The end of frictionless trade: Feed cost scenarios in Ireland under a soft, hard or no-deal Brexit

By Jane Byrne contact

- Last updated on GMT

© GettyImages
© GettyImages
What are the likely implications of Brexit for the animal feed industry in the island of Ireland as a whole?

Professor Michael Wallace from the School of Agriculture & Food Science, at University College Dublin weighed in on that topic last month at the R&H Hall customer conference in Ireland.

We caught up him today to ascertain what he thinks will be the likely animal feed industry exposure to Brexit, both in the context of cross-border trade on the island of Ireland and the flow of feed trade between the UK and Ireland more generally.

“I must caution that there is high level of uncertainty when you are making any projections in relation to Brexit,”​ he said.

Feed trends in Ireland 

Growth in feed use and demand on the island of Ireland that has been quite considerable, noted Wallace.

“Over the past 10 years, there has been about 3% yearly growth in compound feed use on the island of Ireland, mainly driven in Ireland by the expansion in the dairy herd, and in Northern Ireland, in the growth in pig and poultry enterprises there.”

There are a relatively small number of feed companies operating on both sides of the border, with a total of 320,000 tons of feed travelling across the border in either direction, which equates to around 5% of the compound feed market.

“It’s not a huge amount, but, of course, that is disproportionally important for a number of business that very much rely on that type of trade, even though, overall, it may seem quite small.”

Wallace has analyzed the potential exposure of the Irish feed sector to sourcing of feed ingredients in the UK, looking at trade statistics from Eurostat, cross-referenced with figures from CSO, particularly in relation to feed imports into the south of Ireland.

He said that piece of analysis highlighted the global nature of feed sourcing:

“More than 50% of feed ingredients that are used in compound feed in Ireland are actually sourced from outside of the EU, so that fact somewhat mitigates the potential Brexit exposure. Then the remainder of that sourcing is split almost evenly between the rest of the EU and the UK. In the 2017 data I looked at, about 20% of the ingredients were coming from the UK – predominantly barley and wheat.”

In 2017, 40% of the imported wheat used in Irish feed was from the UK, and 87% of imported barley was from the UK, he said.

"That, of course, that can vary from year to year, depending on availability and UK price competiveness.”

Beyond wheat and barley, the data also shows the UK feed exports to Ireland include compound feed and cereal type co-products, he said.

Transaction costs

Wallace also assessed what might be the supply side impacts of a no-deal Brexit. Tariffs on key feed ingredients and also compound feed might become a reality, he said.

“In my analysis, a tariff of approximately €55 per ton on imports of compound feed coming into the South of Ireland from Northern Ireland in a no-deal context. [Such costs] would completely annihilate that trade. Of course, we still think [that such a Brexit scenario] is unlikely.

“More importantly, though, regardless of whatever kind of arrangement ultimately arises, is the potential for new, non-tariff barriers (NTBs). These would reflect the fact that trade is not going to be as frictionless as it is currently, meaning extra costs for feed businesses in terms of any differences in regulations and standards, of compliance, that would emerge over time, [as these would cause] border delays and extra checks.”

Trying to crunch some numbers on this, Wallace said he expects NTBs would be lower for feedstuffs compared to animal-based products. He estimated that the ‘tariff equivalent’ would put a 2-5% cost hike on feed crossing the border between the Republic of Ireland and the UK. At 2%, that adds around €5 per ton onto the feed price while, at 5%, it would be €12 per ton.

“It is not going to be uniform. For high volume deliveries coming into ports, those costs would probably be diluted, but for small deliveries crossing the Irish border, the costs could be much more substantial, given the quantities and values involved.”

In some cases, those extra fixed costs associated with compliance, with custom procedures and delays, may mean it will not be worthwhile to continue carrying out that trade.

“The level of these NTBs costs will clearly depend greatly on the nature of the withdrawal agreement and the future trading relationship and the extent to which there is equivalence recognition in standards between the EU and the UK. A lot of that still has to be determined. Where there is an equivalence agreement, well then, that would mitigate at least some of these costs, but still, with the potential for border delays and extra customs procedures, that will inevitably incur extra costs for businesses.”

Farm level impacts

Looking at farm level impacts of the UK withdrawal from the EU, in terms of the influence on production, farm profitability and the demand side for feed, he sees the beef sector as being particularly exposed. That sector, he said, is very much reliant on EU direct support payments, through the CAP, and those payments could be reduced after Brexit - in the UK due to a change in policy direction, and, for the rest of the EU due to a dip in the overall budget.

“That would lead to a reduction in feed demand in the beef sector.”

He anticipates a more moderate impact from Brexit, though, on the dairy, pig, and poultry sectors.

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