Currency shocks are just tremors ahead of the potential Brexit earthquake
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.