I understand the Cabinet, at its meeting today, decided to reintroduce export credit insurance for beef exports to Iran. While easy headlines have been inspired by lawyers' fees at the Beef Tribunal, this hugely controversial issue which was such a major issue before the tribunal has received very little analysis to date. Now that the Government has made its decision, there is a need to look at the economic rationale for awarding the benefit of export credit insurance to a third country, specifically, in this case, Iran.
What are the benefits which are conferred on a national economy through the provision of subsidised credit insurance to exporters? Exports that fall into this category of ECIS are uninsurable credit risks or risks that are only insurable at enormous cost. If the Government offers export credit insurance to Iran at low cost, what benefits to the national economy are thereby obtained and to whom to these benefits accrue?
In the specific case of beef, which is a product covered by EC intervention arrangements, the benefit to the national economy secured through having export credit insurance subsidies can be no greater than the excess of the Iranian price, inclusive of EC export refunds, and the floor price available in Europe. The exporter does not require State subsidised ECIS to get the floor price available in Europe. For example, if we take it that the Iranian price is £120 per tonne and the European floor price is £100 per tonne, it follows that the benefit to the national economy cannot exceed £20. In fact, it will be less than that because transport and other costs have to be taken into account. Therefore it is misleading of the Government to argue by way of reference to gross value of exports to third countries achieved as a result of export credit insurance since this greatly exaggerates the national economic benefit of such schemes.
There may be an impact on the trading margins of the exporting companies which would be likely to improve their profitability but in economic terms that is not the same as increasing output or employment. In the case of commodity-type food exports, these are constrained by, for example, the availability of domestic supply. We saw the recent dramatic example of beef being sourced outside the State to fill contracts and the Irish taxpayer taking the full risk for UK suppliers. This must not be allowed to happen again.
The cost of providing export credit insurance is not immediately apparent. The State incurs a risk which may not be easy to quantify and charges a premium which everyone knows to be less than the commercial market would seek. In principle, the cost of an export credit insurance scheme is equal to the level of premiums which a commercial insurer would charge, less the amounts actually charged. Has the Government established what the London premium would be to cover these contracts, and if the London market is not quoting for such contracts at the moment, why does the Government consider it wise to reintroduce such cover given the extent of risk to the Irish taxpayer.