Parity between the euro and Sterling on the cards
Food and Drink Industry Ireland (FDII) is not ruling out the possibility that the euro could achieve parity with Sterling over the coming months, according to the organisation’s director Paul Kelly.
Uncertainty over Brexit is fuelling the trends we are now seeing on the world’s currency markets, he said.
“There is some indication that Donald Trump’s commitment to strengthen the US economy might act to strengthen the Pound. But the reality is that we have seen the euro further strengthen against Sterling this week- it is currently standing at just over 87p.
“Figures published recently by Bord Bia indicate that the Irish food exports will fall by approximately €700m, if the euro reaches a value of 90p.”
We know that 52% of Irish food companies have employed a hedging strategy so as to buffer currency changes.
“The problem is that such an approach becomes more expensive as markets increase in volatility.”
Kelly said that a hard Brexit, in other words the UK coming out of the single market and then subsequently signing free trade deals with a selection of the world’s major food exporting nations, represents the worst possible outcome for the Irish food industry.
“The UK seems to be taking quite a hard line as it approaches the negotiating process. But this may soften over time as both parties strive to work towards a manageable final deal.”
Kelly said that the Irish Government must take every opportunity to highlight the fact that Ireland’s agri food industries will be most exposed to the impact of the final Brexit deal.
“Driving efficiency within the industry will be a key response driver in this regard,” he said.
“And to make this happen, Ireland will have no option but to introduce investment schemes which, up to this point, would have been regarded as state aids.Also Read: ‘Irish agri-food sector needs state aid supports to protect against Brexit risks’
“The Irish agri-food and drink sector is uniquely exposed. There is a compelling case for exceptional state aid support to minimise the economic fallout and job losses.
“Already the currency squeeze is putting intense strain on exporters.
“This pressure is likely to intensify as the challenges and economic costs of a hard Brexit crystallise.
“The hardening of EU and UK negotiating positions mean we must plan for a very difficult Brexit process and the high possibility of a divisive outcome.”