How will Brexit impact Irish farmers?

Bank of Ireland head of Agri Eoin Lowry tells John Kennedy how, despite the uncertainty over Brexit, the Irish agri-food sector remains resilient to survive in the longer term.

2020 will be a year many of us would like to forget. For Ireland’s farming community 2021 could be the year they will want to forget.

For Bank of Ireland’s head of Agriculture Sector Eoin Lowry, the challenges ahead are enormous.

“We are confident about the future of the agri sector. It’s a sector that has been growing over the last 10 years”

“How serious will Brexit be for farmers? I believe that no country or sector is going to be as exposed as the Irish agri-food sector, simply because the UK is our single most important market for agri-food exports. One-third of our agri-food exports, around €5bn worth, goes to the UK. We similarly import around €4bn worth of food into Ireland, so there’s strong intertrade between the two countries. Within some sectors such as beef, five out of every 10 cattle goes to the UK and about 25pc of our dairy goes to the UK.”

In H1 2020, Ireland’s agri sector was more insulated than other sectors of the economy although the Covid-19 crisis did directly impact global agri commodity prices and the closure of restaurants and cafes led to a collapse in food service sales. Not only that but each sector within farming had their own challenges. For example challenging weather conditions followed by a dry spring and early summer impacted both crop yield as well as grass growth rates into the second half of the year.

Despite these challenges farmers are holding on. But will they be able to weather the storm of a no-deal Brexit?

The potential impact of a no-deal Brexit

“The first impact will be tariffs, which at 100pc could effectively double the cost of some cuts of meat going into the UK. Another challenge is regulatory barriers on food safety, particularly if these are changed. If they’re lowered that means the import of poorer quality food from countries such as those in South America would then compete with Irish or EU products of a higher standard.

“What’s not talked about enough is the value of the UK market, one of the highest value markets for food in the world. That advantage returns good prices to farmers and producers. If there is a weakness because of Brexit in the UK economy, it means that the price of that food will go down and the value of that market will go down. All of that comes back to the farm gate.”

Another fear factor is the border on this island and the longstanding intertrade between farmers north and south both in terms of animals but also dairy products. “One-third of Northern Ireland’s milk is processed in the South because they don’t have the processing capacity in the North. In effect the entire island of Ireland operates as a single entity in terms of the processing of food for famers. If there are any restrictions around the border because of tariffs or because of logistical delays, that will impact farming.”

Another area of danger is the UK land bridge for the transport of exports to continental Europe. “If the land bridge becomes more difficult because of increased levels of controls and there are delays at the border, it will impact the speed and quality of the produce arriving at the final destination. While there is talk of putting on ferries between Rosslare and France, this will double the time from the current 20 hours over land bridge to about 40 hours. And we are dealing with perishable products here.”

Lowry said that the impact of a no-deal Brexit will also be felt keenly by the UK’s farming community. “The UK market is only about 65pc self-sufficient. They will have to import two-thirds of their beef requirement; most of that comes from the EU and 70pc of that alone comes from Ireland. So we are strategically important for fulfilling their beef needs.”

He warned that if tariffs are applied it will double the cost of beef into the UK. This, in turn, would make Ireland uncompetitive against other countries, in particular against low-cost producers in South America. This then leaves us with the option of EU markets, which are already fulfilled.

“This would have a displacing effect and could destabilise the overall UK, American and EU markets.”

Lowry said that the dairy industry also faces challenges but none so severe as those faced by the beef industry. “The majority of our cheese exports go to the UK and if there are tariffs it will impact the price of that cheese, but we have the option to diversify our milk into other products and we are able to produce milk at commodity prices on international market. So, we can compete internationally with dairy, deal or no-deal.”

A long-term view

Lowry said that the Bank of Ireland is taking a long term view on the future of the agri sector. “We are confident about the future of the agri sector. It’s a sector that has been growing over the last 10 years, especially since the lifting of the quotas in 2015 where we’ve seen a 50pc increase in milk supplies over the last five years.

“We are confident and can take a long-term view, nothwithstanding that there’s going to be challenges in the short term. When we look at borrowings on farms, only one-third of farmers have debt or borrowings. And that level of borrowing is around €30,00 on average. So, it’s quite low.”

As well as farm incomes, farmers are also bolstered by supports from Europe. “And so, we feel that the sector is resilient to withstand the shock of a hard Brexit.”

He said that the bank has also been innovative in how it has created products to suit challenges faced by farmers, such as an Agri-Flex product that allows farmers to take interest-only borrowing in times of lower returns and match their repayments to their levels of income. “I think that’s a great support for the sector and we expect that to be used in times of lower prices in the future.”

Ultimately, Lowry hopes that common sense will prevail, and a solution can be found to prevent a no-deal Brexit.

“The level of debt on Irish farms is quite low. Farmers have been deleveraging and paying down debt at a faster rate than they had been taking it out over the past 10 years. The level of debt outstanding on Irish farms was €3bn at the end of last year. That’s down about 10pc year-on-year. At the same time, farmers’ debt is down 28pc over the last 10 years despite the sector being in expansion mode. So they are less borrowed than they were 10 years ago and that sets them up well for going into an uncertain time such as Brexit.”

If there are opportunities to be gleaned from the current time, Lowry said that an emphasis on the security of supply will see high demand for stock. “We are heading into a period of increased buying over the next two to three months coupled with the Christmas period, which is naturally a strong period of demand for beef. Retail demand for beef is going to be exceptionally strong. So combining retail demand with stockpiling it should improve beef prices in the short term. However, that may all play out differently in the first quarter of next year.”

Globally, there is growing demand for food and Lowry concluded that Ireland has successfully diversified into these growing international markets. “The UK now represents only one-third of our exports, down from half a few years ago. That bodes well for the sector and we are able to produce dairy commodity products at international commoditised prices. So we are competitive internationally.

“That said, while the sector is resilient to withstand any shock of Brexit in the short term, we can’t ignore the fact that it will be challenging in the long term. As a bank, we have the support available to ensure we can support our customers through this difficult time and other challenging periods as we negotiate a future trading relationship with the UK.”

By John Kennedy (john.kennedy3@boi.com)

Published: 23 October, 2020