Brexit Bites - currency volatility and uncertainty

Updated / Tuesday, 7 Mar 2017 13:49

Firms here that export to the UK are paid in sterling and when they convert those earnings back to euro, they are now receiving roughly 15% less in euro terms than they were last summer

Even before Article 50 has been triggered and the United Kingdom formally begins the process of leaving the European Union, the first effects of Brexit have well and truly worked their way across Ireland, writes RTÉ business journalist Aengus Cox.

The biggest issues right now for Irish companies exporting to the UK are, in the first instance, the sharp fall in sterling since the Brexit vote (the pound has fallen about 15% against the euro since last June) and uncertainty over Ireland's future trading relationship with the British market.

Firms here that export to the UK are paid in sterling and when they convert those earnings back to euro, they are now receiving roughly 15% less in euro terms than they were last summer.

This has had a major impact across sectors here, with margins been hit hard.

Fresh food producers have been worst affected, with margins previously already tight in this area.

The Brexit effect – Six mushroom farms close in six months

In the mushroom industry at least six farms closed in as many months following the Brexit vote.

Producers here would receive around £1.50 for 1kg worth of mushrooms. Before Brexit this would have worked out at €2, but now the same amount of mushrooms is only yielding c. €1.70 when the sterling-euro conversion is made.

The challenges facing producers was again highlighted only a few weeks ago when one of the biggest players in the market here, Walsh Mushrooms, swooped in to rescue one its main suppliers that was struggling, Golden Mushrooms in Tipperary.

Britain as a gateway to mainland Europe is threatened

However, for shellfish exporter Connemara Seafoods the main concern is not the drop in sterling, rather how a hard Brexit might affect its ability to transport its produce to mainland Europe.

More than 90% of the shellfish harvested at its Clew Bay base near Westport in Co Mayo is transported through Britain to markets in countries such as the Netherlands and France.

Connemara's managing director Andy Mulloy foresees significant issues around delays if new borders and tariffs are introduced.

Exporting chocolate to Britain is bitter sweet

The Meath-based Celtic Chocolates exports the majority of the chocolate it manufactures to grocery retailers in Britain.

Monitoring currency shifts has become a daily practice, and here is no exception.

The specialist chocolate maker's MD Joe Callery says he monitors any small fluctuation between the euro-sterling rate closely.

"First thing in the morning when I wake up I check the currency."

He also has an arrangement with his bank to hedge currency prices going forward if he feels the need, while he sources and pays for raw materials in sterling where possible to mitigate the effects of the euro-sterling volatility.

Despite the uncertainty over Ireland’s future trading relationship with the UK, Celtic Chocolates has also committed to a growth strategy, which it believes will help to insulate it from the fallout from Brexit.

‘We see the UK very much as a home market’

Meanwhile, near the border in Co Monaghan, forklift manufacturer Combilift is taking a similar stance with regard to growth.

The company exports virtually all of what it makes, with the UK accounting for 25% of its business.

Even with the shroud of Brexit, Combilift managing director Martin McVicar believes Irish businesses are best placed to trade with Britain and should take advantage of Ireland’s close proximity to the UK.

The firm has backed up its confident talk by investing €50m in a new manufacturing facility, which will see Combilift double its output over the next five years.

Although it is still very early days when it comes to meeting the challenge of Brexit for Irish firms, it is encouraging to see how many sectors have are well prepared on issues such as managing currency volatility and amending growth strategies to reduce dependency on the UK market.

Support agencies too, such as Bord Bia and Enterprise Ireland, are playing their part in ensuring firms are as robust as possible when facing these issues.

Having spoken with a lot of companies, in a lot of different industries, all over the country, it is clear they value the supports on offer - and see them as being of genuine use as opposed to token efforts.

The hope is that should leave Irish companies well placed to navigate the choppy economic waters once Article 50 is triggered. 


Comment via Twitter: @AengusCox