator, Ms Christine Tacon, speak at a seminar we organised last Wednesday week at Dublin Airport. On what the committee could do, we have highlighted the need for an independent ombudsman.
I thank the representatives of the four organisations for coming before the committee. We will have a report on this issue concluded in early February and will invite the groups to its launch. I thank members and everyone in attendance. I wish everybody a happy Christmas and a peaceful new year. I thank members for their co-operation this term, as well as the ushers, staff, secretariat and everybody else involved.