Beware of predictions but 2017 outlook is positive

Prediction, goes an old Danish proverb, is hazardous – especially about the future. Some looming threats will be less traumatic than anticipated or maybe worse than our most grave prophecies. Unexpected headwinds will knock us off track and new unanticipated opportunities will come calling.

This time last year, few people seriously expected the bizarre events of 2016: the decision by UK voters to leave the European Union, the victory of US president-elect Donald Trump and ongoing uncertainty in political leadership of some of Europe’s most powerful nations. These events leave in their wake heightened uncertainty. The view, in hindsight, of an extraordinary 2016 only serves to further undermine our already shaky confidence in predictions.

For food businesses, 2017 is shaping up to be a year with greater uncertainty than ever before. However, the Irish food and drink sector is resilient and has experienced continued growth despite a range of obstacles. As a result, it enters 2017 with some cause for optimism. Here are my five predictions about developments in 2017:

UK market

First, the UK will remain our largest market, accounting for at least one-third of all exports. Amid the uncertainty about market access in a Brexit scenario, Irish firms are taking steps to defend aggressively hard-won positions on UK retailers’ shelves and to protect relationships with key UK customers.

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The fall in the value of sterling and a redirection of available export product to more profitable markets has resulted in a continuation of a long-running trend towards reducing our dependency on the UK market, a trend that will persist in 2017. But, in many product sectors, the UK remains fundamental to the success of Irish businesses. For prepared consumer foods, the UK accounts for 65 per cent of all exports. More than half of our beef and pig meat exports and 84 per cent of Irish poultry exports finds a way to UK-based customers.

The UK is simply too important to abandon. For Ireland’s most important indigenous industry, it is crucially important that an accommodation is negotiated to allow this trade to continue and further develop. Sterling weakness will reinforce a deterioration of competitiveness in 2017 and a significant loss of food exports to the UK can be expected – possibly in the order of hundreds of millions of euro. But it will nevertheless still remain our number-one export market and has to be protected.

EU expansion

Second, we will see significant food and drink export growth in EU and other international markets. Many companies are actively planning to widen their export market base. Bookings are at record levels for Bord Bia-hosted Irish pavilions at each of the international trade fairs in the first quarter of 2017 in mainland Europe and the Middle East.

Increased capacity

Third, 2017 will see payback on capacity-enhancing investments in the past few years, with firms boasting export growth through increased capacity in a number of key product sectors – dairy, whiskey and craft beers, and some consumer food categories. Growth in beef exports can be anticipated as the national cattle herd increases significantly in 2017. Leading Irish dairy businesses have invested heavily in capacity to meet growing demand for specialist nutritional dairy powders, a growth likely to continue into 2017 and beyond.

Overseas acquisitions

Fourth, a number of our multinational food businesses have made major acquisitions internationally, and are likely to report further profitable growth. Companies such as Kerry, Glanbia and ABP will continue to build on their international base, securing their global leadership positions. Greencore’s audacious $748 million (€722 million) proposed acquisition of Peacock Foods in the US last month will transform that group and can be expected to be followed by further steps to establish it as yet another Irish global leading food business.

Food FDI

Finally, a longer-shot bet: we may see an uplift in food FDI into Ireland, by firms seeking a foothold or a manufacturing base in an EU market. Some leading UK-based food businesses currently export significant volume into Ireland and mainland Europe. Having their own facility in Ireland or possibly a manufacturing agreement with an Irish business partner would provide a strategic option to secure their current EU trade, mitigating their risks of imposition of tariffs.

In general, the outlook for 2017 is positive. Currency swings and the uncertainty caused by political decisions will unquestionably restrict growth. However, many firms have already adjusted their plans to compensate, bringing forward and accelerating investment in widening the footprint of their exports and re-establishing their competitiveness through better and faster innovation. While prediction may be difficult, we can shape our own future to an extent and overcome at least some of the obstacles to success.

Michael Carey is managing director of East Coast Bakehouse and chairman of An Bord Bia. Twitter: @careyonfood