Few would envy the Government’s task in preparing Budget 2021. According to Minister for Finance Paschal Donohoe, it is being prepared on the basis that there will be no EU-UK trade deal and that a vaccine programme for COVID-19 will not be widely available. Trying to craft a budget around the economic uncertainty created by one of these issues would be a difficult task – trying to budget in the face of both appears insurmountable.
However, it is in the face of crises that both society and businesses depend most on government to develop policies that provide the necessary shelter until more stable times return. While acknowledging the scale of the challenges, the Government must still craft Budget 2021 in a way that reflects the current economic landscape while recognising the need to strategically invest in stimulating growth.
However, there is little scope within the national finances for careless borrowing. Most accept the Government will run a budget deficit of €25-€30bn this year with IBEC forecasting deficits of €15bn and €5bn for 2021 and 2022 respectively.
A constant drift in budget deficits in the coming years could quickly see the sustainability of our national debt coming back into focus in Brussels.
Against this backdrop, investment strategies, support packages and stimulus plans must be focused on fuelling economic growth – mainly through job creation, increased consumer spending and improved productive capacity. The commitment by Minister for Public Expenditure and Reform Michael McGrath to increase the capital investment programme next year recognises this.
What about farming?
Across the farming community, there will be an expectation that Budget 2021 will reflect the extent to which the sector is exposed to Brexit. Speaking at the Agricultural Science Association conference recently, Minister for Foreign Affairs Simon Coveney told delegates the cost of a no-deal Brexit for Irish food and drink exports would be up to €1.5bn per annum. Irish Farmers Journal analysis shows almost 45% of this would be borne by the beef sector.
In the budget for 2020, we saw a €110m Brexit contingency fund allocated to agriculture. There was no detail as to how it would be deployed. When Budget 2021 is presented to the Dáil next week, we will be less than 80 days away from Brexit and the impact it will have on farm incomes. In this context, it would not be tenable for a no-deal Brexit budget not to detail how income support measures will be deployed and funded.
Ireland, with around 1% of the EU’s population, will carry 19% of the total tariff costs imposed on the EU in a no-deal Brexit scenario
At national level, a substantial increase in the €110m fund will be required. But even prior to the COVID-19 impact on national finances, it would not have been realistic to expect Government alone to fund any support package – given the scale of the financial hit.
However, there is legitimate expectation that Ireland will have capitalised on the commitment from Brussels to stand by Irish farmers. A budget formulated around a no-deal Brexit should detail the Government’s plan to not only access the €5bn EU Brexit fund but other funding streams within the EU’s €750bn recovery fund. We should not forget that Ireland, with around 1% of the EU’s population, will carry 19% of the total tariff costs imposed on the EU in a no-deal Brexit scenario.
Meanwhile, the IFA has been putting pressure on TDs across the country and on Minister for Agriculture Charlie McConalogue to ensure there is an adequate budget allocation for the continuation of schemes during the CAP transition – something the minister cited as essential when he was Fianna Fáil spokesperson for agriculture last November. Farmers will also be expecting the minister to secure a budget allocation to allow for the rollout of the pilot REPS programme promised by Government.
Along with maintaining supports, the IFA and other farm organisations have a legitimate claim in calling for the Government to strategically invest in the sector as part of a national economic growth strategy. During the last recession, strong exports saw agriculture become one of the main engines of the economic recovery. Despite the Brexit challenge, with the correct support from Government, it can do so again.
Beef farmers are rightly bracing for the impact a no-deal Brexit would have on prices from January. However, as negotiations between the UK and EU drag on, there may be a window of opportunity for a significant beef price bounce in the run-up to Christmas. It comes as processors and UK retailers grow increasingly concerned at the lack of clarity around the future trading relationship.
There is now a growing realisation that talks could collapse and that a no-deal Brexit is a real possibility. The outcome would not only see significant tariffs being imposed on beef and other agriculture commodities but also cause major disruption to supply chains.
The longer this uncertainty continues, the more likely it is that we will see processors and retailers move to stockpile beef in the weeks and months ahead – not just in a bid to beat the introduction of tariffs but also to safeguard supplies into January. No retailer will want to revisit the scenes of last March and April when shelves ran empty amid COVID-19 panic buying.
From a retailer and processor perspective, the need to stockpile product in advance of Brexit could not come at a worse time. Traditionally from mid-October through to mid-December, processors are building stocks to meet increased demand over the Christmas period. This year, retail demand for beef is forecast to be exceptionally strong. In the year to 6 September, sales in the UK are up 7.6% and the spend is up 8.7% . With major travel restrictions remaining across Britain, it is expected that demand for luxury food products, such as beef, will far outstrip previous years.
Trying to cater for a strong Christmas market while attempting to stockpile ahead of Brexit will create a period of exceptionally strong demand for Irish beef.
Meanwhile, that fallout of Brexit could see the live trade for cattle and pigs into Northern Ireland soar – not just in the weeks ahead but also in a post-Brexit trading environment. As we report in our front-page story this week, the expected decision by the UK government to allow all animals slaughtered in Northern Ireland move into Britain tariff-free will have huge implications for the processing sector south of the border. Northern Ireland would effectively become a slaughtering and processing hub allowing for Irish beef to move into Britain tariff-free. It is understood that carcases brought up for de-boning would not qualify.
While the potential for beef from Irish cattle slaughtered and processed in Northern Ireland to move into Britain tariff-free is a positive development, it needs careful consideration given that the majority of processing capacity in Northern Ireland is now owned by Irish processors. Ireland should be looking for this concession to be granted to Irish cattle slaughtered in processing facilities across the UK in order to ensure increased market competition.
Yes, the fallout out of Brexit will undoubtedly hit the income of beef farmers, but the uncertainty that has been created presents a unique window for farmers selling beef cattle over the coming months to see a significant price increase.
COVID-19 fatigue is understandable. The recent move to level 3 restrictions and ongoing uncertainties have left many frustrated, but we cannot afford to divest responsibility for the control and eradication of the disease. It will only be defeated through collective responsibility. Each of us has a role to play in protecting ourselves, our families, communities and those coming on to the farm.
There is no room to relax precautions. The handwashing facilities for the milk tanker driver, the face mask in the mart, adhering to social distancing and good hygiene practice – all are as important today as they were last March. While frustration may be an understandable reaction, unfortunately it is a useless tool when it comes to tackling the virus and keeping each other safe.
Also this week, IFA deputy president Brian Rushe details the stance taken by the organisation on the grass-fed standard and PGI application. He provides solid reasoning as to why he believes that any brand must be farmer-owned and controlled. It is time for all parties to get back around the table. The easy option would be for all parties to walk away – but would that actually benefit farmers?
Irish food exports take 30% drop in no-deal scenario - report
UK’s Brexit move has ‘backfired fairly spectacularly’ – Coveney