Tariff and currency turmoil continued to spook business last week and things are about to go up a notch over the next 24 hours, writes John Phelan.
UP to now it may have been considered shadow boxing, but not anymore. This is about as real as it gets for business, the stock markets and politicians.
Theresa May’s famous meaningful Brexit vote is due tomorrow. No doubt it will be regarded as either green Tuesday, if the backstop preventing a return to an Irish border is accepted, or black Tuesday if the Brexit package is rejected.
There are still 24 hours of debate until the actual votes get tallied, but alliances are getting forged and broken by the hour, and the outcome remains too close to call.
Whichever way the vote goes, come Wednesday morning, the markets are set to react strongly to the results. Previous experience of Brexit headliner activities suggest a 5% gain to 15% fall in the value of sterling against the euro and most likely other major currencies, depending on the acceptance or rejection of the UK prime minister’s EU deal.
However, it also has a double whammy effect in that British food producers are more price competitive when selling into Ireland. This is clearly seen in the import figures of food from the UK in the nine months to September, which rose by 7%, to over €2.2bn, assisted by the 5% fall in the value of sterling in the period.
Tesco, along with SuperValu-owner Musgrave and Dunnes Stores control two-thirds of the retail food market in Ireland. Market share is critical for all three, which fight a continuous price war to gain advantage with customers.
Low price foods from the UK tend to push Irish- produced goods off the shelf, in these market share battles. A quick walk along any of the supermarket aisles is all that is necessary to see just how dominant imported foods are in Ireland.
The tariff issues will remain some way off, unless there is a complete crash out following tomorrow’s vote, with cold elimination of the two-year transition period. However, unless a trade deal is done by the end of March, which keeps the UK within a customs union with the EU, the Irish food industry will be faced with perhaps its most challenging crises since the foundation of the state.
Over half of all Irish beef is sold into the British market. As the EU market price for meat is roughly 30% above the world market price, if the UK price fell to the world level it would be a huge hit for Irish exporters.
Finding alternative markets outside the UK has not proven easy. Total exports of food and beverage has fallen 3% in the first nine months of the year, despite the strenuous efforts of exporters, supported by Bord Bia and the Department of Agriculture, to open new markets.
In the short-term, there will be winners and losers from the vote tomorrow in Westminster, but in the long-term we will all be losers if the UK exits the EU.
John Whelan is managing partner of The Linkage- Partnership, an international trade consultancy