Bord Bia publishes 2019 Brexit Barometer

Photo: George Hodan.

The latest Brexit Barometer suggests that there has been a significant increase in Irish business preparing for Brexit but 68% of respondents are still uncertain as to what the impact of Brexit will be.

Horticulture

3 July 2019

Ireland’s food and drinks firms are increasingly concerned by the cost implications of customs compliance and stockholding, potential weak-links in logistics, and many have halted investment plans due to the continued uncertainty of the evolving Brexit landscape, according to the Bord Bia Brexit Barometer 2019: Results and Actions.

Michael Creed, Minister for Agriculture, Food and the Marine, launched the report on June 26 and addressed a gathering of 150 senior figures from Ireland’s food, drink, and agri-business sectors alongside Tara McCarthy, CEO of Bord Bia, and a panel of industry experts from Ireland and the UK.

Bord Bia’s 2019 Brexit Barometer is the third in a series of annual studies that provide a measure of Brexit-readiness across Ireland’s food and drink sector with findings from 130 companies.

It is the basis and risk diagnostic tool from which Bord Bia offers a tailor made suite of supports to Ireland’s largest indigenous industry which is uniquely impacted by Brexit. The UK accounted for 37% (+2%) of all Irish food and drink exports last year, amounting to trade worth €4.5bn.

Informed by the findings from the 2019 Brexit Barometer, Bord Bia moves into the next phase of Brexit support for industry, focusing on specific services and actions to prepare client companies, including upskilling on commercial marketing strategy development, as well as key customer management.

This will complement new and existing training in critical areas such as customs compliance, logistics, and supply chain and currency management. To date, Brexit related support has been provided by Bord Bia to companies representing 72% of exports to the UK.

“Amidst the continuing uncertainty around Brexit, this report highlights the true value of preparedness. My Department, working with Bord Bia, has dedicated considerable resources to ensuring that the unique position of the Irish food and drink industry in all Brexit scenarios is firmly understood. The coming months will bring another Brexit deadline, but it is encouraging to see that our industry is doing all it can to prioritise what it can control in facing these challenges.”, said Minister Creed, launching the report.

Presenting the findings of the 2019 Brexit Barometer, McCarthy said that it points to a year of emphatic progress as Ireland’s largest indigenous industry prepares for one of its most significant challenges ever.

“With 93% of food and drinks companies that responded to the Barometer, representing 72% of all UK exports, makings plans and taking action, we have witnessed transformative levels of engagement due to two interlinked factors: firstly, the expectation for much of 2018 that a negotiated agreement was finally in sight and, secondly, the return to prominence of a ‘cliff edge’ no-deal Brexit, which remains a looming threat. This experience left Irish exporters in no doubt that their future trading relationship with UK customers should be managed as a priority.”, McCarthy said.

McCarthy continued: “Also strikingly clear from the 2019 data is the spirit of resilience and determination that is at the core of the response from the Irish food industry. It has been said that there are no net upsides to Brexit for Ireland.

“It is a challenging political and economic scenario that puts pressure on the close tie with our nearest neighbour and our largest trading partner. What the 2019 Brexit Barometer shows is that our industry is attuned to the issues that lie ahead and both realistic and resolute in its response to them.

“Eight out of 10 companies plan to maintain or grow sales in the UK, whilst simultaneously, three quarters of Irish companies are actively looking beyond familiar marketplaces. This process is gaining momentum as planning around Brexit translates into concrete actions in the months ahead.”

Key findings

Brexit readiness: 93% have made progress but 68% still uncertain about impact.

86% of respondents are clear that Brexit will have an impact on their business but 68% are still uncertain about what that impact will be.

Supply chain: companies fear supply chain partners will be weak link.

The number of firms who have actively mapped their supply chain has increased significantly to 89% (62% in 2018). 62% of firms have identified a critical dependency on a supply chain partner. However, there are clear levels of discomfort amongst respondents about how prepared some supply chain partners are.
This is of particular importance in the case of the 69% of respondents who have a commercial model which is sensitive to an increase in lead times.
70% of companies have developed contingency options for holding stock in response to Brexit, with 85% of companies activating those plans. Stockholding adds a layer of unrecoverable cost for companies and it is important that this is incorporated into financial planning.
52% of respondents are holding up to three weeks of stock outside of Ireland. In the lead-up to the October Brexit deadline, stockholding will become far more complex due to storage being at full capacity in preparation for busy Christmas trading.

Customs and controls: a doubling in firms now counting the cost of customs.

The number of companies expressing high or slight confident in managing customs compliance in the 2019 Brexit Barometer has increased almost 300% to 83%, up from 28% last year, and highlights the extensive customs training resources Bord Bia and Getting Ireland Brexit Ready partners have deployed across the food and drink industry.
Food and drink firms are taking many of the practical steps required to be customs ready, evidenced by the 85% of respondents who have applied to the Irish Revenue Commissioners for an Economic Operators’ Registration and Identification (EORI) number, bucking the trend nationally in other sectors, but there is still more to do ahead of the next Brexit deadline.
51% of respondents have now calculated the cost of customs processes and compliance, a doubling on the 25% in 2018. Given the impact of additional customs costs on the profitability of companies, it is concerning that despite much progress, 49% of companies have yet to factor this into financial planning.

Financial resilience: half of companies expect Brexit hit of up to 10% on earnings before interest, tax, depreciation and amortisation (EBITDA).

62% of food and drink firms outlined that Brexit is having an impact on their investment plans, compared to one year ago when 50% said that Brexit was having no impact on their plans. The passing of two Brexit deadlines in March and April is likely to have crystalised Brexit as material risk to which firms responded by tightening future investment.
29% of respondents have put investments on hold while 20% have delayed or put operational spend on hold.
Brexit costs relating to logistics and supply chain and customs compliance are having the biggest impact on companies’ cost base. Estimating the financial impact of Brexit is challenging due to uncertainty around the outcome. However, 45% of respondent companies expect Brexit to cost them in the region of 1-10% of their profitability.

Customer relationships: stockholding and customs top of agenda for UK customers.

Irish food and drink firms are now highly engaged with their customers on Brexit planning. 79% have spoken to their customers about Brexit in the past month, rising to 96% in the past 3 months, while many large food and drink firms cite daily conversations with key buyers. Key discussion topics are stockholding (58%), customs duties (47%), and the sharing of general Brexit updates (42%).
In the past year, 57% of respondents reported an increase in sales to the UK and a further 29% reported stable revenues.
That said, Irish companies are taking a more measured approach to growth projections for the UK due to the continuing uncertainty that prevails. Eight in 10 companies are planning to maintain (36%) or grow (41%) sales in the UK.

Market diversification: 74% seeking to expand in new markets in response to Brexit.

74% of Brexit Barometer respondents are actively seeking to expand into new markets in response to Brexit.
57% of respondents have reported encouraging growth outside of the UK and Republic of Ireland markets and a further 24% are reporting stable sales in these markets.
Two-thirds of companies have a marketing strategy for non-UK export markets to help them unlock growth potential.

The Bord Bia Brexit Barometer 2019 measures Brexit preparedness across six key Brexit related issues: customer relationships, supply chain, customs and tariffs, financial resilience, market diversification, and emerging issues.

The findings of the Brexit Barometer inform the Brexit Action Plan which Bord Bia provides to companies to guide and inform their individual Brexit response strategies. The expanded suite of Brexit support services announced by Bord Bia is now available to companies.

You can view the full report here.