13 Sep 2017
Budget 2018 is a real opportunity to deal with Income Volatility and Brexit
The agri-food sector continues to play a crucial role in Ireland’s economic recovery with our exports valued at €11.15bn in 2016, marking incredible growth of over 56% since 2009. Overall agriculture and food accounts for 8.6% of total employment. Critically, the increase in export value from the agri-food sector has been achieved using inputs sourced from the local economy, creating a much wider multiplier effect across rural Ireland.
However, we are facing unprecedented uncertainty due to external factors. Brexit will result in a major upheaval as the UK accounts for 37% of Irish food and drink exports. Moreover, income volatility remains a significant threat to the achievement of the Food Wise 2025 Strategy. For example, the farmgate milk price has fluctuated from highs of circa 40 cent per litre to lows of circa 20 cent per litre within a relatively short time period in recent years. This leads to great uncertainty at farm level which impacts on day to day business decisions and long term planning and investments.
As a mechanism to address extreme income volatility, ICOS is strongly urging the Government to announce in October’s budget the establishment of an income stabilisation measure whereby some income might be deferred in a period of high prices and drawn down in a period of lower prices. In last year’s budget, the Government committed to further consideration of such a measure. It is now time for its implementation.
ICOS is proposing that a farmer can enter into a voluntary agreement with their co-operative to defer up to 5% of their gross annual income. The deferred income will be held in an account for the specific purpose of the scheme and can be drawn down at any time and subject to income tax at the time of draw down.
The proposal by ICOS can result in a significant stabilisation impact on the income of a typical family farm enterprise. It will incur a minimal cost to revenue and can be considered cost neutral. Further, our proposal is designed to ensure compliance with EU state aid rules under the De-Minimis Regulation.
Additionally, the Government must include measures in Budget 2018 to deal with the unparalleled threat to the Irish economy by the UK’s decision to exit the EU including current Brexit related Sterling weakness.
Although formal exit negotiations between the UK and the EU have begun, there remains immense ambiguity with regard to the future trading relationship. In the meantime, investment insecurity and market volatility are dominant issues for the sector. The uncertainly has already caused severe market disruption with the Euro is at its strongest level against Sterling in eight years resulting in a very challenging trading environment for Irish exporters.
The UK is a vital high-value market for Irish agri food, valued at €4.13bn in 2016 including €825m in dairy products and more than €1.1bn in beef products. The shared land border between Ireland and Northern Ireland has resulted in the development of a highly integrated agri-food sector, with large volumes of trade annually in live animals, finished products and products requiring further processing including dairy products and ingredients.
ICOS is calling for increased funding for key State agencies such as Bord Bia and Enterprise Ireland to support the promotion of Irish agri-food exports on new markets and product diversification. The Government should also investigate the requirement for a national export credit scheme to assist businesses in expanding to new global markets. Expanding to new markets can put a strain on cash flow due to upfront logistical, marketing and regulatory costs. Further, the greater utilisation of EIB financing by the agricultural sector and rural businesses must be prioritised. We also support calls on the Government to work with the European Commission to establish a temporary state aid system to enable sectors most affected by Brexit to receive all necessary support.
By Martin Keane