Event Report: Brexit and Agri-Food
Chloé Papazian (DCU Brexit Institute)
On January 31, the DCU Brexit Institute hosted an event on Brexit and Agri-Food. The event was opened by Micheline Calmy-Rey (former President of Switzerland) and featured a Panel discussion with leading academics and industry specialists. The Panel included Eric Clinton (Dublin City University), Shane Hamill (Bord Bia), Cathal O’Connor (AIB), John Jordan (Ornua) and Paul Wilson (Monaghan Mushrooms). The Panel was chaired by Matthew Dempsey (Irish Farmers’ Journal). The event was closed by MEP Bryan Hayes. The programme of the event is available here. The following is a summary of the event.
Opening Keynote Speech
Micheline Calmy-Rey opened her speech with some key numbers. As a country of 8 million inhabitants in the heart of Europe, Switzerland is not part of the EU but is surrounded by EU Member States, except for Lichtenstein which is in the EEA. Switzerland has, nevertheless, very close relationships with its neighbours: 1.4 million European citizens live in Switzerland and half a million Swiss citizens in the EU; more than 350 000 Europeans come to Switzerland every day to work. On the commercial side, 23 000 lorries cross the Swiss borders daily. Moreover, Switzerland is the most important EU commercial partner after the US and China. The amount of trade between Switzerland and the EU is about $1billion per day.
The speaker explained the institutional arrangements in place between Switzerland and the EU. Since 1973, Switzerland has concluded a series of FTAs with the EU on a sector by sector basis. Today, the ‘Swiss model’ comprises over 120 agreements with the EU, ranging from free movement of persons to food, tourism, taxation etc. These agreements which are legally bound together by a so-called ‘guillotine clause’ constitute static agreements; they reject a dynamic take-over of EU law. Switzerland refused to join the EEA in 1992 and has never entered into a customs union with the EU. The latter fact allowed the country to preserve its national sovereignty and therefore its capacity to negotiate FTAs worldwide. Switzerland has for instance signed and ratified a FTA with China in 2014 which is now in force. Yet, as Ms Calmy-Rey pointed out, the EU does not like the Swiss solution, namely the sector by sector access to the EU market. It is too complicated, and it does not guarantee a uniform application of EU law. For this purpose, the EU is not offering the Swiss solution to the UK. Moreover, the EU is trying to conclude with Switzerland a so-called ‘framework agreement’ that would gradually reduce the exceptions to EU rules that the country currently enjoys and would require Swiss law to dynamically adapt to the evolution of EU law.
Apart from the institutional aspects, there are, according to the speaker, much more practical issues such as the question of border crossings between EU Member States and third-countries. This question is a pivotal one in the Brexit discussions and it has been a central point for Switzerland located in the middle of the European continent. Having rejected the conclusion of a customs union with the EU, being outside the EEA, and having accepted only the free movement of persons, how does Switzerland operate its borders, particularly regarding the exchange of goods? According to Micheline Calmy-Rey, there is a large freedom of action in the design of border controls for independent countries; a lot depends on cooperation with the neighbouring countries based on common approaches. Ms Calmy-Rey outlined some of the international and internal measures Switzerland adopted to facilitate and accelerate border crossings. Since the 1990s, computerized declarations are made in advance; physical controls are normally undertaken at company premises and in some cases at the destination place. Sophisticated and computer-based risk analysis allow Switzerland to have a very low percentage of physical controls for commercial goods (around 1%). Moreover, facilitated regimes for standardized goods permit firms not to declare every individual consignment but only at the end of the month. Switzerland also concluded international agreements to facilitate border crossings such as the agreements on joint border offices concluded with all its neighbouring countries and the adhesion to the Convention on Common Transit Procedure permitting new computerized transit system. Furthermore, Switzerland signed bilateral agreements with the EU on simplification and security measures, exempting Switzerland from having to pre-announce goods being exported to the EU.
In any case, as the speaker pointed out, things can be pragmatically solved through negotiated agreements to avoid a physical border and infrastructures on the ground. Yet, in order to conclude these multilateral or bilateral agreements, prior will is needed between the countries concerned.
Micheline Calmy-Rey concluded by saying that the EU might be reluctant to propose the Swiss model which combines the advantages of both the Norwegian model, the EEA and the Canadian model. Yet, the Swiss model is in place and therefore raises the existence of a precedent. In her mind, the EU should be more flexible and find more pragmatic solutions to resolve the issue of the Irish border. In that respect, she highlighted the importance of academic exchanges on this subject which could bring some added value and perhaps propose some solutions to the Irish border issue specifically, and more broadly to the difficult question of how different degrees of integration and of partnership may coexist on the European continent.
Eric Clinton gave a presentation on the importance of family businesses in Ireland and the challenges they will face with Brexit. In Ireland, 75% of firms are family firms and they occupy a 50% share of GDP. Family businesses differ from traditional companies due to, amongst other things, their psychological ownership, as well as to family and intergenerational involvement. Although they have proved resilient, only 30% of the family businesses in Ireland pass to the second generation. Their survival has also depended on their ability to alter their practices and to continue differently. Brexit will undoubtedly cause significant difficulties to these family firms. To cope with the consequences of Brexit, family businesses will need to have a strategic plan in place, accept the challenges and find new opportunities.
Shane Hamill described the work conducted by Bord Bia to prepare Irish companies in the agri-food sector for the UK exit from the EU.He emphasised the fact that the implications of Brexit depend very much on the sector concerned, should it be the beef, sheep or dairy sector, as well as on the size and resources of the businesses. Shane Hamill then identified the challenges Irish companies in the agri-food industry face because of Brexit, such as the UK customers’ relationships, the presence of integrated supply chains with the UK, the future need of customs documents and regulatory controls, as well as the necessity for market diversification. Bord Bia has therefore established a risk diagnosis tool allowing each individual company to evaluate what are its means, needs and risks following Brexit. The group has also organised free training programs such as workshops helping these companies to find their ways through all the novel issues Brexit raises. Moreover, Bord Bia has recently developed new instruments such as a concept validation tool driving the market diversification agenda and a consumer pool survey permitting to identify the UK consumers’ expectations and demands.
John Jordan presented Ornua farming cooperative and explained the important implications of Brexit on the dairy industry and thus on Ornua. As highlighted by John Jordon, 45% of Ornua’s dairy products are destined to the UK market. For cheddar only, 80% of Ornua’s cheddar is exported to the UK market. Brexit will therefore destroy the status quo. A soft Brexit will still add costs to Ornua’s business; it will have negative impact on sales, necessitate regulatory checks at the borders and require time and resources to manage market diversification. The chief executive officer of Ornua underscored that it is the responsibility of every company to prepare for Brexit. For this purpose, Ornua established a working group to identify the challenges ahead and find potential solutions. The cooperative should particularly focus on increased efforts to diversify markets, the development of de-risking strategy to ensure security of cheddar supply, as well as the need for regular and sustained engagement with its UK customers. John Jordon concluded by saying that the UK will continue to be a key strategic partner.
Cathal O’Connor underlined the importance for Irish businesses, notably in the agri-food industry, to speak with their bank manager prior of the UK exit from the EU due to the wide implications of Brexit. Increased regulatory checks, transport delays, structural shift in exchange rates, price volatility, as well as the necessity to amend certain contracts and to maintain strong customer engagement with the UK all represent difficulties that Irish companies will face after Brexit. Brexit advisers within AIB are working for the businesses in Ireland to help them preparing for the consequences of the UK exit of the EU. They crucially assist companies in assessing whether they have enough credit facilities in place, whether their contracts need to be changed or whether they have extra liquidity for finance.
Paul Wilson focused his presentation on the consequences Brexit will have on Monaghan Mushrooms, the largest producer of mushrooms in Ireland which employs 3000 persons and draws 60% of its revenue from the UK market. The speaker highlighted that despite Brexit the UK will remain the most important market where they export their goods as the firm cannot ship anywhere else in these volumes. Yet, the impact of Brexit in the mushroom industry will be significant as the businesses concerned are working with low-margin, highly perishable goods and are export dependent. Since the referendum, Monaghan Mushrooms has tried to strengthen its position in the UK market, as well as within the mushroom industry. It has invested and will continue to invest in new facilities and technologies to increase its productivity and competitiveness. Paul Wilson also recommended better cooperation across the industry and with state agencies to cope with the challenges posed by Brexit.
Closing Keynote Speech
MEP Bryan Hayes opened his keynote speech by highlighting the extraordinary achievement of the Irish agri-food and drink sector which has seen in the last eight years a 64% increase in terms of exports from Ireland. Yet, as he argued, we must be very cautious and aware of the implications of Brexit for this sector. While recent statistics have shown that on the one hand the Irish economy has become very export-oriented, especially to the EU26 market and on the other hand, exports to the UK has come down, the agri-food and drink sector has remained dependent on the UK market. The increase of exports towards continental Europe shows, however, that the EU26 market is and will constitute an opportunity for promoting the Irish brand. According to MEP Bryan Hayes, it is important to make use of the full potential of the single market.
He then addressed several questions, namely: will the UK apply lower tariffs than the EU and other WTO Members when it comes to agri-food and what impact will the new UK tariffs have on the Irish economy? Will the UK be able to go to other markets for cheaper agri-food goods? How will Brexit affect the supply lines and processing of agri-products between Northern Ireland and the Republic of Ireland? Undoubtedly, Brexit will have significant consequences on the agri-food sector, a crucial industry in Ireland in terms of its job-content, – 9% of total employment in Ireland is related to this sector – its share in the GDP and its promotion of rural areas, as well as community and family farms.
While UK Prime Minister Theresa May has been trying to gain time in the last two months, two elements have surfaced since December, as Bryan Hayes explained. First, there is currently no appetite in the EU nor in the UK for a significant extension of Article 50 TEU; it could affect the allocation of seats in the next European Parliament, with the UK ‘forced’ to take part to the elections. MEP Bryan Hayes thinks, however, that there might be a technical extension before the start of the new mandate of the European Parliament at the beginning of July because the old Parliament exists up to that point. Second, there is very little support in the UK and in Brussels for a second referendum. Within the EU, Member States that will be most affected by Brexit (Ireland, Belgium, Luxembourg, the Netherlands, France, Sweden, Germany) want the UK exit of the EU to be fixed as soon as possible because their economies are in the front line. Moreover, there is a real desire to move on as many issues in the EU and in the UK that have been set aside because of Brexit must be solved.
The MEP then set out three possible options for the next weeks and months. First, no-deal Brexit with the UK crashing out of the EU as of 30 March 2019 – an option that has become much more real. This option would be very damaging for the Irish economy and would entail the absence of a backstop between the North and South of Ireland. The second option would be to change the backstop which would be hugely problematic for Ireland and have wider implications for smaller Member States. Furthermore, amendments to the backstop would require the re-opening of the withdrawal agreement negotiations and the approval of the EU27. The third scenario would take the form of a softer Brexit which may gather a majority in the House of Commons. According to the speaker, a bespoke customs union deal, as proposed by some MPs in Westminster, would have to include a section on trade policy, rules on passporting and financial services, alignment clauses with the EU single market and participation rights to the EU agencies.
MEP Bryan Hayes concluded his speech with some remarks on where Ireland should stand within the EU in the next years. Although Ireland has become one of the most important advocates of the EU, it should increasingly engage with, and invest in, the EU. According to Bryan Hayes, Ireland should particularly think softening its position on opt-outs, as well as enhancing its involvement in the European Security and Defence, its contribution to the EU budget and its participation in regulatory discussions at the EU level.