Food and drink sector upbeat on year ahead

Bord Bia’s release of last year’s food and drink export figures today will set the scene for what is expected to be another strong year for the agri-food sector.

The figures should show that food and drink exports came close to €10 billion for the first time last year, no mean feat when you consider that they breached the €9 billion mark for the first time in 2012.

Agri-food observers are bullish about the year ahead after a rollercoaster 2013, which included the horse meat scandal and a fodder crisis but also a strong harvest and record export levels. Ciara Jackson, director of Grant Thornton's food and beverage division, says Grant Thornton's Hunger for Growth global study reflects an emerging positivity from food and drink manufacturers.

“It’s about small green shoots – 84 per cent of Irish businesses surveyed expect to see growth in revenue and profits next year. We haven’t heard that in a while. And 60 per cent expect increased employment.”

She also notes that dairy companies are acquiring new businesses to increase capacity, both here and abroad. “There’s been a good bit of investment in building facilities so it’s all quite positive.”

Of course all eyes in the dairy sector are on next spring when the milk quota regime is abolished. Expansion is the buzzword at every dairy conference. Agri-food economist Ciarán Fitzgerald says one of the most significant events of last year was the announcement by Glanbia of its investment in a new dairy processing plant in Belview, on the Kilkenny/Waterford border.

“It’s a reflection of the fact that, for the first time in more than 30 years, we’re planning for growth,” he says. “It makes real the prospects for dairy growth because this is going to be a huge, state-of-the-art plant: €200 million and probably more is going to be invested.”

Just before Christmas, Glanbia also announced another 90 jobs in Monaghan and Dublin. Glanbia Consumer Products, which owns the Avonmore and Premier brands, will build a new UHT facility in Monaghan to produce long-life liquid milk and cream suitable for export to markets such as China, Europe and the Middle East. It also announced that Glanbia Global Performance Nutrition was locating its Europe, Middle East and Africa head office in Dublin to support the international growth of its sports nutrition brands.

“It’s all about added value and we’ve seen that with infant formula but sports nutrition is coming up as a huge business. So that is hugely significant,” Mr Fitzgerald says.

But he adds that getting access to funding is still a huge issue for farmers and food businesses looking for a competitive interest rate. Ms Jackson says funding is the key issue raised by food companies when asked about challenges ahead.

"Are the banks really open for business? I think it's become a two-tier economy. You have the large corporates that will always get their funding but the smaller businesses are telling us that it's still a struggle. There's a limited pool out there available for lending and if you want to get it you have to fight for it."

Sustainable dairy assurance scheme
Paul Kelly, director of Ibec's Food and Drink Industry Ireland, says the recent launch of the sustainable dairy assurance scheme is a very important part of the jigsaw when it comes to expansion. Bord Bia is rolling out the scheme this month and hopes to have all 18,000 dairy farmers signed up to the ISO programme by 2016. "Ireland is trying to move into more value-added product and this shows we are anticipating and meeting the needs of those blue-chip customers," he says.

Glanbia entered 2014 with a new managing director Siobhán Talbot following the recent retirement of John Moloney. Meanwhile, Kerry Group is powering ahead with its technology and innovation centre in Naas, Co Kildare. The €100 million investment is the largest ever investment in food innovation by an Irish company. It is also continuing to extend its market in the Asia-Pacific region where ingredients and flavours revenue rose by 15.4 per cent to €394 million in the first half of last year.

Mr Kelly is optimistic for the year ahead and believes there will be less price volatility because the global harvest has been so good. “We’re starting to see more stability in the market place but what’s needed now is to see that translated into improved consumer sentiment.”

He highlights the re-opening of the Japanese market as a positive statement about Irish beef and says food and drink companies are working hard to get a strong foothold in the China market.

It has become an increasingly important market for our dairy and pork exports and is now our sixth largest market overall. Opening the market to Irish beef is on the Government's to-do list. More than 15 new markets opened to Irish food, predominantly Irish beef, in the past year and the US market is expected to open to Irish beef in the coming weeks.

Food fraud
All very upbeat, so where's the bad news? The release of the interim Elliot review into the horse meat scandal in the UK before Christmas highlights just how vulnerable the food industry is to major food scandals.

The review says food crime is a global problem because of the huge profits and low risks involved and it highlights a worrying lack of knowledge regarding the extent of these criminal operations.

Mr Fitzgerald says this is a major issue for the food industry, which has been to the forefront investing in the area of food hygiene and safety, but now must also focus on food fraud. He points the finger at retailers for driving the demand for “cheap and cheerful” economy burgers.

“That’s a big challenge and there’s been very little commentary on it. We were promised fair trade legislation by the Government when it came in, in 2011. We were promised it again by the end of May and it hasn’t happened yet and that needs to be put in place,” he says.

The Elliot review cites one meat product supplier who said an unnamed retailer asked him to produce a “gourmet” burger for a unit price of under 30p per kg. Even by using the cheapest beef available from older cows and factoring in fixed costs, the lowest possible unit price would be 59p so this price would only be possible if product such as offal was added and if the burgers were produced by a non EU-approved premises.

The ripples of the horse meat crisis are still being felt by the convenience food sector but sales of frozen burgers are beginning to stabilise, according to David Berry, commercial director of Kantar Worldpanel Ireland.

“In the immediate aftermath of the horse meat scandal sales of frozen burgers fell by 38 per cent in the 12 weeks to the end of April,” he says.

But in the 12 weeks to December 8th, sales were just 10 per cent lower when compared with the same period in 2012. Own brand products have been hit hardest, with sales declining by 30 per cent in the latest data compared to a 3 per cent fall for branded products.

Mr Kelly says new EU labelling regulations, which will give more information on issues such as country of origin, will begin to take effect later this year and will have a major impact on food companies and retailers.

“It’s going to be a big cost in terms of changing all the packaging and the labelling but the consumer is going to be getting a lot more detail and more modern information. It’s probably the most fundamental change we’ve seen in labelling in the past 30 years.”

Looking inside the farm gate, Teagasc has issued an upbeat performance for this year but on condition that normal weather patterns prevail. Farm incomes are forecast to rise by 13 per cent, mainly because the price of feed and fertiliser is expected to fall.

Last year saw record numbers of students seeking to take up agriculture and food science courses at third level. The Central Statistics Office says demand for third-level agri-food courses increased by 10 per cent – the steepest rise in demand for courses.

And the number of students enrolling in Teagasc courses has more than doubled since 2006 which led to a warning from Teagasc that it may have to turn students away from its farming courses if the moratorium on staff recruitment in State bodies is not eased.

The Central Statistics Office has advised caution in interpreting recent figures showing a major rise in employment in the agri-food sector because it has been updating the census sample but Mr Fitzgerald says there is no doubt there has been significant jobs growth.

“According to the CSO, between on-farm, food manufacturing and distribution, you’ve 230,000 jobs in agri-food sector,” he says.

“There’s no other sector that has that level of employment and that’s before the dairy expansion starts.”