Budgeting for 2021 and beyond - Q2 2020 Analysis - Food Drink Ireland Business Monitor
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Food Drink
Ireland
October
2020 Business
Monitor
Budgeting
for 2021
and beyond
Q2 2020 Analysis
Brought to you byFood Drink Ireland Business Monitor | October 2020
Budgeting for 2021
and beyond
Paul Kelly
Director
Brexit involves an unprecedented fracture of the Single Market, with
Ireland particularly exposed. The food and drink industry remain
particularly reliant on the UK market and the UK land-bridge.
It is the sector most exposed to Brexit.
In July, at the Summit on the EU Multi-Annual Financial Framework
and the COVID-19 Recovery Instrument, EU leaders agreed to make
€5 billion available to a special Brexit Adjustment Reserve to counter
the adverse consequences of Brexit on the most affected Member
States and sectors. The European Council’s Final Conclusions states
that “a new special Brexit Adjustment Reserve to be established to
counter unforeseen and adverse consequences in Member States
and sectors that are worst affected”. The Commission will make a
legislative proposal for the new fund in November.
In the Brexit Readiness Action Plan, the Irish Government noted
“As one of the Member States most impacted by Brexit, Ireland is
working with the Commission to ensure Irish businesses and sectors
benefit from the Reserve, to the maximum extent possible” and that
“Government will remain actively engaged in promoting Irelands’
interests in relation to the Brexit Adjustment Reserve”. It also states
that it will “Consider further supports and programmes needed to
support the agri-food and fishing sector in light of Brexit, including
as part of the preparation of Budget 2021”.
In March of this year the European Commission adopted for the
second time a Temporary Framework to enable Member States to
use the full flexibility foreseen under State aid rules to support the
economy in the context of the COVID-19 outbreak. Together with
existing State aid rules the Temporary Framework enabled Member
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States to ensure that sufficient liquidity remained available to businesses
of all types and to preserve the continuity of economic activity during and
after the COVID-19 outbreak. The Temporary Framework provides for
five types of aid including direct grants, loan guarantees / subsidies and
short- term export credit insurance.
Food Drink Ireland’s Budget 2021 Submission called for exceptional
targeted policy responses to offset the impacts of Brexit. These
measures include accessing the existing €4 billion in Brexit contingency
funding set aside for the years 2020 to 2025, an extension beyond
December 2020 of the Temporary Framework for State aid supports as
well as substantial funding from the EU’s €5 billion Brexit Adjustment
Reserve and any increased tariff revenue from UK imports in order to
maintain and sustain economic activity and jobs.
Funds amounting to 5% of the value of current annual export sales to
the UK will be needed annually from domestic and EU sources for at
least three years. These state aid supports and funds from the Brexit
Adjustment Reserve should be targeted as follows:
n Short term measures to allow the Irish Government to re-introduce
the Employer Wage Subsidy Scheme for Brexit impacted
companies in a no-deal scenario.
n Medium term measures to allow the Irish Government to introduce
investment aids to support Irish food and drink companies.
n Introduction of a state supported export credit insurance scheme.
n Additional funding for direct grant supports for innovation,
marketing and trade promotion for companies looking to build new
markets in the EU and internationally.
n Support measures to ensure sufficient accompanied roll on / roll off
capacity for direct ferry routes to the continent.
n Direct supports to cover the additional ongoing costs associated
with developing and maintaining customs clearance capability.
n A Tariff Support Mechanism fund to offset the tariff amount
imposed by the UK on the most exposed sectors. The fund should
also offset the impact of EU tariffs on indigenous manufacturers
importing critical raw materials.
03Food Drink Ireland Business Monitor | October 2020
Food business snapshot
2020 YTD vs Aug 20 vs Aug 20 vs
2019 YTD July 20 Aug19
Food prices -1.41 -0.84 -2.16
Food commodity
1.52 1.95 2.24
price index
Core retail sales -2.11 2.55 5.62
Food retail sales 10.71 -3.50 8.42
UK food retail sales 5.47 0.35 3.65
EU 27 (excl UK) 6.07 2.06 5.13
Food retail sales
2020 YTD vs Sep 20 vs Sep 20 vs
2019 YTD Aug 20 Sep 19
Eur/STG
0.17 1.02 2.10
Exchange Rate
Crude oil prices -32.60 -6.71 -30.45
2020 YTD vs July 20 vs July 20 vs
2019 YTD June 20 July 19
Food exports 0.0 -6.06 0.18
04Food Drink Ireland Business Monitor | October 2020
Domestic market
Food prices
In June 2020, prices on average were 0.4%
lower than in June 2019 as measured by the
Consumer Price Index. Consumer prices in
the month of June fell by 0.3%. Food and
Non-Alcoholic Beverages were one of the
contributors to this decrease as average prices
in this category decreased by 0.6% with an
annual decline of 1.5% to date.
Retail sales and
consumer sentiment
June 2020 saw further substantial improvement
in consumer sentiment according to the KBC
Consumer Sentiment Index. This increase is
linked to easing of health restrictions in society
which lessened fears about the outlook for
the economy and employment. Although the
improvement to 61.6 in June represents a
significant improvement from the April’s low-point
of 42.6, it remains some considerable distance
from February’s pre-pandemic reading of 85.2. In
terms of outlook for the remainder of 2020, there
was a slight decline in August 2020 following
positive increases in Q2 which reflects the overall
worry and tentativeness of consumers due to the
recent trajectory of Covid-19.
Employment forecast
According to CSO figures at the end of June
2020, the majority of those whose income
from employment has been affected due to
COVID-19 were still being facilitated through the
COVID-19 Pandemic Unemployment Payment
(PUP). A total of 438,933 people were availing
of the payment in June, which represents a
decline of 104,231 from the end of May. The
number of people on the Temporary COVID-19
Wage Subsidy Scheme also declined in June to
382,018 compared to 451,652 in May.
05Food Drink Ireland Business Monitor | October 2020
Macro Trends
Exchange rates
According to AIB’s FX Centre, sterling has
experienced similar volatility in the first half of
2020 as it did in 2019. Covid-19 contributed to
this in Q1, however it did recover towards the
end of Q2 although it did not fully reach the levels
of pre-March. A lack of progress in EU-UK Brexit
negotiations has also stalled sterling’s recovery
as markets fear a no-deal scenario as we move
into 2021. The euro-dollar exchange rate has
operated in a tight corridor of $1.07-$1.15 since
the Autumn of 2018 and this has continued
through Q2 2020 despite global uncertainty and
recession on the back of Covid-19.
Factory gate prices
Monthly factory gate prices decreased by
1.2% in June 2020 according to the CSO. That
compares to a 0.3% decrease in June 2019 and
the annual percentage change shows a decrease
of 8.2% in June 2020. There was an increase,
however, in the wholesale price index for Gas Oil
(other than autodiesel) in June 2020 of 6.6% but
annually the price index has fallen by 13.4%.
Food commodity indices
The FAO Food Price Index (FFPI) recovered
somewhat in June averaging 93.2%, 2.4%
higher than in May which represented its lowest
reading since December 2018. Although there
were still declines in some indices such as the
FAO Meat Price (-0.6%) and FAO Cereal Price
(-0.6%) indices, the FAO Dairy Price index rose
by 4% from May, marking the first increase after
four months of successive declines. There was
also a strong increase in the FAO Sugar Price
index (10.6%) in June based on the surge in
crude oil prices which provided support to the
sugar markets.
06Food Drink Ireland Business Monitor | October 2020
Trade
Irish monthly food trade
During the first five months of the year, all other
medium-sized EU exporting countries saw the
value of their goods exports fall by between 9%
and 33%. Over the same period, Irish goods
exports rose by 7% annually. As shown in Figure
7, Irish monthly food exports have continued to
recover in Q2 2020 following a difficult start to 2020
but are still yet to reach the level pre-Covid levels.
UK consumer confidence
In June 2020, the UK retail sector continued to
recover from the initial effect of Covid-19 with the
volume of sales increasing by 13.9% according
to the Office of National Statistics (ONS). This
increase in June followed a similar increase in
May which has brought total sales back to a
similar level as before the pandemic. In June
2020, despite a small monthly decline of 0.1% in
volume sales, food stores remained at a higher
level than before the pandemic, 5.3% higher
than in February 2020. This increase in sales
reflects an increase of UK consumer confidence
of 2.5 points to 98.5 in June according to the
YouGov/Cebr Consumer Confidence Index.
60%
Figure 9: UK share of food and drink exports
UK share of Irish food
50% 50%
and drink exports
50%
Food and drink, which is the single most exposed sector
48% 48% 47%
47% 48% 47% 46%
44% 45% 44%
43% 44%
40%
40%
39%
40% to Brexit on the export side, has had some success in
37%
35% diversifying away from the UK. The value share of food
30%
and drink exports going to the UK has fallen from 44%
in 2015 to 35% in the first half of this year. We have seen
20%
the most significant decrease in the share of our dairy
exports going to the UK. In volume terms, the share of
10% cheese being sold to the UK has fallen from 61% in 2014
to 44% in the first half of this year. The decreases in
0% milk (58% to 28%) and butter (39% to 13%) have been
even more pronounced. On the other hand, progress in
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
(h1)
diversifying the beef sector has been more difficult with
47% of the volume of Irish beef still reaching the UK
market, down just marginally from 2014.
07Food Drink Ireland
84/86 Lower Baggot Street, Dublin 2
Tel: (01) 605 1500; Fax: (01) 638 1500
www.fooddrinkireland.ie
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