Irish food sector fears post-Brexit slide in sterling: Irish Times article

This article by Eoin Burke-Kennedy appeared on on June 29th 2016.

Volatility in currency makes €5bn in food exports to UK significantly more expensive

The dairy industry here, which accounts for €3.2 billion in exports, has already been rocked by crashing milk prices since the lifting of production quotas last year

Currency volatility in the wake of Brexit has been singled out as one of the chief risks facing Irish food businesses.

According to a survey by risk management firm Aon, some 58 per cent of firms in the sector identified the recent slide in sterling as a major challenge to competitiveness.

Since last week’s shock referendum result in the UK, the pound has depreciated by about 8-10 per cent against the euro, making Ireland’s €5 billion worth of food exports to the UK significantly more expensive.

Aon’s food and agri-business expert and author of the report Ciara Jacksonsaid: “Last week’s shock result has the potential to severely challenge the competitiveness of the Irish food and agri-business sector.”

Expensive exports

“The UK’s importance as an export destination for Irish produce means that the collapse in the value of sterling [making Irish exports more expensive] could particularly hurt lower-margin businesses where profits can quickly swing to losses,” she said. “On a more positive note, this is a sector that is rapidly diversifying its export markets, moving up the value chain, and has proven extremely resilient in the face of past challenges.”

Aon’s survey asked respondents to rank what they saw as the biggest threats facing their businesses. The number one risk identified in the survey, selected by 83 per cent of respondents, was volatility in commodity prices.

The dairy industry here, which accounts for €3.2 billion in exports, has been rocked by crashing milk prices since the lifting of production quotas last year.

Germany and France, Europe’s two largest milk producers, have now raised the possibility of reintroducing production limits to rebalance the market. Apart from currency volatility in the wake of Brexit, other threats facing food businesses were recession, product recalls and cyber security.

Food scandal

The second most important risk factor highlighted was the possible damage to reputation and brand from a potential food scandal.

In the era of social media and 24 hours new coverage, firms said contamination problems are instantly visible to consumers and suppliers.

The report cited as an example New Zealand dairy producer Fonterra’s suspected botulism scare in 2013, which resulted in China banning all milk products from New Zealand.

The financial impact of this hit to reputation was reflected by the €249 million impairment charge recognised a year later by Danone because of the damage done to Dumex, its brand in China that was supplied by Fonterra.

The survey’s broader conclusion was that while companies were well-versed in the risks they faced, most were poorly prepared.