These are exciting times for the food industry. Global population is set to grow by two billion by 2050 and food production is already struggling to keep up with demand. According to Minister for Agriculture Simon Coveney, the world will need between 40 to 50 per cent more food by 2030. “We know that is going to be driven by demand for seafood, dairy products and red meat and Ireland produces all three competitively and effectively,” he says. “And we are planning to grow the industries of all three.”
Adding to the optimism is the fact that milk quotas will be abolished in 2015, freeing up farmers to produce as much milk as they like for the first time in more than 30 years.
That sense of opportunity has not gone unnoticed in our schools. According to the CAO, the biggest jump in demand for college places this autumn was in agriculture-related courses where applications rose by 6.69 per cent, compared with last year. More than 1,400 people are studying in agricultural colleges today – an increase of 800 in six years.
This is all good news for a country that markets itself as the food island.
Bord Bia chief executive Aidan Cotter says we’ve enjoyed a period of sustained growth in recent years. Exports increased by 27 per cent in the past three years and topped €9 billion for the first time last year. “And all the indications are that, notwithstanding poor weather conditions, that growth will continue in 2013.”
Despite the year starting with the worst possible news in the form of the horse meat scandal, beef exports actually grew by 12 per cent between January and March. “There’s great demand for quality cattle and that’s good news for farmers,” Cotter says. “Given what’s been happening, the beef industry has come through this really very well.”
Not surprisingly, processed meat sales in Ireland and the UK fell significantly since the horse meat revelations, with frozen burger sales falling by more than 40 per cent. “Consumers have lost trust in the category to a certain extent,” he says. “Some of the private label products in particular have yet to be replaced on the shelves and clearly consumers can only buy what’s available so you would expect that reduction in sales.”
The food industry is keen to put the horse meat saga behind it now and is focusing on ambitious targets in the Government’s Food Harvest 2020 strategy. It aims to increase food and drink exports to €12 billion by 2020.
Cotter says this target is eminently achievable as the dairy industry is expected to double its growth by 2020 which would be worth €1.5 billion alone.
Growth areas
Asia and Africa are the two big growth areas in terms of population and the dairy sector is studying these markets closely. "As the dairy sector continues to grow, there is going to be a particular focus on the African market which some would regard as the new China, as far as the food industry is concerned," Cotter says. "Indeed some of the fastest growing economies in the world are located in Africa."
He says the pork, seafood and drink sectors are all benefiting from increased demand from China. “And infant formula – in which Ireland is very strong with about one tenth of the world’s output – is a particularly important market for Ireland in China.”
Last year’s food and drink exports to Asia increased by 18 per cent to €453 million, while exports to China increased by 39 per cent to €262 million.
But despite the excitement of these emerging markets, the United Kingdom is still the greatest consumer of our food and drink. It accounted for 42 per cent of total food and drink exports last year, with trade reaching €3.8 billion.
And it’s not all one-way traffic. Ireland is the most important export market for food and drink from Britain. We take more than €2 billion worth of its food and drink every year.
That two-way trade will be the subject of the first UK-Ireland Food Business Innovation Summit being held in Dublin next Wednesday, May 29th. Organised by Teagasc and the UK’s Institute of Food Research, it will bring together leading UK and Irish food company executives and retailers to look at building closer co-operation between the two islands.
It’s all very upbeat. There is no doubt that this State will be a changed place if the agri-food sector expands as outlined in Food Harvest 2020.
But how will it all affect the environment? Some environmentalists fear the expansion plans will kill the very thing we are staking our reputation on.
“I don’t think so,” says Cotter. “I think we are going to witness what we would describe as sustainable intensification where increased productivity will alleviate any growth in emissions.”
Bord Bia introduced its Origin Green programme last year which accredits companies that sign up to environmentally-friendly measures in areas such as greenhouse gas emission, energy conservation, water management and biodiversity. More than 240 companies have signed up for the programme.
“We’re the only country that has made this commitment so I think the seriousness of the industry in supporting its green credentials is demonstrable.”
Some 40,000 beef farms have been carbon foot printed to date and this measurement will be rolled out in the dairy sector later this year.
He believes other countries will try to replicate the Origin Green initiative "but we've got a head start and that's what will set our industry apart in the international market place".
Challenges
But it’s not all good news in the agri-food sector. Ibec’s Food and Drink Industry Ireland says that while exports are booming, the domestic market is far more challenging. “Over the past few years we’ve seen downward pressure on pricing and falling consumer demand,” says FDII director Paul Kelly. “That has stabilised somewhat over the last year and while we are not seeing strong growth we are seeing a more stable marketplace.”
He says a lot of demand is driven by heavy promotions by the food companies and supermarkets “and obviously there’s a cost associated with that in terms of margins”.
And while companies have become more efficient and cost competitive, he says they are still struggling with issues beyond their control, such as rising energy costs.
Sterling is always an issue because the UK is our largest market but, he says, larger companies have more sophisticated treasury solutions in terms of fixing sterling for longer periods of time.
“And remember, when sterling weakens that reduces the cost of food imports here so you can end up at a competitive disadvantage when it comes to imported products.”
Getting finance is also an ongoing problem for food companies. “The credit environment is particularly problematic for an industry like food because it’s low margin and it has a fairly high capital requirement in terms of putting in machinery and equipment,” he says.
There’s also a significant cost associated with developing export markets and with 80 per cent of our food being exported, those costs are unavoidable for most food and drink businesses.
But these challenges don’t prevent the industry from having a spring in its step. “There’s no doubt Ireland is perfectly positioned to benefit from the growth in world demand,” Aidan Cotter says.
“To be honest, the future has rarely looked so positive for our food industry.”