Irish farmers fret over post-Brexit subsidy cliff edge

TJ Flanagan, chief executive of the country's Co-operative Organisation Society, says a hole in the EU budget is only one of many impacts Brexit will have on the sector. He details several potential remedies in an interview with Agri Investor.

The leader of Ireland’s Co-operative Organisation Society, members of which have a combined turnover of €15 billion, warns the fallout from Brexit could be “devastating” for the country’s farming industry.

TJ Flanagan, chief executive of ICOS, fears the UK’s departure will leave a hole in the EU’s budget that members may be reluctant to replace. Along with stricter border controls and security policies, which will compete for the diminishing pool of funds, this may lead to drastic cuts in farming subsidies dished out via Europe’s Common Agricultural Policy.

The problem is that Irish farmers are “very dependent” on EU support, Flanagan told Agri Investor. Ireland’s cattle and sheep sectors, which account for two-thirds of the nation’s farmers, depend on direct payments “for around 100 percent of their incomes, and sometimes more,” he says. In the dairy and arable sectors, such payments typically represent 20 percent to 40 percent of family farm revenue.

Drawbridge pulled up

Flanagan sees other reasons to worry. “We’ve already suffered a 15 percent or so drop in the value of sterling, dropping our incomes from the UK market. That market takes 50 percent of our beef and over 30 percent of our dairy exports.”

If Irish farmers were to lose full access – through tariffs, non-tariff barriers or through having to compete with cheaper non-EU competitors – the impact on incomes would hurt a lot, he reckons. “It would also be devastating for other European producers, as our displaced product would end up on other EU markets, damaging them.”

Flanagan also thinks issues could arise around the border with Northern Ireland, since almost 40 percent of the region’s milk comes south for processing. “It’s an important part of our supply chain,” he notes.

“Irish farmers, as well as our industry and industries in other affected countries, will need a new budget line to allow them facility to develop new processes, products and markets to replace the UK.”

Cash cows

He thinks post-Brexit assistance could be structured along the lines of the European Globalisation Adjustment Fund, which helps people losing their jobs as a result of major structural changes in world trade patterns.

The vehicle, which has a budget of €150 million for the period 2014-20, can fund up to 60 percent of the cost of projects designed to help workers made redundant find another job or set up their own business. Flanagan likes the idea, but says it needs to be “dramatically larger.”

He also thinks the CAP budget needs to be “maximized”. “The best way to avoid a subsidy cliff edge is for the 27 member states to sign up to the new funding level,” he says. “I gather that 21 have already done so.”

What about private investment? For the moment, Flanagan admits, opportunities are not plentiful. “Given that the Irish dairy sector is dominated by Coops or Coop-owned companies, and that the beef industry is dominated by private family companies, there isn’t much scope for dramatic levels of FDI.”

But he believes infant formulas are an exception, since foreign-owned companies already process most of the country’s baby milk. After Brexit, he points out, consumer and convenience food may also receive capital injections from overseas, as businesses formerly based in the UK resettle in Ireland to keep a foothold in the EU.