Whilst historically Britain has used Ireland as a barrier to entry from its European foes, now it wishes to use Ireland as a barrier to a harsh exit from the EU. By the continuous promulgation of the dangers of a hard Brexit to Ireland, Britain plants a destabilising thought into the heart of the EU. Irelands economic woes are fresh in the memory of the European hierarchy despite another meteoric rise on the growth front and dispensation of acquired debt. In addition, they are banging the sectarian drum with echoes from the violent past ringing in EU ears. A recent study by the House of Lords further added weight to the supposed impending problems. But looking at the statistics and reality, it appears to be mainly scaremongering.
Agriculture: A grainy subject
Agriculture has long been at the heart of the Irish economy. Actually that’s not true. Not since the 1970s. Even globally, agriculture is actually a very poor contributor to economies in terms of GDP. As Figure 1 shows, very few countries in the world would claim that agriculture is a major part of their economy, with the exception of rice producing countries in SE Asia and coffee/fruit producers in Africa.
Figure 1: Percentage contribution of agriculture to individual countries GDP. Ireland is <2%
(Source: World Bank)
Figure 2: Percentage GDP contribution of Agriculture to the world, Irish and UK economies since 1995 (Source: Worldbank)
Worldwide agricultural is becoming less important to the masses and more mass industrial. Figure 2 shows that agriculture is supporting less and less people as the world becomes more services orientated. In Ireland, agriculture has become much less important than countries we like to think ourselves similar to (like New Zealand for example of which agriculture contributes 7% of GDP).
But the naysayers out there will cry that GDP is some incomprehensible statistic that doesn’t always translate to real world problems. Well how about we look at the number of people employed in agriculture. Figure 3 shows a breakdown of the number of people employed in different sectors in Ireland.
Figure 3: Number of people employed in various industries in Ireland Figure (Central Statistics Office (CSO)
As per Figure 3, the number of people employed in agriculture is less than 100,000 people, which although large is still less than 5% of the total number of persons employed. GDP contribution is somewhat related to the number of persons employed. Of course it would be totally callous to say that these jobs are irrelevant and immaterial. These jobs are heavily reliant on the export market. 90% of beef produced in Ireland is exported along with 85% of dairy products (Bordbia). As per figure 4, the UK accounts for around 40% of total agri-food exports from Ireland.
Figure 4: 41% of Irish Agricultural exports (Source: BordBia FactSheet)
A hard Brexit would harm the British Agricultural sector much more than the Irish sector
Figure 5 shows that Ireland is the number one importer of British food and drink produce. Most of the other top 20 export markets are in Europe. Looking across the table, many of the most valuable export products can be produced in Ireland.
Figure 5: Exported agri-food products from the UK by country and by product. (Source: UK department for Environment Food and Rural Affairs)
One third of British whiskey exports stay within the EU. Despite complications over excise duty between countries, British whiskey is not subject to import tariffs within the EU but is to other countries where no Free Trade Agreement is set up. As all of Britain’s current Free Trade Agreements would disintegrate with its EU membership, it would take a decade to have new agreements in place. By which time, Irish whiskey could have supplanted its Scottish counterparts. Ireland is equally well equipped to up its current production of chocolate and salmon to meet European needs. Irish exports of beef and cheese could be diverted from the British market to the European market (though the French may not be so keen on the cheddar).
In fact, Britain as a whole would find life quite difficult in a hard Brexit world. Figure 6 shows that they import roughly twice the amount of agri-food products as they export. Spanish courgettes and French cheese will be more expensive, not only due to the flailing Pound but also due to newly imposed import tariffs, most likely dictated by World Trade Organisation rules.
Brits would either be given the choice to pay up or do more farming themselves – which as shown in Figure 1, does not lead to making a country richer.
Figure 6: British dependence on the EU for many of its agri-food produce (Source: LEI Wageningen UR UK Farming Study)
Ireland will continue to sell meat and dairy to the UK regardless of Brexit
Irish beef and dairy farmers would surely not want a hard Brexit. There is less desire on the continent for their specific goods than in Britain. However, Brexit would hardly be disastrous. Beef and cheese are best as a fresh product. If Britain were to exit to EU, there are not many non-EU candidates nearby with the ability to deliver such products by cheap road, boat and rail freight. It could possibly buy from Norway, Switzerland or Iceland. However British palates would have to adopt to Swiss milk and the price of rubbery Norwegian Jarlsberg is certainly far higher than cheap Irish cheddar. No, Britain would have to turn southwards to New Zealand - or worse - westwards to America for its bovine fix.
The Kiwis seem like a natural successor to Ireland as supplier of beef and cheese to the UK. Distance is not such an issue to the plethora of NZ lamb that finds its way onto UK shelves, much to the annoyance of British farmers. The question is moreso if the Kiwis have the desire (and indeed capacity) to move away from the reliant and ever growing Chinese market to an unreliable one half way around the globe. Maybe in time the British will acquire a taste for powdered milk.
On the American front, Britain would have to leave its anti-biotic rules at the EU gate to allow this. And of course the small matter of a a free trade agreement with the US which would be a mammoth task and take years to negotiate. And as as result the British will be left with some pretty poor chemical ridden beef. Not to mention that it would be wildly unpopular with British farmers undercut by indsutrial American farming practices.
Most likely, Britain will continue to import a significant number of Irish agri-food products. Britain’s inability to meet its own needs would result in the escalation of the price of British beef and cheese, whereby it will become cheaper to import Irish beef and cheese even with tariffs. Certainly other agri-food businesses will be hit. Indeed there has been much talk about a few mushroom farms closing down here and there. But to be frank, we shouldn’t even be overtalking about agriculture anyway, but about where Ireland makes its money.
Irish Export Market: Why Ireland should be more worried about Donald Trump than Brexit
Ireland is an export dominated country as per Figure 7. We export much more goods than we import. The same can be said of the Anglo-Irish relationship. Ireland imports about 20% more from the UK than we export as per Figure 8.
Figure 7: Value of exports and imports to Ireland from 1990 to 2015 (Source: CSO)
Figure 8: Value of exports and imports to Ireland by country in 2016 (Data Source: CSO)
However as shown in Figure 8 it is fascinating to see that exports from Ireland are higher to Belgium than to the UK. Furthermore, by adding up total EU exports, as seen in Figure 9, it becomes quite clear that the UK is much less important to Ireland than the total of the rest of the EU. Around 75% of Irish exports to Europe go beyond Britain. It is much more important for Ireland to remain part of the EU than be lead out the EU gate with the UK.
Figure 9: Evolution of the value of Irish exports over time of which the UK is an ever shrinking percentage (Graph Source: Observatory of Economic Complexity)
In fact, Irish politicians should be much more worried about working with Donald Trump than Theresa May. The USA takes double the amount of Irish exports than the UK. Of course it is necessary to have a look at what Ireland actually exports to see where the money is being made.
Ireland: Pound for Pound, the world’s biggest drug dealer
Figure 9 shows a breakdown of Irish exports. The nice pink colour accounts for over 50% of the tree map representing the pharmaceutical and chemical industry. In fact 60% of Irelands export economy is related to pharmaceutical, chemicals and medical appliances. Computers pull in another 15% leaving the agri-food industry at less than 10% of the value of exports.
Figure 10: Value of Irish exports by component in 2015 (Graph Source Observatory of Economic Complexity)
Nitrogen Heterocyclic Compounds and Packaged Medicaments (or pharmaceutical drugs in layman terms) are much more valuable to the Irish export economy than the entire agri-food business. Ireland is not just a tax shelter for American pharmaceutical companies - it also produces around 7% of all global pharmaceutical drugs. Herein lies a small opportunity for Ireland. Figure 11 shows what the UK exports around the world.
Figure 11: Value of UK exports by component in 2015 (Graph Source Observatory of Economic Complexity)
Britain certainly has a much more diversified export economy and holds onto its manufacturing history with machinery and cars still making up a large chunk of exports. However the pharmaceutical industry also has a strong hold in the UK, with the pharmaceutical and chemical industry worth $68 billion – almost half of Irelands total $142 billion export value. Whilst the Germans will be chomping at the bit to gobble up financial services in Frankfurt, they will also be keen to expand their very large pharmaceutical base. However, an English speaking base in Ireland with a beneficial tax rate should lure companies to the Emerald Isle.
Interestingly gold (or the refined jewellery version rather) makes up a large portion of British exports (the empire isn’t dead after all). However it is the petroleum aspect which deserves attention for Ireland. For that we have to delve into what Ireland imports globally and indeed from the UK.
Ireland: “Send us machines and petroleum to power them
Ireland imports a lot of machinery and pharmaceutical products as per figure 12. Certainly much of this serves a purpose in the raw materials for our exports and their production, whilst there may be a bit of transfer pricing going on. There seems to be quite an overlap with what Britain exports globally (cars, machinery, oil) and what Ireland imports (cars, machinery, oil). And so it is when we break down what Ireland actually buys from Britain as per Figure 13.
Figure 12: Value of Irish imports by component in 2015 (Graph Source Observatory of Economic Complexity)
Figure 13: Breakdown of imports by category from the UK (Data source: CSO)
As per Figure 13, Ireland imports a lot of machinery and petroleum fuels from the UK. The machinery consists majorly of cars and aircraft (Ireland is the largest supplier of rented of aircraft in the world, though it manufactures none). When the UK leaves, Ireland can still obtain machinery and chemicals from other European countries such as the great manufacturer Germany. Petroleum is a slightly different story. Or was. Until Corrib.
Corrib Gas: The greatest money saving giveaway in Irelands history?