The report found that in the wake of the Brexit vote, exports to the UK declined by an estimated 3% to €380 million.
It points out that an immediate impact of the Brexit vote saw a significant and swift decline in the value of Sterling against the €uro of 20%. It moved from an average of 1 €uro = 0.72 Stg in 2015 to an average of 1 €uro = 0.86 Stg in 2016 (20% devaluation).
“This means that products like alcohol which were already 20% cheaper in Northern Ireland are now up to 40% cheaper. The decrease in sales is not only confined to border regions (a recent survey showed that 25% of consumers had travelled to Northern Ireland pre-Christmas for shopping).”
The more recent repercussions of this are pointed out in the report: “The retail sector and the Government through Exchequer returns would normally expect a significant bounce in the last two months of the year at Christmas shopping peaks. However, with Sterling’s devaluation a significant increase in cross-border shopping has taken place – a 29% increase in cross-border traffic volumes on Saturday mornings has been reported from research undertaken on behalf of Goodbodys. A poll from Irish business and credit risk analyst Vision-net.ie found that 24% of Irish shoppers planned to travel across the border to Northern Ireland to avail of the weaker Sterling before Christmas. A survey by the AA of over 9,000 people found that of those traveling across the border 35.81% of those surveyed were doing so to purchase alcohol. Indeed, the latest exchequer returns published on 4 December confirm these findings and recorded a shortfall in excise duties of €33 million.
“The UK as our closest neighbour is an important market for the drinks exports accounting for approximately 33% of total exports,” it states, “EU-wide analysis by Agra Europe shows that while 45% of Irish agri-food and drink trade is UK-related, the average across other EU countries is 9% or only 20% of the Irish exposure.”
According to Agri-Economist Ciaran Fitzgerald, the report’s author, “Since the Brexit vote last June and the subsequent decline in the value of Sterling, the food and drink sector in Ireland has faced enormous challenges in the short term including a surge in cross-border shopping. In addition, measures proposed under the Public Health (Alcohol) Bill place will exacerbate pressure on a sector that employs 200,000 directly and indirectly. The outcome of Brexit negotiations remains unclear. However, it’s vital that the Government puts in place a series of policy measures which will support the sector, ensure it gains access to new markets, supports new entrants and protects the unique geographic indicators for Irish Whiskey, Irish Poitin and Irish cream that we share with the North”.
As a result of the report, ABFI is calling on Government to introduce a range of policy measures “in the medium term” to enable the sector to offset the effect of Brexit combined with the forthcoming Alcohol Bill. It’s hoped that these recommendations will mitigate the risks of Brexit through reducing the unintended consequences of some of the policy measures contained in the Alcohol Bill.
The sector is an economic success story, “the drinks industry is the jewel in the crown of agri-food and drinks exports”, with beverage exports of €1.4 billion to 139 markets in 2016 as well as supporting over 200,000 jobs in the wider drinks and hospitality sector, states ABFI, with an annual wage bill of over €4 billion, it ‘s a hugely important part of the Irish Food and Drinks sector.
“The UK is Ireland’s biggest export market for food and drink with exports of €4.5bn,” according to ABFI, “The result of the UK Brexit vote and subsequent sterling devaluation has led to a surge in cross-border shopping, increased prices of Irish products and has increased the cost of Ireland as a tourist destination.”
The UK accounts for approximately 35% of overseas tourists to Ireland and UK tourists spend almost €2 billion in the RoI in 2015 – 40% of total tourism revenue.
ABFI therefore believes that the Government should:
- Cut excise duty. Ireland has the most expensive alcohol in the EU – 175% of the EU average – which penalises consumers, impacts tourism and negatively impacts the sector’s economic contribution. In addition, the report suggests that the Irish market is crucial as a test market for all drinks companies involved in exporting product and the domestic market also helps provide cashflow
- re-introduce the ban on below-cost-selling to disincentivise cross-border shopping and tackle alcohol misuse
- introduce tax and regulatory measures to incentivise companies in the food and drink sector that have huge Irish economy supply chains to remain and grow their businesses in the Republic of Ireland
- not impose any additional costs on business, such as structural separation, additional advertising restrictions and health labels which will increase the cost of doing business in Ireland and effectively act as major barriers to nascent craft brewers and distillers. It suggestes that the Government should adopt the standard EU label being prepared for alcohol when this is agreed rather than imposing a costly “Ireland only” label as per the Bill
- challenge EU State Aid rules to promote future trade with the UK. It’s imperative that Irish business and the Irish Government continue to make the case that such constraints are not relvevant and should not apply to those trading predominatnly with the UK, argues the report
- ensure all island geographic indicators for Irish Whiskey, Irish Cream and Irish Poitín/Irish Poteen are protected and supported
- assist the food and drinks sectors to diversify and gain market access to new markets.