Following a grim and unproductive meeting between the British PM and EU heads of state and government at the recent summit in Salzburg, the possibility of a hard or no deal Brexit looks increasingly likely.
In this event, Ireland will suffer disproportionately. According to new figures released today by the Drinks Industry Group of Ireland (DIGI), the impact of a hard Brexit on the drinks and hospitality sector alone could cost the Exchequer as much as €135 million in lost revenue a year.
The estimate was published in a statement, The Economic Impact of Brexit on the Drinks and Hospitality Sector, published by DIGI with supporting analysis by DCU economist Anthony Foley.
The statement updates the 2017 Economic Impact of Brexit on the Drinks and Hospitality Sector Report, authored by Anthony Foley.
The lost revenue would result from a combination of hard Brexit-related factors, including reduced drinks exports to the UK, reduced British tourism, and an increase in cross-border shopping.
Drinks exports to the UK have already decreased, dropping 11% in the first half of 2018 alone. This compounds a decrease of 7% in the period 2015-2017. Many Irish drinks products are dependent or heavily reliant on the British market. More than 70% of all cider exports and 43% of all beer exports are to the UK.
Difficulty accessing the British market due to new tariffs, an increase in wait times at the border, or other costly barriers will eat into the margins of drinks producers, especially micro-breweries and distilleries.
Much of rural Ireland is dependent on tourism—which in turn is highly dependent on drinks and hospitality businesses—for employment and revenue. The UK is Ireland’s single biggest tourism market. If a hard Brexit does occur, the value of sterling is likely to drop again, leading to a decrease in the number of British tourists patronising Irish businesses. Between May 2015 and May 2018, the sterling cost of a €1,000 holiday in Ireland increased by approximately £135 (from £721.43 to £877.26).
A more attractive euro-sterling exchange rate could also lead to an increase in cross-border shopping. DIGI’s report estimates that if Republic of Ireland citizens travel north of the border to purchase drinks products, businesses and government here could lose out on €60 million worth of expenditure.
Counteracting a hard Brexit
To counteract the effects of a hard Brexit on the drinks and hospitality industry, ahead of Budget 2019, DIGI is calling on the Government to reduce alcohol excise tax.
Ireland has the second-highest level of excise tax on alcohol in the EU. Broken down by category, Ireland has the highest tax on wine, the second highest on beer, and the third highest on spirits.
A reduction in excise will serve as defensive measures in case of a hard or no deal Brexit, freeing up funds for businesses in a more restricted, regulated market while also allowing for continued growth and expansion at home and abroad.
The drinks and hospitality industry has been one of Ireland’s greatest post-recession success stories, exporting €1.3 billion worth of goods every year. While the number of total manufacturing enterprises has grown by just 1% since 2008, the number of drinks manufacturing enterprises has grown by 105%.
In 2013, there were just four active distilleries in Ireland—by the end of the 2018, there will be 25. Ireland’s micro-breweries have quadrupled in number in the last six years, their turnover increasing from €8 million to €52 million in four years. Collectively, Ireland’s pubs, off-licences and restaurants have invested millions in new premises, new products and services, and new employees.
However, a hard Brexit in a high excise environment is likely to restrict further growth and jeopardise the future of smaller drinks and hospitality businesses.
Commenting, Rosemary Garth, Chairperson of DIGI and Director of Communications at Irish Distillers, said that while the negative effect of Brexit has been presented in terms of the medium and longer term, we’re concerned about the immediate and short-term effects which are already being felt by the drinks industry.
"Following last week’s summit in Salzburg, the prospect of a hard or even no deal Brexit is looking increasingly likely. While this will be bad for Ireland overall, it will disproportionately affect certain industries, drinks and hospitality among them.
"A hard Brexit will inevitably lead to reduced revenue, business closures and job losses. In some areas, where the industry is the primary employer, we are looking at the possibility of a recession-type effect, whereby entire communities suffer because of a drop in product exports or tourist numbers.
"To avoid this kind of scenario, the Government needs to make it as easy as possible for drinks and hospitality businesses to trade and grow. A hard Brexit alone is tough—a hard Brexit in a market with high excise tax is even tougher. High taxes mean more money is spent covering overheads before anything can be invested in productive outputs, like new premises, new products, or new staff.
"For smaller producers with limited product ranges, a bump up in excise can cost thousands of euros. That is enough to eat into their profit margins and potentially shutter them completely.
"As has so often occurred in this country’s history, when the UK sneezes, Ireland catches a cold. We are asking the Government to boost this industry’s immune system now by reducing excise tax on alcohol."