Last year exports from Ireland’s food and drink sector reached a new high of almost €12 billion. Irish food is sold in 180 markets worldwide and with continued entry into new global markets, strong population growth across the world, and outperforming sectors including dairy, beverages and prepared foods, the sector is well-positioned for continued growth, if it can handle the challenges thrown up by Brexit and its repercussions.
1. Brexit
If it wasn’t for one particular move by our nearest neighbour, the outlook for the Irish food sector would be stellar. Already, however, the Irish mushroom sector has been hit badly by a plummeting sterling, with forecasts suggesting that up to half of Ireland’s mushroom producers could be forced to close as a result of the UK’s intention to depart the European Union. And, while fluctuations in currency aren’t unusual, this time it’s different.
“Now we’re looking at a structural impact, it’ll be a permanent fixture assuming we stay in Europe,” says Dr Lance O’Brien, head of strategy and international relations at Teagasc. “In the longer term we simply don’t know what will happen and [it] probably won’t be clear until the next couple of years – until negotiations start – how will it impact us.”
For food producers, uncertainty is the name of the game, even if article 50 is set to be triggered on March 29th. “People are asking questions but as of now there are no answers,” says O’Brien.
For David Carson, partner with Deloitte, what will be key is the EU’s approach. “All we’ve heard is one side of the equation: what British prime minister Theresa May would like to happen. But we haven’t heard the response. Arguably if she got what she wanted, it would be good for Ireland, because she wants as much of the single market as she can get. But we’ve no idea where all this is going to land, and that uncertainty is really the biggest issue,” he says.
Anne Lanigan, who is manager of the Brexit unit at Enterprise Ireland, agrees. “There is still no certainty as to what Irish food exporters can expect once the UK departs the EU in terms of access to the market, tariffs etc so it’s not clear how damaging it could be to Irish exporters,” she says.
If trade agreements were to follow World Trade Organisation guidelines, the tariffs could be quite penal. The message then, from advisers such as Carson, is to “prepare for the worst”.
“What we’re telling companies is very simple: not to wait. Now is the time to prepare for it, on a worst case scenario – not because we’re being pessimistic, but if you prepare for the worst at least you’re ready for that,” he says. “If you’re impacted by this and don’t do anything, it will have a negative impact on business.”
Enterprise Ireland has set out a roadmap Irish food companies can follow, including examining potential areas where they might be exposed, such as currency, potential slowdown in the UK market, supply-chain issues and increased competition.
“One strong recommendation is to talk to customers at a strategic level. Understanding their plans and working with them to address their challenges will deepen relationships and may also help highlight new opportunities,” says Lanigan.
2. New markets
Food companies should also focus on areas that can help them to grow their businesses, such as increasing competitiveness and innovation, and expanding their reach. This latter point is important: dilute the risk by increasing market share in other countries.
David Hearn, a partner in consulting with Deloitte, says that other EU countries are an obvious choice for Irish exporters, due to the lack of restrictions on trade and lack of tariffs. Kerrygold, for example, sells about 200 million packets of butter in Germany each year.
However, even upping sales in these countries may not be straightforward. “The challenge is that many EU countries, particularly Germany, export a significant amount of agri-food products to the UK also and will themselves be seeking out new markets,” he says.
Looking farther afield, east Asian countries, particularly China, are attractive markets for Irish exports, says Hearn, as rising populations and higher incomes are increasing demand there. Exports to North America have doubled in the past six years, with potential for further export growth, he notes.
“In a way, we’ve already begun to prepare,” says O’Brien, pointing to export statistics over the years. In 2015, some 41 per cent of agrifood exports went to the UK, but last year this was 37 per cent, thanks to an increase in exports to Asia.
The figure is even lower in some sectors; in dairy for example, about 30 per cent of exports go to the UK.
And even in new markets, Brexit raises its ugly head. As O’Brien notes, if the UK secures a more favourable trade deal with such countries as Argentina and Brazil, or New Zealand in terms of lamb, this will be a challenge for Irish producers.
3. Population growth
It’s important to look at Brexit in the context of overall developments in the global food market. “The UK population will continue to grow and will want more food; they don’t produce near enough food,” says O’Brien.
As its next-door neighbour, Ireland will still be well-placed to fulfil this. “The big opportunity is population growth; it’s really what drives food trade globally,” says O’Brien.
Shifting consumer preferences are also leading to significant disruption in the sector. “Growing incomes and populations in emerging markets are altering consumption patterns, with considerably more protein being consumed. Because meat and dairy require more resources to produce than grain, this puts significant pressure on the world’s resources,” says Hearn.
But with changing trends, come opportunities. And Ireland, once it gets past the Brexit challenge, is well-placed to rise to them.
How one food company is preparing for the challenges ahead
It’s not their biggest market, but the prospect of a weakening sterling and the imposition of trade tariffs after Brexit is giving the Burren Smokehouse cause for concern.
The Co Clare-based food company is known for its smoked salmon and France is its biggest market but the UK is a “substantial” market too. Co-owner Birgitta Curtin says that so far the company hasn’t been too hard hit by the falling value in sterling, but there are concerns on the horizon.
“We have great concerns with Border control, and the extra costs in connection with importation documentation,” she says, adding that food can be a very low-margin business and this can be “eaten up” by changing exchange rates.
The move in the UK also hints at a wider global trend towards protectionism, and this may also be an issue for companies such as the Burren Smokehouse.
“If there’s more focus on ‘buy British’, then people won’t want to get products from other countries,” she says, fearing that moves afoot could make the company less competitive in the UK market.
However, she is also quick to identify the company’s strengths in this new marketplace, citing the company’s “Irishness” as a boon, distinguishing it from local products.
“What we have is a unique product, so it’s not fully comparable [with UK products]. There’s a slight advantage in that,” she says, noting that so far, despite the exchange-rate fluctuations, which make Irish products more expensive for UK customers, the company hasn’t been “too hard hit yet”.
“The one thing is that we are in a niche, strategy wise, to be more into the high end market, and people still want to have luxury gifts so it isn’t as price sensitive,” she says of sales of the company’s products.
Even though it’s not always easy to do, the Burren Smokehouse is “absolutely” looking at other markets, such as the US, with Curtin noting that the company recently succeeded in entering the Hong Kong market.
“It does take time to go into new markets, and sometimes yes, money, if you want to really go for it,” she says.
Overall though, with strategies such as Origin Green – Ireland’s national sustainability programme – in play, the future remains positive for Irish companies, Curtin believes, despite the challenges.
“I am optimistic about the potential for sustainably-produced Irish products, and also I’m optimistic about the general trend within Ireland and food producers to realise it’s so important to hold prices and not undercut others or yourself.”
