Mr. Paul Kelly:

Food Drink Ireland is part of IBEC and the main trade association for the food and drink industry in Ireland. It represents the interests of over 150 food, drink and non-food grocery manufacturers and suppliers. We welcome the opportunity to appear before the committee and acknowledge the committee's ongoing focus on Brexit as it impacts on agrifood. Our submission to the committee on Brexit should be read in conjunction with the submissions from fellow IBEC associations such as the Alcohol Beverage Federation of Ireland, which is present today, Dairy Industry Ireland and Meat Industry Ireland.

Looking first at trade flows, there has been a very strong food and drink performance in 2017 that saw overall exports increase by 11% to just over €12 billion. Within these numbers, the UK is our largest single export market. The export exposure of the various sectors within agrifood to the UK is thus high and includes beef at 51%, dairy at 24% - within that, half of all cheese exports go to the UK - and prepared consumer foods at 62%. In addition to absolute exposure, there are several other factors of note. While the UK as a percentage of our overall exports has dropped in recent years and now stands at 35%, in value terms it continues to increase and now stands at €4.5 billion, which is a 32% increase since 2010. This demonstrates the importance in the medium to long term of maintaining our market position in this high-value, high-quality market that currently has a substantial food deficit. In value terms, Irish exposure is like that of other large exporters to the UK and it is not surprising that they are geographically close by as well. I refer to countries like France, Belgium, Netherlands, Germany and Italy. However, in percentage terms it is four to five times higher. Typically, for those other countries, less than 10% of their agrifood exports are to UK. This clearly highlights the unique circumstances faced by Irish agrifood and the need for exceptional mitigation measures. It also is worth noting that total agrifood trade flows between the EU 27 and the UK are €46 billion, with approximately €35 billion into the UK and the balance coming out of the UK. While a no-deal scenario next March will result in extensive disruption and product displacement, a future trading relationship that contains non-tariff barriers also may impact negatively on supply chains. Therefore, the objective must be a trading environment that is as frictionless as possible.

Looking initially at a no-deal scenario, in the event of such an outcome, WTO most-favoured nation, MFN, tariffs could increase Irish and other EU food and drink export prices to the UK significantly after 29 March 2019. Higher trade prices will therefore cause export volumes from the EU to the UK to drop significantly. The disruptive impact of this possibility, combined with further currency turbulence and likely gridlock at ports, must be avoided for the sake of Irish agrifood. Even if this scenario is avoided, there will still be many important issues to consider in the future trading relationship.

Turning to trade and customs challenges, the UK is a member of the Single Market and the customs union at present and it applies the EU common external tariff and trade policy If any or all of these things change, there will be an impact on trade and customs. No third country has a customs-free border with the EU. We acknowledge the relatively low level of customs checks currently, which results from pre-authorisation of traders, advance lodgement of declarations and an extensive system of post-clearance checks. However, a key objective in negotiating the future trading relationship with the UK must be to minimise even further the trade cost impact of custom checks by ensuring a customs relationship with as little friction as possible. The alternative is embedding additional trade costs into the business model of Irish agrifood exporters. There would be a large question mark over our ability to recover those costs in the marketplace.

The other big issue for us is regulatory divergence. Food products, particularly those of animal origin, face additional veterinary checks as well as customs controls. There are over 2,000 EU laws affecting agrifood and this body of law is highly dynamic. This dynamism is not just related to new legislation but also to reviews and recasts of existing regulations and directives such as, for example, the recast of the renewable energy directive, RED II, which can see substantial changes to the law. In addition, in agrifood, food safety incidents such as the recent fipronil residues in eggs issue can often result in a policy or regulatory response or both. Finding the right approach to managing regulatory divergence of food standards between the EU and UK will be essential for maintaining future trade as frictionlessly as possible. This will require establishing a mechanism that will allow EU and UK food standards under the scope of veterinary legislation, as well as under food law in general to remain as closely aligned as possible; a mutually acceptable food inspection system regarding imports from third countries; and a continued close relationship between the UK and the European Food Safety Agency, EFSA, which is key to continued future alignment of food standards.

The objective must be to continue joint risk assessments with a common database to minimise divergence in standards and avoid trade impediments, and to reach an agreement on common rules on key drinks-related regulations which my colleagues will touch on in detail later. Our submission also refers to a number of technical issues, rules of origin, inward and outward processing relief and the land bridge. These are all critical and key issues which will need to be considered from an Irish agrifood perspective as they will have a major bearing on the future trading relationship.

The measures required by industry to respond to Brexit can be summarised as follows: a transition period of sufficient duration; a comprehensive and frictionless future trading relationship; regulatory convergence, not regulatory divergence; and additional support measures for agrifood, particularly in the areas of exceptional state aid supports, market diversification and market access. I thank the committee for the opportunity to appear today and would welcome any questions members may have.