Farmers are in need of Brexit bailout

in #news3 years ago

The prospect of the UK not reaching a deal on its departure from the EU has risen in recent weeks, amid tight votes at Westminster and Brussels, expressing opposition to UK prime minister, Theresa May’s latest proposals on customs.

The Irish food industry has been watching politicians battle it out for the past two years. There has been no resolution or concrete proposal. But with seven months to go until the UK is to leave the EU and with warning commentary from Bank of England governor, Mark Carney, a no-deal exit is increasingly likely, and so executives in the agri-food industry are accelerating their damage-limitation plans.

The purchase of the UK’s 2 Sisters food group by the Meath-based Kepak group is a typical example of the industry’s proactivity in ensuring that whatever the outcome of the negotiations between Theresa May’s government and Michel Barnier’s EU, they will maintain their market share in Britain.

Kepak’s acquisition gives it a further five facilities across the UK: three sites in Cornwall, in south-west England, as well as one in southern Wales and another in the north-east of Scotland. Kepak described the deal as a “strategic growth acquisition”. It said the move would be a hedge against Brexit and currency fluctuations, and would support its “meat-based, value-added business”.

This is typical of the strategic decisions being taken by Ireland’s major food businesses to ensure they maintain their UK retail, food-service, and manufacturing relationships.

Others in the meat sector are doing similar. In June, the Larry Goodman-owned ABP Food Group announced €19m for the planned redevelopment of its Perth processing plant, in Scotland.

Last year, Dawn Meats entered into a strategic partnership with rival, Dunbia, which will see the establishment of a joint venture in the UK, comprising the UK operations of both organisations. Dunbia’s considerable presence in the UK — it has two large plants in the North and seven in Britain — provides Waterford-based Dawn with a Brexit buffer, as well as cementing its UK supply chain.

These diversifications give hedging options against the anticipated, high-frequency currency fluctuations, as the Brexit process works its way through the economy. Of course, it also provides useful options to arrange suitable “transfer pricing” between supplies of meat from farmers and abattoirs in Ireland and their wholesale outlets in the UK, to militate against the anticipated, 40% customs tariff, if the World Trade Organisation fall-back occurs.

The ‘transfer pricing’ tactic has been used by multinationals the world over to limit the damage to pricing when trade wars suddenly result in tariffs on goods crossing borders

To give an extreme example, Irish companies with subsidiaries in the UK can opt to sell a €200 side of beef by means of a transfer pricing arrangement to their UK subsidiary for, say, €20.

In the process, they are paying 40% import tariff into the UK on €20, as opposed to paying the high tariff on the open market price of €200. There is additional benefit, in that the higher profits are declared in the Irish-based company attracting the 12.5% corporation tax, rather than the higher rate, if declared by the UK subsidiary.

The enormity of the unique exposure of the meat industry to Brexit can be gauged from the Bord Bia report that some 50% of all Irish beef exports went to the UK last year, valued at €1.25bn. The critical importance of the market continues to be reflected in the export figures for the five months to May, when Irish beef exports accounted for 70% of the UK’s total beef imports.

The interconnectedness of the agri-food industry, across the UK and Ireland, is even more evident in the dairy sector, where Glanbia, Ornua, Lakeland Dairies, Dairygold and the rest of Ireland’s dairy industry, dominate the British market.


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