Questions and answers about coronavirus and the UK economy
Questions and answers about coronavirus and the UK economy

Why are supermarket shelves in Northern Ireland empty?

The pandemic continues to cause disruption to global food supplies. But the reason for empty supermarket shelves in Northern Ireland is the interaction between the end of the Brexit transition period and the region’s high level of market integration with the rest of the UK.

The start of 2021 has seen supermarkets in Northern Ireland struggling to fill their shelves. Lorries delivering goods to the region have experienced significant delays, and local businesses are having difficulty sourcing new stock. Why is this happening?

On 1 January 2021, the UK completed its exit from the European Union, with a free trade agreement signed shortly beforehand. Crucially for Northern Ireland, how it would trade with the EU had already been agreed weeks earlier, under the Northern Ireland Protocol. This confirmed that Northern Ireland remains within the EU’s single market for goods, and must apply what is known as the Union Customs Code to all goods it imports, including from the rest of the UK.

Yet Northern Ireland’s trade with the rest of the UK outweighs that with the Irish Republic and the rest of the EU. The region’s economy is also more heavily integrated with the rest of the UK in certain sectors, particularly retail. This means that the trade barriers introduced by the Northern Ireland Protocol, which now governs trade between Great Britain and Northern Ireland, are having a disproportionate effect on supermarkets in the region. This has led to consumers facing empty shelves for food, and Sainsbury’s even stocking a competitor’s products.

Difficulties have not been limited to supermarkets, with smaller traders struggling to source goods from suppliers in Great Britain, online retailers cancelling or pausing orders due to disruption to parcel delivery services, and even home removal firms now being required to complete customs declarations when moving possessions from Great Britain to Northern Ireland.

Why is Northern Ireland being treated differently?

Compared with the rest of the UK, Northern Ireland now has a different relationship with the EU. Following the Brexit referendum, both the UK government and EU committed to no new infrastructure on the border between Northern Ireland and the Irish Republic. Yet with the UK leaving the EU’s single market and customs union, this would necessitate some form of checks on goods in transit between Northern Ireland and the Irish Republic.

The Northern Ireland Protocol was the agreement reached to remove the need for such checks. The result is that the international border for goods was effectively moved from the Irish border between the UK and the Irish Republic, to the Irish Sea between Great Britain and Northern Ireland.

Why does this affect Northern Ireland’s trade?

While this new arrangement has avoided the need for checks on goods crossing the Irish border, it has created complications for trade between Northern Ireland and Great Britain. Goods entering Northern Ireland from Great Britain are now subject to checks, and effectively treated as foreign imports.

As the UK and the EU have agreed a free trade deal, there are no tariffs due on goods shipped across the Irish Sea to Northern Ireland. This has not removed the regulatory barrier created by the Northern Ireland Protocol, which involves extra costs: shipments to Northern Ireland are still subject to customs procedures, while those that contain food or products of animal origin must be accompanied by an Export Health Certificate, and go through extra checks. These are examples of ‘non-tariff barriers’, which are becoming increasingly common in global trade, with negative effects on trade flows (Kinzius et al, 2019).

This new trade barrier has important implications for a small, open, regional economy such as Northern Ireland, which is heavily reliant on trade. In 2018, companies in Northern Ireland purchased 46% of goods and services from outside the region (Northern Ireland Statistics and Research Agency, NISRA, 2020). For imports of goods, 60% came from Great Britain, 14% from the Irish Republic, 14% from the rest of the EU, and 12% from the rest of the world (NISRA, 2020).

Figure 1: Origin of goods imported to Northern Ireland

Source: NISRA, 2020

This reliance on trade with Great Britain has existed since Northern Ireland’s creation a century ago. Despite Northern Ireland and the Irish Republic having both been part of the EU’s single market, North-South trade on the island remained low relative to what would be predicted (Honohan and FitzGerald, 2016). Therefore, barriers that affect the east-west flow of goods, between Northern Ireland and Great Britain, will potentially have the largest economic impact on Northern Ireland’s trade.

Why have supermarkets been so severely affected?

Supermarkets in Northern Ireland have been most visibly affected by the new trade barriers. This reflects the differing exposure of sectors within the regional economy to barriers to trade, and where these barriers are placed.

A report on how proposed forms of Brexit might affect the Northern Ireland economy demonstrated that the magnitude of the impact on any one sector was related to its level of integration with either the UK or Irish Republic/EU markets (Fraser of Allander Institute, 2019). For example, agriculture and the food and drink sectors would be more negatively affected by a hard Brexit and a North-South trade barrier on the island of Ireland. This reflects the integrated supply chains that dominate this sector (Brownlow and Budd, 2019).

In contrast, the frictions associated with an east-west trade barrier have a larger impact on the trade in manufactured goods and services between Northern Ireland and Great Britain (Fraser of Allander Institute, 2019).

Northern Ireland’s supermarkets are therefore particularly vulnerable to east-west barriers to trade. Part of the peace dividend from the Good Friday Agreement has been the arrival of national supermarket chains in Northern Ireland, lowering prices for consumers. Local retailers, such as Stewarts and Crazy Prices, were replaced by Tesco, Sainsbury’s and Asda, which now account for 69% of the Northern Ireland grocery market (Kantar, 2020).

East-west barriers may therefore reduce competition and raise prices for consumers in the long run, if national retailers reduce their presence in Northern Ireland due to higher costs, a process that may have already begun. This could similarly affect the Irish Republic, which has also benefited from the arrival of large UK chains (Fitzgerald, 2016). These consequences may not simply be limited to UK-based chains: even large multinationals serving the island of Ireland have been affected by Brexit, including IKEA.

What will be the long-term economic effects?

The long-term economic effects of the new Irish Sea border are harder to estimate or predict, and will require further research.

Much will depend on how the new procedures operate over the coming months. Some temporary exemptions from the new regulations have been granted to supermarkets for food products until 1 April 2021, but the major supermarkets have warned that the system is ‘unworkable’. There is provision in the Northern Ireland Protocol for modifications to be made, either through a UK-EU Joint Committee, or unilaterally through Article 16, but neither process guarantees substantive changes (Hayward and Phinnemore, 2021).

If the cost of food and other consumer goods does increase, this may affect the level of poverty in Northern Ireland. Household disposable incomes in Northern Ireland are among the lowest in the UK (Office for National Statistics, ONS, 2020). Households there already spend more per week on food than other parts of the UK (ONS, 2019). And higher costs for food would exacerbate this, which could increase poverty levels.

A further long-term possibility is that Northern Ireland supply chains will re-orientate towards the Irish Republic and the EU. While this may avoid the direct impact of the Irish Sea border, any benefits to retailers in Northern Ireland may be limited. Retailers and consumers in the Irish Republic are also expected to experience price increases as a result of Brexit, due to high levels of integration with the UK (Lawless and Morgenroth, 2018).

The ability of the Northern Ireland economy to undertake the degree of re-orientation required is also questionable, given its existing structural weaknesses (Johnston et al, 2020). Public policy interventions have struggled to overcome these weaknesses (Brownlow, 2020), and the complicated nature of Brexit will pose further challenges for policy-makers.

Where can I find out more?

Who are the experts on this question?

  • Graham Brownlow at Queen’s University Belfast researches the Northern Ireland economy, both past and present.
  • Esmond Birnie at Ulster University has written about the competitiveness of the Northern Ireland economy, and the role of policy.
  • Edgar Morgenroth at Dublin City University has investigated the impact of Brexit on the Irish economy.
  • Katy Hayward at Queen’s University Belfast explores the political and legal implications of Brexit for Northern Ireland.
Authors: David Bogle and David Jordan, Queen's University Belfast
Photo by Boris Dunand on Unsplash
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