Is your business ready for any Brexit outcome?
Is your business ready for any Brexit outcome?
Dramatic political developments in Westminster in recent weeks has brought the prospect of a hard Brexit into sharp relief. Unless the UK government finds a viable alternative to the current deal agreed with the EU, and as of today they seem no closer to achieving that, the UK may crash out of the EU on 29th March with potentially devastating consequences for Ireland – and that’s just 57 days away!
Despite a vote this week in the House of Commons against leaving the EU without a deal, there is still considerable appetite in the UK for this option, both with MPs and with the general public.
Up to now both Government and Irish businesses have had a tough decision to make about investing substantial resources in something that might never happen, and hopefully still won’t. There is no escaping the fact that a no deal Brexit is now a real possibility and if it happens it will have serious consequences for Ireland and Irish businesses.
The countdown has begun, if you haven’t already done so, the time is now to invest in a No Deal Brexit Plan.
Impact of a No Deal Brexit on the Dairy and Retail & Wholesale Sectors
This week we’re focusing on potential consequences for the Dairy and Retail & Wholesale sectors. A recent survey identified the main concerns in this sector as;
According to Bord Bia, Dairy products account for approximately 37% of total Irish food and drink exports. In 2016, 34% of Ireland’s dairy exports went to the UK, representing 53% of cheese exports, 29% of butter and 12% of SMP (skim milk powder). The UK is Ireland’s largest export market for cheese. Exports of cheddar cheese were 78,000 tonnes, representing 82% of all cheddar imported by the UK in 2016. Ireland is the only significant exporter of cheddar to the UK market and the UK market is the only market of significance for Irish cheddar – it’s simply not a popular choice anywhere else. The figures speak for themselves.
A recent survey carried out by the Department of Business, Enterprise and Innovation provides some insights into the concerns of the Dairy and Retail & Wholesale Sectors of the Irish Economy.
Dairy Sector Brexit Concerns
- Imposition of trade tariffs. 75% of firms deem this to be a critical factor. “EU import tariffs on dairy products are very high…and will have a market distorting effect if replicated by the UK on dairy imports from Ireland”. Assuming any EU tariffs on products such as milk and cheese in a WTO rules context imposed by the UK would be reciprocal, it would significantly reduce competitiveness of Irish dairy exports in the UK market.
- Absence of custom union and other common areas. 67% of firms deem this to be a critical factor. Removal of Northern Ireland from the Common Agricultural Policy could have a detrimental impact on milk production in Northern Ireland and knock-on consequences for the all-island milk market, as well as divergent product and operational standards, in addition to the segregation of Northern Ireland milk producers from the Irish manufacturing pool.
- Re-establishment of physical UK border. 58% of firms deem this to be a critical factor. Concerns have been expressed about the administrative and logistical cost implications on the cross-border movement of dairy products in raw and final product forms. The prospect of supply chain inefficiencies and higher risk of product perishability has also been raised.
- Imposition of rules of Origin. 50% of firms deem this to be a critical factor. In the case of an imposition of a rules of origin regime, such as under the WTO, it is feared we will face increased competition from cheaper non-EU imports to the UK or perhaps campaigns to support indigenous UK production. Another concern is that Northern Irish milk may no longer be competitive for import to the Republic of Ireland if unable to do so under ‘EU origin’ terms and the knock-on consequences in the supply chain.
- No mutual recognition of specifications or agreed technical specifications. 25% of firms deem this to be a critical factor and the remaining 75% identified it as being of moderate concern. A number of firms identified that divergent SPS (Sanitary and Phytosanitary) standards in the UK would be costly for Irish exporters, other firms considered that there may be different packaging and labelling requirements in different jurisdictions, increasing costs.
Retail & Wholesale Sector Brexit Concerns
- Imposition of trade tariffs. 100% of firms deem this to be a critical factor. A high level of concern was expressed for the cost increases businesses may face from any new tariff regime. Currently Ireland and the UK are one integrated market for wholesale and retail. Tariffs/admin and rules of origin limitations could increase cost of goods sold and reduce operating margins. Where there is a lack of alternative supply, firms may have little choice but to absorb increased costs.
- Imposition of rules of origin. 100% of firms deem this to be a critical factor. Concern was expressed that defaulting to World Trade Organisation ‘rules of origin’ would impose tariffs on both the import and export of products, and in particular food products.
- Re-establishment of a physical border with the UK. 100% of firms deem this to be a critical factor. Concerns exist about logistical arrangements and delays as a result of border controls between Ireland and Northern Ireland. The border will impact on any ‘next day delivery promise’ made to customers across all channels including online.
- Absence of a customs union and other common areas (including fisheries). 100% of firms deem this to be a critical factor. Additional costs and constraints on operations as a result of having to operate outside a free-trade area in the UK have been identified. Additionally in the event of a ‘hard’ Brexit, differing customs arrangements historically generate distortions which typically increase smuggling activity, with consequent damage to legitimate retail businesses.
- Removal or change in reciprocal Ireland/UK work, living, social and tax entitlements. 33% of firms deem this to be a critical factor, with the remaining 67% considering it to be a factor for moderate concern. Concern was expressed about the ability to move Irish staff to UK operations, or about our ability to attract talent and skills from the UK that we don’t always have readily available here.
Buckley Kiely can help you prepare your business for any Brexit outcome
Download our Brexit Business Support information here.
Brexit Business Support
T: 021 4350777