Home World Economy Ireland’s food industries would be worst hit by a hard Brexit

Ireland’s food industries would be worst hit by a hard Brexit

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IN 1962 Tony O’Reilly, head of the Irish Dairy Board, had an idea that would help transform Ireland’s economy. He wanted to create a premium brand for Irish butter to break into the growing British market. The new product, named Kerrygold and backed with a large marketing budget, was sold in half-pound packs in a parchment wrapping so shoppers could inspect the butter’s quality. Its success was an inspiration to other exporters and changed perceptions of Irish business.

Half a century on, the Irish economy has been transformed into a global trading hub. Some 90% of its exports are shipped by multinational companies. Many of these are American giants such as Intel, a chipmaker, and Pfizer, a drugs firm. But some are home-grown food firms, such as Kerry Group. Observers speak of a dual economy: a “modern” capital-intensive part, powered by foreign direct investment (FDI), usually from America; and a “traditional” jobs-intensive food business, which still looks to the British market. The prospect of Brexit is pulling these two parts of the economy in opposing directions.

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For decades Ireland has appealed to foreign companies as a low-tax, English-speaking entry point to Europe’s single market. Brexit, in effect, removes a big rival for such mobile capital. Since Britain voted to leave the EU, there has been a “significant increase in inquiries” from firms considering a move to Ireland, says Martin Shanahan, boss of IDA Ireland, the state development agency. Much interest comes from banks and insurance companies, worried that London-based subsidiaries will lose the right to sell financial services in other EU countries. But the IDA’s phone lines were already busy. Many tech firms have chosen Ireland for their European headquarters. LinkedIn, a professional-network site, has built an office for 1,500 staff, having started with three people in 2010. Huawei, a Chinese telecoms firm, already has three centres in Ireland.

Ireland’s indigenous industries have correspondingly shrunk in importance. When sales of Kerrygold took off in the 1960s, almost three-quarters of Irish goods exports went to Britain. Now just 13% do, a share that rises to 17% including services (see chart). Yet many analysts reckon that the damage from Brexit to Ireland’s food exporters will swamp any positive impact on high-tech FDI. Ireland is just one link in a global-tech supply chain: only a fraction of the value added to exports originates there. In contrast, the local content of Ireland’s food exports to Britain is high: weighted by Irish jobs, Britain’s export share would be around a quarter, according to John FitzGerald and Patrick Honohan of Trinity College, Dublin. Half of Ireland’s farm exports go to Britain and some would face tariffs of almost 60% in the event of a “cliff-edge” Brexit, in which trade reverts to WTO rules. Ireland’s exporters to Europe rely on Britain as a land-bridge, because shipping goods to the continent is more troublesome than carrying them by lorry. A quarter of Ireland’s imports come from Britain, partly because British chains own supermarkets in Ireland.

Brexit could thus be devastating to rural Ireland while boosting the sort of FDI that benefits its bigger cities, notably Dublin. Ireland is already so geared to the global business cycle that a country which a few years ago was suffering a brutal housing bust now faces housing shortages, as FDI and migrants flood back.

Yet a soft Brexit would be welcome in both parts of Ireland’s dual economy. Dublin has always been more of a complement than a rival to the City of London, so it benefits from the latter’s global status. A gentler Brexit that allows for a continuation of tariff-free flows for a time after Britain leaves the EU will give time for Irish food producers to reorient to other European markets. That won’t be easy. Ireland would need to create a more distinctive brand for its beef, notes Dan O’Brien, of the Institute of International and European Affairs, and “try flogging Irish Cheddar cheese to the French”. The reassuring lesson of Kerrygold butter is that Ireland has adapted well in the past.

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