DUBLIN, IRELAND — The Republic of Ireland, although a major food and drink exporter, relies on the United Kingdom for much of its supply of flour. However, the UK’s exit from the European Union means flour has suddenly become much more expensive, leading Irish politicians to ask whether the country should be doing more of its own grain processing.
Flour produced in the UK from UK wheat can be imported into Ireland under the deal agreed by London with the EU, at zero tariff. However, the widespread use of imported wheat, notably from Canada, by UK millers means that under the rules of origin put in place by the agreement, much of Ireland’s flour imports are subject to tariffs. Consequently, Ireland’s flour supply suddenly has become much more expensive.
At a meeting of the Seanad (Ireland’s Senate) Special Select Committee on the Withdrawal of the UK from the EU on March 29, Julie Sinnamon, chief executive officer of the government agency Enterprise Ireland, was questioned by senators about the effect of new arrangements under the Withdrawal Agreement between the EU and the UK on the agrifood sector.
“The volume of trade flowing between Ireland and the UK is not operating at ‘normal’ levels,” Sinnamon told the committee. “Challenges of complying with customs requirements and stockpiling of goods in Q4 2020 in preparation for Brexit, substitution with goods from other countries, and a reduction in trade volumes due to the impact of COVID-19-related restrictions throughout January have been reported by traders as contributing factors for this fall in trade.”
Sinnamon explained that there had been a sharp drop in overall food trade in January, the first month of the new restrictions, followed by a significant recovery in February.
The food and drink sector in Ireland has been working for many years to reduce its dependence on the UK market, with exports to the eurozone rising from €4.1 billion ($4.9 billion) in 2015 up to €5.6 billion ($6.7 billion).
“We were well on track to hit that 50% increase in that period,” she said. “We are having great success from companies in going into the eurozone.”
Malcolm Byrne, a Fianna Fáil senator for Wexford, asked about flour imports.
“Obviously, we have been importing significant amounts of flour here,” he said, expressing concern about a potential price increase for bread and bakery products. “It would now probably make a lot more sense to look at Irish mills starting to grind a lot more of the flour.”
Rowena Dwyer, manager of policy, planning and government relations at Enterprise Ireland, explained that tariff issues around rules of origin have created “major issues” for flour.
“It is a feature of the trade agreement and other trading agreements that these rules of origin have to be followed,” she said. “It is really about, I suppose, over both the short and longer term trying to see what potential investments can be done, how can companies be supported probably to make the adjustments to this challenge?”
She explained that companies would need to look at their supply chain configuration, pointing out that the EU has put in place a Brexit adjustment fund to help with the necessary changes.
“On flour, the options are around changing supply chains but none of those are immediate,” she said. “Companies will definitely have to be kind of supported in order to do so.”
Sinnamon explained that “the rules of origin impact on flour has been an unintended consequence and with that might come opportunities, just as the whole COVID thing has caused opportunities for people to do things in Ireland that we previously thought may not be appropriate.”
She suggested that “with that change and the lack of competitiveness that that brings in terms of the cost … there is probably a piece of work to be done in terms of looking specifically at the issue and supporting companies to look at the feasibility of doing further processing in Ireland that previously would have been done elsewhere.”
The industry group Food Drink Ireland expressed concern about the impact of rules of origin in the Origin in the EU-UK Trade and Cooperation Agreement (TCA) in a Jan. 25 statement. It called for a derogation for the Irish bakery sector.
Its director, Paul Kelly, explained that “under the rules of origin in the TCA, there is a requirement that the wheat used should be of UK or EU origin, with a maximum tolerance of 15% for grain from other countries such as Canada or the US.”
If the content of non-EU wheat is more than 15%, then the full tariff of €172 ($206) a tonne must be paid.
“This is a significant problem for the Irish bakery industry, which purchases flour from millers in Great Britain with a high proportion of third-country wheat, mainly Canadian or US, which is rarely below the 15% tolerance level,” he said. “Eighty percent of the flour used in the baking sector is imported, mainly from Great Britain, and the product specifications for much of that requires a higher percentage of US/Canadian wheat than allowed for in the tolerance rule. This results in a distorted marketplace where a Great Britain, Northern Irish or EU-based bakery competitor, using the same specification flour but not facing the same tariff, will be at a significant competitive advantage selling their finished product in the marketplace versus an Irish-based bakery. This is a problem uniquely faced by Irish-based bakeries.”
FDI puts the tariff as equivalent to a 50% increase in product cost and about a 9% increase in the consumer price of bread.
“In order to avoid distortion of trade and negative impacts on Irish consumers, we are seeking a derogation for the Irish bakery sector from this specific rule of origin in order to deliver a tariff-free solution and put the businesses on a level playing field with UK and EU bakery competitors,” Kelly said.
Alexander Waugh, director general of UK Flour Millers, the industry group that includes flour millers in Ireland, told World Grain that “there are already mills on the island of Ireland; it’s just that two of the three are in Belfast.”
“All of these have access to high protein non-EU wheat tariff free and can mill it for use in the Republic and Northern Ireland without falling foul of the rules of origin,” he said. “I imagine that they and other existing flour millers might be worried if the Irish government were to subsidize a competitor’s entry into the market.
“The main impact is on Great Britain millers selling flour in Ireland and those of their customers who like a high proportion of North American wheat in the grist.”
Waugh explained that Ireland’s government had asked the European Commission to look at the issue of rules of origin in relation to flour.
“It does seem a bit odd that the rules permit the import of high protein wheat from Canada tariff free in both the EU and the UK, and that bread and other processed products can be made from it and moved tariff free between the EU and the UK in both directions, but that there is a tariff on the intermediate product — flour —which is made using Canadian wheat,” he said. “It is hard to see how that is consistent, of any benefit to EU farmers, or in the interests of consumers in the EU.”
Waugh said he was skeptical about the idea of building new mills to use Irish wheat.
“The problem here is that the quality of Irish wheat is not high enough or consistent enough for standard bread-making flour,” he said. “If English or German wheat is not good enough, those Irish bakers insisting on the use of Canadian what are not going to find flour from Irish wheat is of the quality they need.”
APR
2021
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