Stepping up to the plate to put food giants on investment menu

Despite the success of the Irish agri-food sector, the country has failed to attract some of the big players in the global food industry

Located just three short metro stops from Zurich’s international airport, the glass walls of Kraft’s European Headquarters glisten in the sunlight.

The US multinational’s European centre in the Swiss city is just one of a number of food companies, including Swiss-Irish firm Aryzta, which are headquartered in Switzerland.

Known for its market-leading position in fields as diverse as banking and pharmaceuticals, Switzerland is also home to a plethora of domestic and multinational food companies, from chocolate manufacturer Barry Callebaut, to the world’s biggest food company, Nestle.

Much of the reason for Switzerland’s predominance in this field is of course historic, with many food companies originating in the milk processing heartland of Switzerland.

More recently, Switzerland’s low corporate tax rate, high standard of living, and pro-business environment have made it a mecca for inward investment, and a rival for Ireland in terms of attracting foreign direct investment.

But the strength of Switzerland’s multinational food industry also raises the question about Ireland’s position in the international food sector. Despite the undisputed success of the Irish indigenous agri-food sector over the last few years, Ireland has not attracted some of the big global players in the food industry. Of the 61 companies that located in Ireland last year through the IDA, none were a food and drink company.

One of the reasons behind Ireland’s track record in this field is the anomalous situation regarding responsibility for the food industry among Ireland’s State agencies.

Puzzlingly, food is not under the remit of the IDA, the state body charged with encouraging inward investment. Instead, the sector falls under the remit of Enterprise Ireland, the state body charged with encouraging Irish companies to export.

Bord Bia is also in the mix. Falling under the remit of the Department of Agriculture, Bord Bia helps to develop markets for Irish food and drink products. To complicate matters further, the IDA is involved in some inward investments from food companies, such as Kellogg’s decision to locate its European HQ here.

This anomalous situation has evolved for historical reasons. With Ireland’s indigenous agri-food industry deemed to be so strong, the sector was not seen as an investment target.

Nonetheless, Enterprise Ireland has had success in helping to attract some food companies into Ireland. The baby infant formula market, for example, is heavily represented in Ireland, with companies such as Danone and Wyeth present here, mainly due to the wide availability of its main raw material, milk, though the recent decision by Abbott Nutrition to cut 180 jobs at Sligo is a worry.

The lack of urgency in attracting multi-national food giants is a concern for some in the industry who believe that there is a touch of protectionism at work, particularly from the powerful agri-sector.

Another food industry source contends that “any food company looking to set up anywhere needs to have sufficient raw materials. At the moment most of our food produce is exported.”

Of course, one of the reasons why a vibrant multi-national food industry has not emerged in Ireland, to the same extent as the pharmaceutical, bio-medical or technology sector has, the inherent strength of the indigenous food players. Companies such as Glanbia and Kerry Group have expanded exponentially as a result of an increasingly internationalised strategy.

The argument is that, the very fact that Irish food companies are looking abroad for growth suggests that there is little capacity for further activity at home in the sector.

However, there are opportunities for activity in the non-manufacturing and R D space. With innovation and product differentiation a key factor in the food industry, many of the world’s top food multinationals have dedicated research and development centres dotted around Europe.

One such example is Kraft’s global research and development centre located in Saclay, on the outskirts of Paris. The plant, which employs 120 people, typifies the kind of value-added, innovation-based activity the Irish government is keen to promote and which is being developed by Kerry Group at its recently-announced proposed RD centre in Kildare.

Virtually no international companies in the food space have an R D presence here (although Kraft is one of the few international companies to have significant manufacturing presence in Ireland, with a number of high-end Cadbury plants which provide specialist manufacturing services).

Ireland’s strong innovation-driven indigenous food industry suggests that it is well-positioned to tap into any future investment decisions by food multinationals. It is up to the Government to step up to the plate.