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BREXIT: Could it ruin the Northern Ireland economy?

Post-virus – and after Brexit – everything is going to change. That’s the dominant view of national and international media. But how exactly do they see the future? This regular digest section gives some of their answers and views/Edited by George Hamilton

In this edition (June 8):

BREXIT:  Our first story says local companies fear EU/UK talks on the new “Irish Sea border” could kill the NI economy.  Then commentator Newton Emerson suggests NI being used as a pawn by the EU in those talks.  Final piece says UK ready to allow cheap US chlorinated chicken in – goodbye Moypark, our largest employer and lynchpin of our farming industry?

Brexit #1: Brexit disruption ‘could destroy some Northern Irish businesses’ in wake of pandemic

  • If no EU/UK trade deal, NI supply chains could be hit harder than Covid-19

Brexit #2: Newton Emerson: Brussels playing games with Irish sea border

  • Hard line on checks at odds with EU commitment to peace process

Brexit #3: Britain ready to allow import of chlorinated chicken from US

  • ‘Dual tariff’ regime would see different levels of duty on imported foods, depending on whether they comply with UK welfare standards

Vulnerability of the UK’s food supply chains exposed by COVID-19, study reveals.

  • The UK has been left “dangerously dependent” on just two EU countries for its fresh vegetable imports, a new study has revealed.

Coronavirus: Who’s doing well out of lockdown?

  • Amid the gloom of the pandemic, some companies have surged ahead

What has happened to the world’s cruise ships?

  • With crew struck on board, ships clustered at ports and river boats ready to set sail, what does the future hold?

CHINESE WHISPERS:  It looked like China would be the country least affected by the virus, but these two pieces have a slightly different story

China #1: As coronavirus sinks global demand, China’s exporters go online to tap domestic market.

  • Thousands of Chinese exporters and manufacturers of mass market goods are now counting on the domestic market for survival

China #2: China wants to keep luxury spending at home

  • Chinese—the most important buyers of luxury goods globally—will increasingly shop within China’s own borders.

Brexit disruption ‘could destroy some Northern Irish businesses’ in wake of pandemic

Northern Irish businesses could collapse unless they are given at least six months for the “Herculean task” of adjusting to the new UK-EU trading relationship from January because Covid-19 has hindered their ability to prepare, a retail body has warned.

With less than a month until the deadline for asking for an extension to the Brexit transition period, the Northern Ireland Retail Consortium (NIRC) has cautioned that the additional costs and administrative burden of new export certificates and customs declarations could not only make some products unviable but cripple businesses.

NIRC warned that the failure of the UK and EU to reach a comprehensive trade deal would have a worse impact on Northern Irish businesses than Covid-19.

Aodhan Connolly, the consortium’s director, said: “Not only has Covid-19 removed our ability to prepare…it’s also proven how wonderfully efficient but amazingly fragile just-in-time supply chains are and that they are very susceptible to consumer behaviour and delays.

“This is not just a macroeconomic or business problem. It’s a standard of living problem for households across Northern Ireland.” Of all the UK regions, Northern Ireland has the highest levels of indebtedness and the lowest levels of savings.

Last year more than 425,000 lorries arrived into Northern Ireland’s three ports. Under the new protocol, the Freight Transport Association calculates that each load of farm food products would carry a £290 cost in terms of certification, identification and documentation checks, on top of labour costs to complete the paperwork and the cost of installing compatible computer systems. Daily Telegraph June

Newton Emerson: Brussels playing games with Irish sea border

In practice, almost every grocery item arriving from Britain is in the care of a handful of high-street names and is routed through one of just half a dozen warehouses. Very little trust and monitoring should be required to be confident these goods are not at risk of leaking across the land border into the EU and can therefore have their sea border processes waived under the Ireland/Northern Ireland protocol of the UK’s withdrawal agreement.

Major retail chains will not become involved in smuggling or counterfeiting and their internal systems would pick up any attempt at such fraud by insiders or third parties. Tesco has a specialist analytics centre to look for suspicious trends in its mountains of data, covering customers, staff and suppliers. Among the warning signs it can reportedly detect are vegetarians buying meat. Lorry loads of chlorinated chicken will hardly disappear unnoticed.

Simplification should also be straightforward on the sea border from west to east. The EU says export declarations are required, at a cost of £16 to £56 per item, as goods are leaving its customs union and must be tracked in case they re-enter it. The British government, in its draft proposals last month, noted anything from Northern Ireland being exported from Britain will have exit checks anyway, so internal UK paperwork is unnecessary. This is a reasonable point.

So why did the European Commission slap it down in media briefings? Why is it sticking to a maximalist position that all goods entering Northern Ireland be presumed at risk?

The Ireland/Northern Ireland protocol stands alone from trade discussions. So the only reason to take a hard line on the sea border is to protect the EU’s single market. The only reason for Brussels to do this now, bundling it up in trade talks, is to use Northern Ireland as a bargaining chip.

To the extent this threatens prosperity and stability in the North, it is rather obviously ranking peace below the EU’s interests, or just the EU’s convenience. The sea border could never leak enough to seriously undermine the single market.

The Republic has a sincere interest in avoiding any secondary checks on its frontier. Many nationalists in Northern Ireland will think a tight sea border heralds an all-Ireland economy and political unity, which would serve unionists right. This forgets the sea border runs all the way down the Irish Sea. If retailers in Northern Ireland cannot stock their shelves economically from Britain, they cannot do so via the Republic.

Without a trade deal, the Republic would face a difficult adjustment of its own. In the end, expecting the UK to voluntarily disrupt its food supply for the EU’s paperwork is a political unicorn. If the sea border is unworkable, containers will be waved through at Belfast and checkpoints will go up in Dundalk. It is in nobody’s interest in Ireland to see this happen, yet Brussels is prepared to play games with the scenario.

The original sin of Brexit lies, of course, with the UK – but lying has never been restricted to Brexiteers. Erroneous claims of breaches to the Belfast Agreement created their own needless risks to peace and the agreement’s institutions. The EU’s approach to Northern Ireland has been dangerously cynical from the outset. Whatever excuse there might still be for that, there is no longer any excuse for not seeing it. Irish Times June 4

Britain ready to allow import of chlorinated chicken from US

Britain is prepared to permit imports of chlorinated chicken from the US but will slap high tariffs on cheaply-produced food in order to minimise the impact on British farmers.

The latest Government proposal for a trade deal with the US is for a “dual tariff” regime that imposes different levels of duty on imported foods, depending on whether they comply with UK animal welfare standards.

Hormone-fed beef, chlorinated chicken and other foods that use techniques banned in Britain will be allowed across the Atlantic, but ministers want to use tariffs to make it uneconomical for US producers to export them to the UK.

High-quality foods, such as organically-reared free range meat, would be subject to lower tariffs in order to encourage foreign producers to lift their animal welfare to British levels.

The National Farmers’ Union described the scheme as “a significant step forwards” because it would prevent the US from flooding the UK market with cheap food produced using techniques banned in Britain.

But Brexiteers will be concerned that British consumers will not see the benefits of Brexit in the form of cheaper food on supermarket shelves.

It represents a major victory for George Eustice, the Environment Secretary, over Liz Truss, the International Trade Secretary, with free marketeer Ms Truss having championed an alternative proposal that would have seen tariffs reduced to zero over 10 years.

Donald Trump, the US President, is an opponent of tariffs and could reject the idea out of hand, but it is likely to become the standard offer to other countries as the UK continues to sign trade deals around the world.

The issue of chlorinated chicken and hormone-fed beef has become one of the central sticking points of US-UK trade talks.

The Government accepts such food is safe, but the reason American farmers wash chicken carcasses in chlorine is because they are battery farmed, making them more prone to disease.

British farmers have argued that it would be grossly unfair to allow foreign imports of foodstuffs that would undercut domestic goods on price because of the fact that they are produced in a way that is banned in the UK. Daily Telegraph June 3

Vulnerability of the UK’s food supply chains exposed by COVID-19, study reveals

A new study, published in Nature Food, reveals that insufficient capacity in domestic food production, just-in-time supply chains and Brexit-related labour market challenges have all resulted in a weakened UK food system.

Building diversity and collaboration in the food system is essential for resilience in the COVID-19 recovery, the authors of the University of York study say.

The UK imports almost half of its food and 84% of its fresh fruit, and is heavily reliant on EU countries for vegetables and salads.

In particular, the UK is reliant on the Dover Strait maritime route and ferry services between Dover and Calais. Most importantly, it is “dangerously dependent” on the Netherlands and Spain for the majority of its fresh vegetable imports.

The report reveals that 83% of the lettuces we import come via Dover, along with 67% of tomatoes and 77% of strawberries.

The authors of the study warn the UK’s lack of diversity in sourcing of products remains a point of “acute vulnerability.”

One of the authors of the study, Professor Bob Doherty, from York Management School and Chair for the N8 AgriFood research programme at the University of York, said: “The UK Government in partnership with the food industry must rethink this reliance on such a vulnerable food system in the COVID-19 recovery period.

“How the UK can grow more of its own food sustainably should be considered whilst also maintaining good trade relations with our EU partners. Hence, a sensible joined-up farming and trade policy that is evidence-based is required.

Professor Doherty added: “When it comes to food, COVID-19 has demonstrated the need for a good trade deal with the EU. Furthermore, between 70,000 to 80,000 seasonal workers come to the UK from the EU every growing season to support the UK harvest.

“The UK migration policy and associated restrictions on seasonal workers was already causing concern for UK growers and farmers even before the pandemic” he added

Coronavirus: Who’s doing well out of lockdown?

Business owners are counting down the days until they can begin operating again with a measure of normality. For many, survival will be the priority after seeing their revenues disappear over the past three months.

Others, though, will emerge from lockdown fighting fit. Ben Mead, who founded Varley, the sports fashion maker, with his wife Lara in 2015, said that he had been inundated with online orders since March, which had offset a collapse in physical sales.

Athleisure firms such as Sweaty Betty, Gymshark and Varley are not the only businesses that have managed to stay on track during the pandemic. Other sectors, too, have prospered by helping consumers to stave off the boredom of enforced isolation and preserve their mental and financial health.

Bike shops: The shutdown has spawned a new breed of bike fanatic.

“We’re seeing more women than men buying bikes,” Graham Stapleton, chief executive of Halfords, said. He said that there had been a “resurgence” in leisure cycling, with families seing the activity as both beneficial to their health and an enjoyable diversion from the tedium of lockdown life.

Demand has been robust enough for the retailer to signal that profits will be at the upper end of its £50 million to £55 million guidance.

The Bicycle Association, the industry trade body, said that sales of bicycles, parts and accessories rose by at least 50 per cent in April. It said that about seven in ten bike sales during lockdown were to new or returning cyclists.

Mr Stapleton, 52, said that Halfords’ cycle to work business had enjoyed “unprecedented growth” and that sales of electric bikes had risen “two and threefold”. Bicycles were “starting to become essential means of travel to work”, he said. Sales of turbo trainers, static devices that enable cyclists to ride indoors, have risen fivefold.

Computer games: “The industry is performing really well. People are turning back to video games when they haven’t played for a long time and other are discovering them for the first time,” said Andrew Day, chief executive of Keywords Studios, the largest games company listed on the London stock market.

Games that allow players to interact with friends online are performing particularly strongly, said Mr Day, 56, whose company provides tools and services to developers and publishers.

Sales of games, controllers, headsets and other paraphernalia have risen sharply in recent months. In America consumers spent $1.6 billion on hardware, software and accessories in March, a jump of 35 per cent year-on-year, according to industry figures.

Mr Day believes that habits formed during the lockdown will stick after restrictions ease. Developers, he said, would need to “refill their content pipes” rapidly to meet increased demand. Like players, investors are flocking to video games. Shares in Keywords Studios have risen by 16 per cent this year, with those of Team17 and Frontier Developments, which develop and publish games, up by 40 per cent and 64 per cent, respectively.

Gold traders: The Royal Mint said that in April and May sales of its physical bullion coins and bars were up 487 per cent on the year before. A record 11,000 new bullion customer accounts were created in March and April.

“Precious metals have a reputation of being safe-haven assets during times of economic volatility,” Andrew Dickey, The Royal Mint’s precious metals director, said. “Since March we have seen sustained high demand for gold coins and bars, as investors turn to gold to ride out unpredictable market conditions.”

Rob Halliday-Stein, founder of online dealers Bullion by Post said: “It was just absolutely crazy and all dealers were struggling to get stock anywhere. We were selling everything we could get — our sales were over three times normal levels and we could have sold a lot more if we could have secured any more stock.”

Jewellery Quarter Bullion, his company, reported revenues of £126 million in the year to April 2019. Mr Halliday-Stein said that at the peak of demand it was turning over an extra £25 million a month, helping it to head for record revenues in the year to April 2020.

Spread-betters: Business has boomed for the City’s spread-betting companies, as traders have tried to profit from the big market swings that the pandemic has caused.

The latest to publish numbers was IG, the City’s oldest spread-betting firm, which on Thursday said that net trading revenues during the three months to the end of May had more than doubled from £117.9 million in 2019 to about £259 million.

The company had said in April that staff bonuses for the year would rise to about £42 million, from £25 million a year, earlier because of its strong performance.

Plus500’s figures also give a glimpse into the losses that some customers have endured trying to predict the markets. This is because the group’s business model allows it to make money from its clients’ losses.

These losses contributed about $82.3 million of the $316.6 million in revenues that Plus500 generated in the three months to the end of March. Its revenues were up 487 per cent year-on-year.

Corner shops: Independent retailers, which include newsagents and Co-operatives, reached a record 30 per cent of the British food market last month after a 9 per cent increase in sales in May. Industry experts put this surge down to shoppers being reluctant to queue or mix with people at the big supermarkets as they try to limit their risk of infection. The sharp rise in home working also means that many people are more likely to buy essential items from their local shop.

Meanwhile, Iceland, the frozen foods retailer, has had its highest market share in two decades as it has lured more customers with available delivery slots. B&M Bargains has cashed in after being allowed to keep the majority of its stores open because its cut-price food aisle meant that it was classed as an “essential retailer”. However, the discount chain revealed that the biggest sales boost had been from DIY and gardening equipment as people have spruced up their homes and gardens during lockdown while garden centres were closed for two months.

Sanitiser makers:
Consumer goods company, Reckitt Benckiser is targeting production by the end of this month of about 20 times the amount of hand sanitiser it manufactured last year. The surge in demand helped Reckitt, the maker of Dettol and Lysol disinfectants, to announce its strongest sales growth in the first quarter since it was formed in 1999.

Sales of its over-the-counter health products, which include Strepsils throat lozenges and Nurofen painkillers, jumped by a third to £618 million, making it the company’s best-performing business.

Other leading consumer healthcare businesses have profited. Sales in the consumer division of Glaxosmithkline – which makes Panadol painkillers – rose by 11 per cent to almost £2.9 billion in the first quarter, benefiting from what Emma Walmsley, its chief executive, has called “pantry-loading behaviour”. The Times June 6

As coronavirus sinks global demand, China’s exporters go online to tap domestic market

Thousands of Chinese exporters and manufacturers of mass market goods from lamps to blankets are now counting on the domestic market after the pandemic slammed overseas demand.

An official China manufacturing survey suggested any recovery is months away, with export orders in May shrinking for the fifth straight month.

The strain on exporters has been a shot in the arm for online platforms, which in previous years have been trying to recruit such companies to expand their vendor base.

JD.com in April announced that it would waive fees and give out loans as part of a campaign to recruit manufacturers to its Jingxi arm and aims to lure 10,000 merchants in the toy manufacturing hub of Shantou to its site this year.

Pinduoduo has tied up with the Dongguan government to reach a goal of helping 1,000 brands and manufacturers make a combined 100 billion yuan ($14.06 billion)in sales.

Alibaba said 160% more export-oriented firms opened online stores on Taobao in the past three months to redirect their focus toward the domestic market. In March the e-commerce giant also launched an app for manufacturers to promote direct-from-factory deals.

Tencent Holdings’s WeChat messaging app has also been a popular tool, with factories outsourcing their excess stock to individuals, who set up chat groups to sell them to friends and contacts.

China’s commerce minister Zhong Shan said last month that domestic sales by exporters rose 17% in April and encouraged them to further increase their local market share.

Many exporters, however, said they did not see the shift to the domestic market as a long-term solution. For one, most products made for Western consumers are shunned by the locals, and it is usually more profitable to sell in bulk to overseas customers. Reuters June 5

China wants to keep luxury spending at home

China has set out plans to hike, very substantially, the annual tax-free spending allowance for its citizens who visit the off-shore duty free island of Hainan. The move would ensure that the Chinese—the most important buyers of luxury goods globally—will increasingly shop within China’s own borders.

The government has proposed a new annual limit of RMB100,000 ($14,000) per person for tax-free shopping in Hainan, China’s southernmost province. The popular tourist destination attracts more than 75 million, primarily domestic, tourists every year.

The new limit is more than three times the current RMB 30,000 ($4,200), and forms part of a much broader 60-point plan for the construction of a free trade port on the island.

While no dates have been set for the implementation of the higher tax-free allowance, the official publication of such an intention indicates how keen China’s government is to keep luxury spending—which drives global duty-free shopping—on home soil.

According to Bain & Company, the Chinese pushed their share of the estimated $313 billion personal luxury goods market up to 35% last year. In 2017, that share was 32%. China was also responsible for almost single-handedly growing the personal luxury market in 2019. Americans, the next strongest buyers, had a 22% share, flat versus the year prior.

Due to the coronavirus pandemic that started in Wuhan, luxury groups were immediately impacted. China’s lockdowns began on January 23 and travel bans followed. First quarter sales at France’s LVMH which owns Louis Vuitton and Christian Dior, collapsed by 32% in Asia-Pacific, a much steeper fall than other regions. For Gucci and Saint Laurent owner Kering it was the same story with Asia-Pacific sales down by 30%. For both groups, Asia-Pacific excludes Japan.

In Bain’s spring report, released in May, the consultancy notes that even with the early restart of China’s economy “continued restrictions on travel will mean that many purchases that would have been made abroad will happen in China”.

Given the tilt towards China, and regulatory developments such as generous allowance hikes, Bain expects the Chinese to account for almost half of luxury spending by 2025.

The air traffic slump this year had already hit travel retail sales in European and American locations due to far fewer Asian tourists, followed by national lockdowns and travel bans. With rising tax-free allowances being offered within China—and Covid-19 concerns still prevalent—the Chinese may be less tempted to travel or buy abroad in future if they can get good deals in locations like Hainan.

Hainan’s offshore duty-free policy was launched in April 2011. The allowances are available to domestic and foreign visitors including residents of Hainan province who are at least 16 years old and who board flights, trains, or ships to leave the island province.

Government statistics show that Hainan has generated duty-free sales of almost $8 billion since 2011. Duty-free products that can be bought cover all the key luxury categories including jewelry, watches, perfume, cosmetics, sunglasses, fashion and accessories, as well as sports goods and confectionery. Forbes June 2

What has happened to the world’s cruise ships?

Around the world, 12 weeks after cruising shuddered to a halt, cruise ships are bobbing around in forlorn clusters. Some ships have returned to their home bases. Elsewhere, vessels are hovering offshore, taking turns to sail into port for basic operations, including refuelling and taking on provisions

What about the crews? Repatriating well over 100,000 crew has been a long and arduous process because of the sheer number of people involved and laborious bureaucracy. In the Philippines the backlog of Covid-19 testing means hundreds of crew members on ships in Manila Bay can see home, but can’t go ashore until proven to have tested negative. Thousands more are still waiting for news. There have been several crew suicides reported in recent months.

How quickly can ships start sailing again? Ships are in what’s called “warm lay-up”, which means “we can maintain the engineering, air conditioning and crew systems, with only a small number of crew on board,” said Peter Deer, the managing director of Fred Olsen Cruise Lines. “This is the best way for us to be able to get back up and running as quickly and efficiently as possible.

What are the British lines doing? Waiting, essentially. All cruise lines have departures listed on their websites and are selling cruises for these dates, but holidays continue to be cancelled on a rolling basis, with passengers being offered refunds or future cruise credits.

If British lines do manage to sail this summer, it may be on cruises close to home. Saga is understood to be looking at cruises around Britain without ports of call, while Viking Cruises is speaking to its regulars to gauge interest in similar cruises, subject to government advice. Whatever happens, industry bosses insist that it will be a slow and tentative resumption of service.

Are we likely to see fewer new ships being launched?
Twenty-two cruise ships were due to launch this year. However, when the biggest shipyards in Italy, Germany and France shut down, delays became inevitable. The picture for the shipyards is grim. Bernard Meyer, the owner of the Meyer Werft yard in Papenburg, Germany, told workers in a video address that he thinks it could be 2030 before shipbuilding reaches the level it was at last year, with new orders stalling until at least 2023 or 2024 and a market flooded with second-hand ships.

What changes are we going to see on board?
Smaller cruise lines are saying that they will sail at between 50 and 70 per cent capacity to maintain social distancing; big ship lines are yet to be specific. Expect constant temperature screening, relentless disinfecting and endless hand-sanitising. When big ships start up, embarkation could be staggered, to avoid crowds in cruise terminals. Buffets will be waiter service only and spas will, for now, be closed. Facemasks could be mandatory — Royal Caribbean has even applied to trademark a face covering design. The Times June 6