Unresolved border issue spells trouble for Diageo post-Brexit

With Brexit negotiations to be resumed in December 2017, both the UK and the EU are accused of dragging their feet over an issue – an Irish border – which has emerged as the biggest hurdle.

Obviously, any sort of border between the Republic of Ireland and Northern Ireland, whether physical or regulatory, is politically impossible and publicly unpopular.

For the time being, the Republic of Ireland and Northern Ireland function like a single market. People and businesses are able to work across the entire island. Since cross-border trade is worth more than EUR three billion (USD 3.6 billion) per year by Irish government estimates, there’s an understandable desire to avoid disruptions. Also, 80 percent of Irish exports go to the UK and from there to other countries.

Both sides broadly agree that post-Brexit people and goods should be able to move seamlessly back and forth. But if the UK were to exit the EU in 2019 without a deal, police and customs controls would need to be introduced between the Republic and Northern Ireland immediately.

This would adversely affect the drinks company Diageo (the brewer of Guinness), which has operations on both sides of the border and sends its trucks across about 18,000 times a year.

Ingredients from all over Ireland arrive in Dublin, where Guinness is brewed. It is then pumped into tankers and trucked 150 km north to Belfast in Northern Ireland, where it’s bottled and canned before being sent back south for distribution.

All Guinness consumed in Britain is produced in Dublin after Diageo closed the Park Royal brewery in London twelve years ago.

Now, if a hard border were to be re-established, WTO tariffs would be slapped on to all goods entering the UK. More crucially, crossing the border could cause massive delays, costing an extra EUR 100 (USD 119) for each lorry-load of Guinness. It’s been estimated that these interruptions alone could amount to EUR 1.8 million in additional costs per year. Guinness would either have to swallow those extra costs or pass them on to consumers.

Another brand owned by Diageo, Baileys liqueur, is also of concern in Ireland as some of its ingredients cross the border with Northern Ireland three times before it is shipped to Britain.

The majority of cream from dairy milk in Baileys is produced in the Republic but Diageo confirmed to Bloomberg news service that some comes from farms in Northern Ireland. The finished product is then sent to Belfast for bottling before returning to Dublin for export.

Although the EU and the UK in principle concur that Northern Ireland needs what they call a specific solution, there is none in sight, however.