Why is Ireland prone to Brexit?
The Brexit, due by October 31, 2019 at the latest, is causing considerable discussions in the EU dairy industry. The fears are that an unregulated exit without an agreed trade agreement between the United Kingdom (UK) and the EU states will result in the milk milked in the Republic of Ireland in particular, but also in Northern Ireland, no longer being able to be sold as easily . So far, a large part of the milk and dairy products on the Irish island has been exchanged between the two countries. If this possibility is prevented, processors in Ireland will try to sell their dairy products on mainland Europe.
Dairy farmers in Great Britain, on the other hand, fear that milk production in their own country could become too expensive compared to imported goods and that milk from Northern Ireland, which has so far been processed in the Republic of Ireland, will also push the market in Great Britain. Brexit is already being used in the UK as an excuse "to keep reducing milk prices every week. Many farmers are worried about their livelihoods."
It is difficult to keep track of the jumble of forecasts and positioning. This article is an attempt to take stock and leads to the conclusion that the wish recently expressed by journalist John FitzGerald of The Irish Times is apt: The best hope for us is that Brexit will turn out to be 'softer' than it is currently probably appears. "
A no-deal Brexit is becoming more likely
The probability of an unregulated Brexit on November 1, 2019 is increasing day by day. There is still no clear intention that the British Parliament will accept the exit and transition agreement negotiated with the EU by October 31, 2019. On the contrary: Parliament is still divided on the Brexit course and a solution is not in sight. Economic and trade experts therefore advise affected companies to prepare for an unregulated Brexit.
Who is confronted with what?
Northern Ireland: 800 million liters of milk will be superfluous. Read on here
Ireland: When looking for new sales markets, read on here
Mainland EU: Fear of Irish Butter Read on here
Read on for a brief overview of the Brexit process here
UK: Dairy farmers fear a collapsing system
Many dairy farmers in the UK fear an unregulated Brexit and have repeatedly called on the government to ensure that there will not be a no-deal Brexit or a new referendum on the exit. Among other things, they are concerned that a lot of milk from Northern Ireland could be pushed into the domestic market. Because after a Brexit, the Northern Irish can market to Ireland without restrictions. Around a third of the total milk supply in Northern Ireland (700 to 800 million liters) has so far crossed the inner-Irish border every year. Michael Oakes, Chairman of the NFU Dairy Board (which represents around 7,800 milk producers in England and Wales), estimates that if this amount from Northern Ireland arrives on the British market soon, it will lead to the collapse of the British milk price to absorb the excess milk from Northern Ireland in the event of a hard Brexit.
In the event of a Brexit, the profits of around 10,000 British dairy farmers are likely to fall. So far, around 40% of dairy farm profits have come from EU direct payments. After a Brexit, these will no longer apply by 2022 at the latest. According to recent calculations, in the event of a Brexit with a trade agreement, milk producers' profits could fall by -19%, from £ 71,000 to £ 57,860. However, if there is a disorderly Brexit (trading then takes place under WTO terms), a profit decline of -24% to GBP 55,042 is forecast.
In addition to the loss of direct payments and falling milk prices, there are also likely to be higher labor costs (plus GBP 20,582 / farm). Because with Brexit, the free movement of workers according to EU law will no longer exist and there are no plans to introduce similar regulations that would ensure that workers from the EU would continue to enter the country. The currently around 50% of the European workforce (especially from Eastern Europe) employed in British milk production would then have to be replaced by more expensive British workers - if these are available at all.
In the event of a no-deal Brexit, the situation could arise for a transitional period in which dairy product imports reach the UK duty-free, while exports are subject to high tariff rates. The expected devaluation of the British pound in Brexit could also only slowly be converted into higher exports due to the WTO tariff rates levied on the customer side. This will inevitably lead to falling milk prices for milk producers on the island. Because with milk as a fresh raw material, one cannot wait until things have been clarified, explained John Allen from the British consultancy Kite Consulting ".
In the worst case scenario, the United Kingdom may also levy tariffs on all imports of agricultural products that are below the level for EU goods. As a result, imports of cheaper third country imports into the UK would increase, which in turn would depress the prices British farmers get for their products.
It is feared that many farmers, especially beef cattle and sheep farms, but also milk producers, will stop their production in the wake of Brexit.
Northern Ireland: 800 million liters of milk will be superfluous
The dairy industry in Northern Ireland is particularly prone to Brexit, as 700 to 800 million liters per year, around a third of the cow's milk produced here, is processed in the European Republic of Ireland alone. The average price of milk in Northern Ireland is around 26 pence / liter (approx. 28 cents). In the case of a no-deal Brexit, up to 19 pence customs could be added, which would make the Northern Irish raw material with costs of 45 pence (approx. 49 cents) uninteresting for dairies in European Ireland. In addition, there are not enough processing sites for the milk in Northern Ireland. Industry representatives stated that up to 45,000 cows (of the currently around 310,700 dairy cows) in Northern Ireland would therefore "have to be taken out of production. As long as new processing capacities are not created in Northern Ireland, Brexit must be a horror scenario for dairy farmers in Northern Ireland .
Ireland: Looking for new sales markets
A hard Brexit, which again requires tariff barriers between Great Britain and the Emerald Isle, would hit the dairy sector of the Republic of Ireland hard. For the milk market, Ireland does not see the consequences of a Brexit as dramatic as it does for beef, because here the price difference between the EU and the world market is not as serious.
However, there will be an impact as the UK is an important market for Irish dairy products. Especially for cheese and butter! The British buy almost half of the export volume for cheese (110,000 t in 2017) and around a quarter of the amount for butter (around 50,000 t in 2017). If the UK ceases to be a buyer (at least in part), the Irish will have to open up new sales markets. It does not help that Irish dairy products, like cheddar cheese, are geared towards the UK rather than the continental flavor. ”Nonetheless, the Irish dairy industry is confident of changing product lines and opening up new markets.
Mainland EU: Fear of Irish butter
According to calculations published by the Braunschweig Thünen Institute in July 2019, however, German agricultural production would not be hit as severely as previously estimated (see "Brexit effect about three times as large as that of the Russia embargo! Report from the 10th Berlin Milk Forum). Based on the list of import tariffs and quotas presented by the British government on March 13, 2019, which will come into force in the event of a no-deal Brexit, the scientists reassessed the effects on production in Germany and quotas would be based on the principle of non-discrimination (MFN) and therefore apply not only to the EU but to all members of the World Trade Organization (WTO). This would mean that the UK's protective measures would be significantly more moderate than previously assumed % of UK imports free from protectionist measures.
Based on the calculations, the Thünen Institute estimates that in the event of a hard Brexit, German agricultural production would decline by more than 0.5% in hardly any product group. In the case of beef and milk, slight increases in production of 0.1-0.8% are to be expected as a result.
The President of the Austrian Farmers' Union, Georg Strasser, is more critical of Brexit. He sees the cause of the current price pressure on the European milk market and especially for butter in the probable Brexit. The markets would come under pressure because the Irish are already selling more of their dairy products on the EU mainland.
Meanwhile, food retailers and producers are also preparing against a possible no-deal Brexit. For example, the unregulated exit scenario for the German Schwarz Group (Europe's largest retail group) seems increasingly likely: Lidl has advised its suppliers from Great Britain that they should bear the majority of the costs of Brexit, the food newspaper (LZ) quoted a report from the specialist portal Retail Week ". The discounter is said to have asked suppliers to confirm that they are covering the expected costs of a no-deal Brexit. In doing so, it is trying to use its market power over the food producer to protect itself from customs duties protect, writes the LZ.
But the manufacturers are also preparing for possible consequences. According to the Frankfurter Allgemeine Sonntagszeitung, the dairy cooperative Arla expects occasional bottlenecks "for dairy products on the island. Great Britain is not self-sufficient in the milk segment for many products - such as butter, cheese and yoghurt. The reason for delivery bottlenecks could be possible waiting times for trucks at border crossings, exchange losses of pound sterling, trade tariffs, additional expenses for customs declarations and an additional need for veterinarians to check food. In order to better assess the business consequences of the Brexit scenario, Arla has commissioned the London School of Economics to calculate possible burdens.
* The Brexit process in brief:
- On June 23, 2016, the citizens of the United Kingdom voted 51.9% to 48.1% against remaining in the EU, the EU single market and the existing EU customs union.
- On November 14, 2018, negotiators from the EU and the UK announced that they had agreed on a draft exit agreement including a transition period. This should prevent an unregulated Brexit on March 29, 2019. On November 25, the heads of state and government of the remaining EU-27 accepted the draft as suitable.
- On January 15, 2019, the British Parliament rejected the exit agreement by a majority. The agreement can still be accepted.
- On April 10, 2019, the heads of state and government of the EU-27 and Prime Minister Theresa May agreed to postpone the Brexit date. The exit originally planned for April 12, 2019 was thus canceled.
- According to current resolutions, the United Kingdom will leave the European Union and thus the EU internal market and the customs union by October 31, 2019 at the latest. The fundamental freedoms of the movement of goods, services, capital movements and freedom of establishment no longer apply from this moment on. The UK receives the status of a third country.
- Earlier departure is possible if the British Parliament should approve the exit and transition agreement negotiated with the EU in advance.
- The risk of an unregulated Brexit, i.e. the United Kingdom leaving the EU without a contractual arrangement, therefore continues to exist. Because if the British Parliament does not accept the agreement by the end of October 2019, the so-called hard Brexit "would occur on November 1, 2019.
Sources: Hamburg Chamber of Commerce, BBC, Farmers Guardian, AgE, The Irish Times, ZMB, Lebensmittelzeitung, Thünen-Institut Braunschweig
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