Mike Neary, manager of horticulture at Bord Bia and UK based independent horticulture consultant, Neville Stein share their thoughts on the potential impacts of Brexit on both sides of the water
The UK is Ireland’s most important trading partner for food and beverages taking over 41% of our exports valued at €4.4bn annually. While the domestic market is the most important market for the horticulture industry, UK is a key market for Irish mushrooms and an important outlet for a range of products from the amenity horticulture sector. In 2015, mushroom exports to the UK were valued at €105m while the exports of amenity horticulture products were valued at €16m, the majority of which were destined for the UK. These are made up of nursery stock (€6m), Christmas trees (€5m) and cut foliage products (€4m). Therefore the recent decision of the UK to leave the EU is a cause for concern to these sectors and this will create challenges in the short, medium and long-term.
At this very early stage since the UK referendum, it is impossible to predict the full impact and implications of Brexit. Even the experts on these matters are saying it may take years for the full and real impact to be known. It is important to remember that the UK is still part of the EU and will remain so for at least another two years as they negotiate their way out of it, which means that full access to the market will be maintained in the meantime. In the short term, feedback to Bord Bia from exporting businesses has highlighted the volatility of the currency as their immediate concern. The ability of businesses to manage this particular challenge will be important and will involve various strategies, for example, currency hedging and negotiation with customers. In the longer term, full access to the UK market will be an issue of concern and the impact of this will only be apparent after the
UK negotiations on leaving the EU are agreed. The horticulture industry (as indeed many other industries) will hope that some form of a free trade arrangement between Ireland the UK will be part of any final outcome.
Other areas that will potentially be affected in some way by the Brexit decision will include joint participation and collaboration of industries in both jurisdictions in areas such as the generic promotions of products in the marketplace and participation in EU recognised producer organisations which currently attract EU aid. In relation to the home market, the biggest threat may come from the availability of cheaper imports that may arise due to a weaker Sterling.
While there is a lot of uncertainty around the fallout from Brexit, it is hoped that the impacts can be minimised with certain factors in Ireland’s favour including close proximity to the market and a long positive trading relationship with the UK market. The mushroom industry has a long track record for delivering quality produce daily into that market (which has a production deficit) and this will continue into the future, driven by the perishable nature of the product. The mushroom and amenity sectors have had to deal with volatile currency situations in the past and this experience will be crucial now in navigating through this new unchartered territory. Bord Bia will work closely with exporting businesses in the horticulture industry over the coming months to provide information, support and assistance in the aftermath of the Brexit, decision. For further information on Brexit, go to www.bordbia.ie or contact your sector manager in Bord Bia.
BREXIT – A VIEW FROM THE OTHER SIDE
Neville Stein of Ovation Business Consultants has qualifications and direct experience across a range of horticulture and management domains. He is well known and highly regarded by the Irish nursery stock industry, having provided a consultancy service over many years. While it is still very early days after the Brexit decision, Neville was asked to look into his crystal ball and give his view on what he considers as the potential impact on Ireland from an exports perspective and the impact on the UK industry.
ON IRISH EXPORTS …
“The Brexit vote might eventually restrict the flow of migrant labour into this labour intensive industry which has for many years relied upon migrant labour to harvest crops”
“In the short term, there will be no impact on Irish exports to the UK as a result of the Brexit vote. Exporters of horticultural products should continue to explore, pursue and capitalise upon the enormous opportunities there are in the UK horticultural sector – a sector that is currently very buoyant and a significant contributor to the overall economy in the UK, the world’s fifth largest economy. The UK and Ireland share a long history of inter-trading, some cultural similarities and a common climate. Our proximity and strong links should mean that we can continue to trade effectively but we will both need to work hard together to ensure that new regulations do not limit our ability to move product and services around the two countries freely. Of course, there is some concern that a sustained fall in Sterling might not make euro priced products attractive and therefore exporters will need to look at added value products or at efficiency savings which can be passed onto customers in the UK.”
ON THE POTENTIAL IMPACT ON BRITISH INDUSTRY…
“The decision to leave the EU will undoubtedly bring some insecurity as there are a huge amount of unknowns. We need to work hard to ensure that European markets remain open, free and unfettered by regulations and that we can continue to ensure that there is a free movement of plants around the continent. There is concern that the Brexit vote might eventually restrict the flow of migrant labour into this labour intensive industry which has for many years relied upon migrant labour to harvest crops. This has been particularly important during periods of strong economic growth. So, I see a need for more lobbying to reintroduce schemes such as the Seasonal Agricultural Workers Schemes (SAWS).
It is important to ensure that we remain calm as an industry, don’t accentuate the threats or challenges and stay positive about the prospects for UK horticulture. We don’t know what will happen but we need to ensure that our economy continues to prosper, that the relationships we have developed with European partners, suppliers and customers remain strong, open and constructive.” ✽
BREXIT: IMPLICATIONS FOR THE IRISH MUSHROOM INDUSTRY
Dermot Callaghan, head of horticulture at Teagasc, outlines some of the potential implications of Brexit on Ireland’s mushroom industry
The Irish agri-food sector is much more dependent on the UK as a trading partner than is Irish industry in general. From a horticulture producer’s perspective, how Brexit plays out is outside their sphere of influence; growers, producers and exporters can only hope that policymakers and governments will act fast to provide reassurances which will minimise the negative impacts, principal among those being the exchange rate volatility. In the bigger
picture, the consequences for Irish horticulture exporters will depend on the policies the UK and Irish governments pursue in the areas of trade, agricultural policy and regulation. At the moment, there are more questions than answers regarding the policy pathways which
will be chosen.
With significant capital investment and specialisation in horticultural production in the last decades, trade with the UK is very important and in certain instances are crucial. The most significant sub-sector in the edible horticulture production is mushroom production. The Irish mushroom industry is valued at €140m farm gate and exports approximately 86% of product to the UK. In fact, the industry has built a significant UK market share of over 50% since the 1990s. Exchange rate volatility, specifically a weak Sterling, has already impacted on the sector in the run-up to the Brexit referendum, but since the outcome of the vote, the decline in the fortunes of Sterling has been significant. Producers have long battled with managing volatility, but generally moves in the relative strength of Sterling against the euro would be over a longer timeframe and would represent a trend rather than a shock. Growers and marketing companies would regularly buy their exchange rates forward to manage downside risk. This Brexit driven volatility represents a shock and will impact producers who have not bought forward or are only buying forward on a short-term basis. Ultimately all these forward arrangements come to an end in a matter of months and everyone has to face the realities of reduced prices and making the two ends meet. Continued political instability in the UK seems to be weakening Sterling further relative to the euro. It is not clear where the leadership in UK policy terms is going to come from.
“Producers can only operate within their sphere of influence, which usually equates to what happens inside their farm gate”
So what can growers do to mitigate the downside? Producers can only operate within their sphere of influence, which usually equates to what happens inside their farm gate. They will have to look at their cost base and focus on big costs like compost and packaging. The importance of having a current detailed financial assessment of the business cannot be overstated in order to highlight the costs which have crept up during a more favourable trading environment. The main mushroom marketing companies will have a very important role in optimising the return from the marketplace and ultimately to the producer, albeit a difficult task against a background of intense price competition between the traditional UK
retailers and the German discounters.
We will have to wait to see what Brexit means in the wider economic context and overall input price inflation. For example, how will the energy market be affected? It is not clear how Brexit will impact the all-island electricity market and the fact that we have one electricity interconnector with Europe through the UK. A similar scenario exists in terms of a gas interconnector.
At the time of writing – one week after the vote – we have more questions than answers. One thing for certain is that the mushroom industry in Ireland is a very resilient, professionally run and forward thinking sector. The businesses that make up this sector have been at the front in terms of innovation and technology adoption and I have no doubt that the reserves of grit and determination which have seen this sector through previous challenges will help it successfully navigate the challenges posed by Brexit. ✽
