Professor Alan Matthews:

First, I thank the committee for this opportunity. When I was drawing up my opening statement I had to make some suppositions and assumptions about what the British position might be. This morning, we heard the British Prime Minister lay out in clear terms what her strategy is and it is not good news for the Irish agrifood sector.

The way to try to understand this is to recall 1973, when both Ireland and the United Kingdom joined what was then the European Economic Community, EEC, and later the European Union. Before that time we were selling into the British market, obviously in competition with other exporters, and we were getting essentially the world market price. There was some opportunity under the Anglo-Irish Free Trade Agreement to benefit from some of the deficiency payments the UK had at the time for some of our livestock exports, but basically we were selling at world market prices. For us, joining the European Union at the same time as the British meant that we got the benefit of the protection provided by the common external tariff. The Common Agricultural Policy was important but this tariff wall required the British consumer to pay the higher EU price rather than the world market price after membership. Irish exporters were able to benefit from what I call that trade transfer. We were able to benefit because we were protected in selling to that market after membership vis-à-visthird countries that were outside the tariff wall. For me, the announcement by the British Prime Minister today that she is not seeking to remain within the customs union is probably the most significant part of her statement. I believe we will see the UK reverting to a less protectionist position for its agriculture. I am not suggesting that it will go to zero tariffs, but it is highly unlikely that it will retain the high level of tariffs we have in Europe.

We also heard her say in no uncertain terms that she wishes Britain to be open to trade with the rest of the world. She wishes to sign trade agreements, which would embrace many competitive agricultural exporters, so we can expect to see that even if we maintain duty free access to the United Kingdom market under a free trade agreement, and I will comment on that shortly, it will be a far less valuable market for us in the future. That is the biggest difficulty I foresee for the Irish agrifood sector following Brexit.

The British Prime Minister has indicated that she will seek a free trade agreement. That is an important objective for Ireland also, so that at least we will not have tariffs put on our exports in addition to the lower market price when exporting to the UK market. Of course, the value of that free trade agreement will depend on the size of the tariffs which the UK Government decides to put in place once it has the ability to do so. To take an extreme situation, and I do not believe it is likely, if the United Kingdom were to decide to eliminate tariffs on its agrifood imports, a free trade agreement does not really mean anything because we, along with the Brazilians, New Zealanders and Australians, would have duty free access anyway. In that case the free trade agreement is not very important. It is important to the extent that the UK retains some positive protection for its farmers after Brexit. I expect it to do so, therefore the suggestion that the UK will at least seek a free trade agreement is one of the few positive things we can take from the statement today.

It will take time to negotiate a free trade agreement. The withdrawal from the Union is negotiated under Article 50 of the treaty but negotiating a free trade agreement is a different negotiation under Article 218, with its own rules, Council mandate and so forth. There is much concern, which I share, that it is not clear if the European Union will be able to start negotiating such a free trade agreement until the United Kingdom has left the EU. This, of course, raises the question of the cliff edge.

A free trade agreement, which will be negotiated under a separate set of procedures, could well take longer than the actual withdrawal negotiation itself. If the British timeline is held to and Brexit occurs in spring 2019, I think it is unlikely we will see a free trade agreement in place by then. Accordingly, the question of what transitional arrangements might be put in place to avoid the re-imposition of tariffs is an important strategic issue for Ireland.

In addition to the free trade element, the UK Prime Minister has indicated that Britain wishes to withdraw from the Single Market. The Single Market has allowed us to trade, not only with the United Kingdom but with other EU countries in a seamless way without the administrative checks and paperwork required before 1992 when it came into effect. We are going to see some additional trading costs simply because the United Kingdom will no longer be part of the Single Market. What will these additional costs be? For example, an Irish meat factory, once it is inspected by the Irish authorities and approved to sell its products on the Irish market, can also sell those products on the British and French markets without any further checks. It is assumed it will meet the relevant EU standards. That will no longer be the case after Brexit. The British authorities may decide to change when they leave. They will have exactly the same regulations in place that we have. However, over time, these regulations may evolve and change. In any case, the British authorities will wish to ensure our processing plants meet their standards.

We will need to ensure these additional costs are minimised as far as possible. It is possible to do this through mutual recognition agreements where two sides agree to recognise each other's agencies and systems for approving, say, plants for food safety and other reasons. Again, however, that is a trade agreement which has to be signed by the Commission for that mutual recognition to take place.

What agricultural policy will the United Kingdom, and its devolved administrations whose responsibility that policy is, pursue after Brexit? What support will it give through its budget to its farmers? That is a significantly important question for farmers in the North of Ireland who are heavily dependent on direct transfers at the present time. With supply chains which link production in the North with processes in the South, there will be issues as to how that level of production may be affected in the future if support is reduced under UK agricultural policy.

There are also indirect effects of Brexit. Obviously, we are all familiar with the exchange rate impacts. There will be indirect effects from the impact of Brexit on future economic growth rates and migration into the United Kingdom, which obviously will impact on the overall level of demand for Irish exports. It is clear the UK is a major net contributor to the EU budget and, therefore, to the Common Agricultural Policy, CAP, budget. After Brexit, there will be a hole in that budget. Will that be replaced by the other member states? Several tables in my submission indicate the key sectors which will be mostly affected by Brexit.

In my submission, I made six recommendations to the committee to consider. On the first one, the ship may well have sailed, as it emphasised the importance of encouraging the United Kingdom to remain within the customs union. One issue is the revenue from the tariffs, which are currently paid into the European budget and are, therefore, a cost to the United Kingdom. There would have been scope for the United Kingdom to retain that revenue. It seems, however, the UK Prime Minister has ruled that option out today.

In that case, we need to emphasise the importance of concluding a free trade agreement which also covers agrifood trade. That is not a foregone conclusion. For example, the European Economic Area agreement does not itself cover agriculture, although there are bilateral agricultural agreements with the members of that agreement. There are trade-offs involved. The committee will be aware that the most important UK agricultural export to the rest of Europe is lamb. The UK is actually self-sufficient in lamb. The lamb exported is, in a sense replaced, by lamb imported from New Zealand. If, after Brexit, the UK enters into a free trade agreement with New Zealand, a lot more New Zealand lamb might go into Britain. One can expect Welsh lamb to be diverted to France in competition with Irish lamb exports. Is that something with which we would be happy? Would we want to put a quota on future British lamb exports to avoid that? In that case, the British would be clearly looking for a quid pro quo. Would they then want to limit exports of interest to us? There are going to be difficult trade-offs, even in negotiating a free trade agreement.

With respect to leaving the Single Market, it is important to underline the importance of mutual recognition agreements to ensure each trading partner recognises the systems in place to approve, for example, veterinary and food safety equivalence. Clearly we will need to emphasise marketing efforts. The British market inevitably will be less attractive to our exporters. We are going to need to provide assistance to look for alternatives either in the rest of the European Union or outside.

Brexit is going to be a big negative shock. We will hear calls for assistance, both from smaller food firms and farmers. My advice is that this is a permanent shock. This is not something which is likely to reverse itself in the near future. Accordingly, if assistance is to be provided, it should be targeted to assist the sector to adjust. It should not be something which is simply a hand-out to keep the sector going without helping it to adjust. It is an unfortunate situation but one with which I am afraid we are going to have to live.