A new report launched by Bord Bia today shows a renewed optimism for the Irish food and drink industry’s trading relationship with the UK market, worth over €4 billion last year. According to Bord Bia’s Brexit Barometer, almost 80% exporters surveyed believe there is still significant potential for future growth in the UK market, despite the fact that 85% of respondents are facing competition from UK based suppliers and 61% don’t have a marketing strategy for the market.
Pictured at the launch of Bord Bia's Brexit Barometer Report were, from left, Catherine Day, Former Secretary General of the European Commission and Tara McCarthy, CEO Bord Bia.
Over a 28 day period, some 139 food, drink and horticulture exporters completed Bord Bia’s Barometer, a risk analysis tool designed to help individual companies assess their exposure to six specific risk areas associated with Brexit – routes to market, customs and tax, supply chain, trade, currency and human resources. A team of Bord Bia managers conducted 65% of the meetings face to face, with in excess of 350 hours’ worth of data collection completed in total. Today, 120 senior industry representatives gathered in Bord Bia to hear the report findings delivered by Bord Bia CEO Tara McCarthy.
Bord Bia’s Brexit Barometer – report highlights:
Route to Market
- Whilst strong UK trading relationships exist, the need for competitive insights, focused marketing strategies and customer acquisition plans are critical to future growth.
- There was a realisation amongst Irish exporters that dependence is too great on the UK market and diversification will be important going forward.
- Over 80% of respondents believe there are viable alternative markets for their products however sectors such as beef and cheddar cheese will be challenged to find replacement markets.
- To realise new business outside the UK and similar to that of the UK market, localised marketing strategies, along with structured customer acquisition programmes and feet on the ground are critical to success.
Supply Chain Management
- Increased lead times, especially when related to short shelf life products, and a complex and intense supply chain, is a key issue facing the industry.
- Exporters with short shelf life products are most at risk, with the mushroom industry facing the greatest challenge, as the sector’s main product has a shelf like of less than 7 days. Likewise beef mince is challenged due to the complex and intensive supply chain.
- In terms of supply chain risk management, a low level of preparedness is common, with 68% of respondents unsure as to whether their supply chain partners are Brexit ready.
Customs & Trade
- Implementation of new customs controls and potential tariffs is clearly the greatest concern. Overall, there is a lack of understanding in terms of customs compliance and potential tariff costs, with limited customs expertise within the industry
- 31% of companies have limited or no experience in complying with official requirements relating to the importation or exportation of goods from/to non-EU locations, while 80% have not considered the VAT cashflow implications of Brexit
- It is clear that the challenge facing the industry is considerable and not one which they can address without support.
Currency
- Respondents believe they have reasonably well-developed practices for managing currency risk; however, this belief will be tested in the event of any further devaluation of Sterling. Companies need to invest in currency risk management strategies for the longer term in order to manage and limit this exposure.
- If the exchange rates were to move towards parity, severe trading difficulties would be created for the industry which layered on top of the implementation of tariffs would essentially create the perfect storm for the Irish food and beverage industry. No sector is immune from the challenge and ongoing preparation is necessary.
- In terms of exchange rates, an exchange rate of 0.89 would cause severe difficulties for 39% of respondents while a rate of 90p – 94p would cause difficulty for over 80%. Ensuring appropriate risk management tools are in place will help manage future currency fluctuations.
Speaking at today’s seminar Tara McCarthy, CEO, Bord Bia said “Brexit will demand a nuanced and concerted response from every level of the food industry. It will require new skills, new approaches and new thinking. We will need to be innovative, agile, informed and prepared as never before. These are demands that will be made on Bord Bia as much as the industry we represent. Following what we believe to be the most comprehensive industry analysis to date, we are currently engaged in a comprehensive review of our structures and programmes to ensure that we perform to the level required of us in this changing and challenging environment.”
“The publication of today’s report is part of Bord Bia’s commitment to develop a data-driven response to Brexit. We now have the hard facts and evidence that permit us to ruthlessly focus on what our industry needs most. Notwithstanding the challenges ahead, I believe Brexit can be a catalyst for real, positive change within the industry and Bord Bia” she concluded.
Today marks the fourth in a series of industry focused Brexit events hosted by Bord Bia. Catherine Day, Former Secretary General of European Commission provided a political perspective on current negotiations while an industry panel put forward the Irish exporters’ view with contributions from Alison Cowzer, Director with East Coast Bakehouse, Jim Woulfe, CEO, Dairygold, Dean Attwell, CEO & Co-Founder of Oaklands, Michael Colgan, Head of Revenue’s Brexit Unit and Padraig McEneaney, CEO with Celtic Pure. In addition, James Walton, Chief Economist with IGD presented an insight into the macroeconomic implications on the UK grocery market.
For more information on Bord Bia’s Brexit Barometer or the seminar, visit www.bordbia.ie/brexitbarometer
Key Points - Sectoral Analysis
Dairy
- The sector is heavily export dependent with a well-diversified customer base across markets. Identifying alternative markets of scale for cheddar is a key concern. Notwithstanding the uncertainty of milk supply from Northern Ireland, respondents are reasonably well insulated from supply chain disruption, although there may be risks regarding their partners’ Brexit preparations.
- The sector is very dependent on exports, which account for 71% of total revenue, with the UK contributing 44% of exports by value.
- While the respondents have reasonably well-developed practices for managing currency risk, in terms of key risks, 66% do not have a UK-focused marketing strategy, while 77% have not considered what may be required to facilitate payment of import duties
Beef
- Respondents are extremely dependent on exports with the UK being the dominant market.
- Active customer acquisition plans are in place to avail of sales growth opportunities and respondnents feel opportunities exist to grow sales in the UK, and steps have been take to avail of these opportunities
- 86% of respondents have reasonable or significant experience in complying with official tariff classifications, however most have not yet modelled the impact of tariffs on either sales to, or purchases from, the UK
- Commercial models are sensitive to increases in both lead times and supply chain costs, and greater engagement with supply chain partners should be a priority.
Lamb
- Some 22% of exports go to the UK, and 72% go to a diverse range of other EU countries.
- The UK market is competitive and susceptible to price-based switching.
- Opportunity exists to build stronger relationships with UK customers through the development of UK-specific marketing strategy.
- Circa 380,000 sheep are exported from Northern Ireland to ROI plants each year, accounting for circa 3–17% of ROI throughput. A hard border would impact live exports from Northern Ireland.
Pigmeat
- The UK market is focused on price, with respondents reporting a low engagement process with key customers, and facing a high likelihood of price based switching.
- This may be a factor in the perceived opportunities to grow sales, although this could be strengthened by tailoring UK specific marketing strategies.
- High degree of optimism of growing UK sales through both current product range and NPD
- Lower engagement with UK customers and high perceived likelihood of price-based switching
Beverages
- The Beverage alcohol sector has well-developed non-UK export markets, and is comfortable with levels of in-house customs-related experience.
- The non-alcohol sector has a stronger dependency on the ROI domestic and UK markets. However, very few respondents in both areas have taken actions to prepare for Brexit, such as examining what impact the introduction of customs requirements would have on UK sales.
- Only 20% of respondents believe their company is resourced to target new UK opportunities
- However 93% believe they can sell more products from their current range to UK customers
Prepared Consumer Foods
- While respondents have generally put resources in place to exploit opportunities to grow sales to current customers, little more than half believe they are adequately resourced to target new UK customers.
- Lack of expertise related to complying with customs requirements will pose a significant challenge for the sector.
- Many firms believe opportunities exist to sell more current (88%) and new (92%) products in the UK and 52% of respondents believe their company to be adequately resourced to target new business in the UK
- A majority of respondents have limited or no experience with requirements for non-EU trade
Seafood
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The sector has significant non-UK export sales, and is confident of continued new opportunities in both the UK and alternative markets due to increased demand for seafood internationally.
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The UK is often used as a transport hub to access further markets. Concern that increased lead times or complexity due to supply chain could pose challenges to the sector due to the short shelf life of some products.
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The impact of Brexit on the seafood sector may be most felt in the catching sector which relies on access to UK fishing grounds for more than 30% of their catch. Any change to access rights, increased quotas for UK fishermen, or the possibility of extended UK territorial fishing limits will have huge implications for the sector.
Horticulture
- In this analysis horticulture included primarily the mushroom*, soft fruit and amenity* sectors. The sector is very reliant on UK exports and does not think that those revenues could be replaced by alternative markets.
- Companies need to take more actions to prepare for Brexit, such as modelling the impact of tariffs on UK sales.
- 63% believe they could restructure their supply chain footprint if falling sales volumes require it
- Significant proportions of respondents do not think that viable alternative markets exist
Mushrooms
- This sector has a strong UK export reliance. Respondents believe further opportunities exist to grow UK sales, and investments have been made to realise these opportunities.
- 83% of respondents had strong or very strong relationships with their UK customers
- The UK accounts for most exports, with 67% of respondents earning more than 75% of their revenues in GBP
- Ireland’s proximity to the UK market is an advantage and the existing UK deficit