Irish and Northern Irish agricultural supply chains have become highly integrated since border checkpoints were removed after the 1998 Good Friday Agreement
The UK government wants Northern Ireland to leave the customs union, which could seriously impact trade flows and food prices.
One in every eight Irish jobs is in agriculture and food processing, or agrifood. Proportionally, that makes the industry as important to Ireland as the car industry is to Germany. In the U.K. province of Northern Ireland, where 1.8 million people live, the agrifood industry accounts for about 70,000 local jobs.
Because of its strong market position in the U.K. – which is the destination for 37 percent of Irish food and drink exports – and highly integrated supply chains across both Ireland and Northern Ireland, farmers’ and food processors’ jobs are particularly vulnerable to any change in trade and border policy resulting from Brexit.
“One unanswered question that affects every dairy company in Northern Ireland, and indeed in the Republic of Ireland, is the market displacement. What access are we going to have post-March 2019 to those markets we have serviced for many many years?” asked Gabriel D’Arcy, chief executive of dairy cooperative LacPatrick, whose suppliers number more than 1,050 farmers across both the Irish Republic and Northern Ireland.
“It’s hard to know exactly, but almost any scenario that we can envisage will be negative,” TJ Flanagan, chief executive of the Irish Co-operative Organisation Society (ICOS), told CNBC in Dublin. “We currently import about 800 million litres of milk per annum from the U.K. That’s about 100 truck movements every day of the year, from north to south.” ICOS represents more than 130 co-ops and livestock marts across Ireland.
“Dairy farmers in the north depend to a substantial extent on processors and cooperatives in the south, to purchase their milk, because Northern Ireland doesn’t have the capacity to process its milk,” Flanagan explained. “And southern farmers who are members of cooperatives need Northern Ireland’s milk to fill their factories.”
The key here is the European Union (EU) customs union, which exempts all member states and select outside territories from paying customs duties on all goods traveling within the union.
Irish Prime Minister Leo Varadkar has repeatedly expressed his wish that Northern Ireland remain in the EU customs union, which would maintain the free flow of goods and people between Ireland and the UK.
The Northern Irish Democratic Unionist Party (DUP), meanwhile, which is part of a confidence-and-supply deal supporting the current U.K. government, has been adamant about leaving the customs union, insisting that Northern Ireland not be treated any differently from the rest of the U.K. in any post-Brexit arrangement.
Tariffs could ‘wipe out trade’
What worries farmers about ditching the customs union, in addition to border controls that could hinder the transport and sale of their goods, is potential U.K. divergence from the EU’s highly uniform food and labor standards that have enabled this free flow of products and livestock for so many years. This would mandate strict customs controls on anything coming into Ireland and the rest of Europe from the U.K.
“The introduction of customs controls — and veterinary and food inspections — would severely impact these supply chains by introducing at a very minimum additional delays, costs and complexity — not just north-south but east-west as well,” Paul Kelly, director of Food and Drink Ireland, told CNBC.
Another question is the issue of import tariffs in the absence of a customs union.
“If we crash out without a deal, and WTO (World Trade Organisation) tariffs come in, that’s going to have a massive negative impact – it’s going to have runaway food price inflation in Britain,” D’Arcy warned. “These are huge risks that we’re coming toward the end of and business needs some clarity, fast.”
WTO default tariffs for many food and drink products are in excess of 50 percent. “Modelling shows these would effectively wipe out trade for many of our food exports to the U.K.,” Kelly said.
“Whilst diversifying into other markets in the EU and internationally has been taking place for many years, the shock effect of loss of or severe restrictions in accessing the U.K. market would be deeply damaging to the industry.”
D’Arcy served in the Irish army in the 1970s, patrolling the border with the North during the tumultuous time known as The Troubles. Now, his primary concern is seeing the open border on which his business relies remain unfettered.
“I know what it was like back in the late 70s and 80s. We have enjoyed a frictionless, seamless border certainly since the peace process and the Good Friday Agreement, and areas north and south of the border have thrived as a consequence. Up to that point it was a militarized zone.
“We hear all this talk about a ‘seamless, frictionless border’ [from the U.K. government],” D’Arcy continued. “That is what we already have, and we would like to keep it in place. I would challenge the politicians, both at the EU and the U.K. negotiating table, to actually deliver.”
Ireland’s government has said that it will not proceed with Brexit talks until this issue is resolved, while U.K. Trade Secretary Liam Fox said on Sunday that decisions on the Irish border would not be approached until talks on the Britain’s trade future took place — leaving the two governments at complete loggerheads.
‘A little bit nervous’
Andrew McConkey’s family has owned their farm in County Monaghan since 1924. It sits just two miles from the Northern Irish border and is home to 200 cows producing one million liters of milk each year for the U.K. and EU market. The status of the now-invisible border has shaped their business for generations.
“When Grandad bought [the farm], it would’ve been a new border at that stage. And during Dad’s time it would’ve been a significant issue at times in the 50s, 60s and 70s,” McConkey told CNBC. “But thankfully most of those issues have disappeared, so how it will affect us going forward? We don’t really know, but certainly a little bit nervous.”
“If the U.K. stayed in the customs union, it would make life simpler for us in the sense that we wouldn’t have to worry about the travelling of goods back and forward across the border,” he added.
“It’s a huge issue for Europe but I guess we’re the ones that will have the immediate impact,” Flanagan remarked. “Our sector, which is very exposed to the U.K. market, saw the impact of the drop in value of sterling immediately and hundreds of millions dropped off farmers’ incomes in the last year alone, way before Brexit actually takes effect.”
Trade talks are due for mid-December, but Ireland has threatened to veto them and hold out until 2018 if its priorities are not addressed.
“Some people have accused us of being intransigent here, but [Ireland] have the gun in their hand right now and the [U.K.] is asking them to hand it over so it can be used against them,” Flanagan said. “This is the only leverage they have.”