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EU departure creates series of unknowns for concerned agri-food sector

The UK's exit from the European Union - to be triggered next March - throws up many unanswered questions for the farmers, business owners and bankers we hear from today

Published 25/10/2016

Northern Ireland’s agri-food industry is famously resilient and has faced many challenges
Northern Ireland’s agri-food industry is famously resilient and has faced many challenges
The expected rise in the cost of fertilisers and oil could hit farmers

Clarity is in short supply when it comes to the impact of Brexit. While we now have a date - the end of March 2017 - for the start of the process for the UK to exit the EU, everything else is still up in the air and up for negotiation.

For the Northern Ireland food and drink industry, which exports 25% of its sales to the EU, it is not surprising that we have a particular interest in the details of what will emerge. In the short term the farming industry has had something of a financial windfall, driven by the weakening sterling - resulting in a sustained increase in beef, lamb, pork and even dairy prices. More recently our farmers received a welcome boost to their incomes with the exchange rate being set at 85p/€1 compared to 73p/€1 this time last year - meaning an extra £40m in Single Farm Payments.

That said, exchange rates work both ways and we can expect the cost of feed, fertiliser and oil to increase and offset some of the benefits of improved prices.

The importance of migrant workers to the local industry is also likely to be a significant factor emerging from Brexit negotiations. If the free movement of people is restricted, access to the European workforces that have been critical to many of our growers and producers may simply disappear.

The real concerns for the industry are the longer term implications of Brexit and the economic uncertainty that seems inevitable for the coming years. The key issue of what future agricultural support will be in place post-CAP is critical, when you consider that the scale of support in Northern Ireland was £287m last year.

While the UK's net contribution to CAP in 2015 was around £1.3bn, there is no commitment or guarantee that they will use this to part fund any replacement subsidies. Whilst unlikely, they could decide not to offer any subsidies at all which would mean farm gate producer prices would increase, which would require lower production costs and significant farm efficiencies to balance the costs.

The farming community is also likely to face intense lobbying, not only in terms of competition for the overall government spend from other sectors, but also how any agreed support is spent within agriculture. We can expect a great deal of input from health, environmental and animal welfare lobbies and regional representatives across the UK as to what the final share of any financial support will look like.

Perhaps the most important negotiations will be eventual trade deals with the EU and the rest of the world. The implications of any resulting tariffs will directly impact our competitiveness in export markets. While the mood music is currently varied as to whether it will be a hard or soft Brexit, it is impossible to accurately predict which route will be chosen until the negotiations kick off in earnest. Whatever the favoured options, these deals typically take a lot of time to negotiate.

On the positive side, the local Northern Ireland food industry has a resilient pedigree with the necessary capabilities to chart a way through these troubled waters. In trade terms 40% of the UK food consumption is met by imports. This provides a great opportunity for NI to continue to target and grow our internal exports to GB. This is a market that is likely to grow as the UK seeks food production self-sufficiency. We should also continue to play to our strengths and in particular our strong credentials in food security, traceability and provenance.

For now, Brexit is presenting a lot of food for thought to the local agri-food sector and will present both challenges and opportunities. It is therefore important that the local Executive and the UK government work to close out negotiations as soon as possible to remove the uncertainties.

First Trust Bank is committed to supporting our customers through any short-term pressures which may arise, and as the impact of the Brexit decision becomes known, working in partnership with businesses over the longer term as they plan and decide upon their individual strategies.

Our relationship managers have many years of experience in the agri-food sector and we put a lot of store in listening to and learning from our customers. As we all contemplate the potential implications of Brexit, we have sought the views of three of our agri-food customers.

Belfast Telegraph

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