Cur­rency shocks are just tre­mors ahead of the po­ten­tial Brexit earth­quake

Irish Examiner - Farming - - FARM FINANCE - Kieran Cough­lan Kieran Cough­lan

The im­me­di­ate af­ter­shock of the Brexit vote on June 23, 2016, caused the value of ster­ling to drop lit­er­ally overnight from about 76p to the euro, to 81p to the euro. Since then, ster­ling con­tin­ued to weaken to a low of just over 90p, but stead­ied in the mid-80s, for al­most a year after the Brexit vote. How­ever, since mid-May, ster­ling has weak­ened 10%, bring­ing its cur­rent value to about 92p per euro.

The ini­tial drop in the value of ster­ling al­most im­me­di­ately wiped out a num­ber of Ir­ish mush­room grow­ers. They were per­haps the “ca­nary in the mine”, given their high ex­po­sure to the UK mar­ket in terms of their profit mar­gins from that mar­ket, and their over-de­pen­dence on that one mar­ket. The plight of the mush­room pro­duc­ers should be seen as a warn­ing for the rest of us.

Now, the weak­en­ing of spot prices for ce­re­als, and of fac­tory prices for beef, is be­ing at­trib­uted to the slip­page in the value of ster­ling.

A strong euro ver­sus the UK pound does very lit­tle to ben­e­fit Ir­ish agri­cul­ture, with fairly min­i­mal in­puts orig­i­nat­ing from the UK. Strength­en­ing of the euro also makes it in­creas­ingly Char­tered tax ad­viser Kieran Cough­lan, Bel­go­oly, Co Cork. (086) 8678296

dif­fi­cult for our ex­porters to find al­ter­nate mar­kets out­side of the UK and the eu­ro­zone. The cur­rency of in­ter­na­tional trade, the US dol­lar, has weak­ened nearly 15%, from a high of $1.05 to the euro to a cur­rent $1.19, since the start of 2017.

These cur­rency fluc­tu­a­tions are just tre­mors. The fall­out from Brexit may yet make con­di­tions for trad­ing with our near­est neigh­bour in­cred­i­bly more dif­fi­cult.

Po­ten­tial im­pli­ca­tions for Ir­ish farm­ers could in­clude: If the UK is re­moved from the EU for VAT pur­poses, any lo­cal form of goods and ser­vices tax (GST) be­comes non­re­cov­er­able to an Ir­ish VATreg­is­tered en­tity, po­ten­tially in­creas­ing the cost of goods and ser­vices by up to 20%. All im­ports by reg­is­tered or un­reg­is­tered farm­ers would be li­able for VAT, tax pay­ers hav­ing to self-ac­count for VAT on such pur­chases. This will add to the ad­min­is­tra­tive costs of farm­ing busi­nesses. In the case of un­reg­is­tered farm­ers who cur­rently buy goods in the UK, the dif­fer­en­tial be­tween Ir­ish and UK VAT rates will mean an ex­tra 3% VAT cost, when self-ac­count­ing for VAT, rather than the cur­rent rate of 20%.

Cus­toms duty may be­come payable where the goods price ex­ceeds €150 for im­ports, in­creas­ing di­rect and in­di­rect costs for tax­pay­ers.

Cus­toms duty may be­come payable by UK cus­tomers on the pur­chase of goods from Ire­land, un­der­min­ing our com­pet­i­tive­ness. Cap­i­tal and in­come taxes may be af­fected; ex­ist­ing dou­ble tax treaties may be re- ne­go­ti­ated. Uni­lat­eral do­mes­tic leg­is­la­tion deal­ing with, for in­stance, agri­cul­tural relief ap­pli­ca­ble to agri­cul­tural prop­erty within mem­ber states may no longer be ap­pli­ca­ble to trans­fers of UK farm land to Ir­ish ben­e­fi­cia­ries. This may af­fect per­sons farm­ing on both sides of the Ir­ish bor­der. The ram­i­fi­ca­tions of Brexit for Ir­ish farm­ing could po­ten­tially go far be­yond any­thing we have seen in our life­times. The fall­out is un­known, and the eco­nomic im­pli­ca­tions and tax im­pli­ca­tions could be cat­a­strophic for many mar­ginal farm en­ter­prises. Un­doubt­edly, Ir­ish agri­cul­ture will sur­vive, and the UK will con­tinue to deal pre­dom­i­nantly with Ir­ish sup­pli­ers who have a proven track record. We are after all their near­est neigh­bours. But this is how­ever lit­tle com­fort in pro­tect­ing Ir­ish farm­ing profit mar­gins.

The pol­icy shift of the EU away from in­ter­ven­tion, ex­port re­funds and quo­tas works against us; we no longer have price sup­port mea­sures that can pro­tect farm in­comes. Al­though we have an­other 18 months be­fore March 2019, the ex­pected date for the UK ex­it­ing the EU, it is at this stage that we should be shout­ing about these po­ten­tial im­pacts of Brexit, in or­der that Brexit is framed as best as pos­si­ble to pro­tect us.

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