2013 forecast
Shane Dempsey, head of consumer food, Food and Drink Industry Ireland offers his forecast for the year ahead on the Irish food sector
Print16 January 2013
The year has started with some positivity within the Irish food sector. This week Bord Bia announced that Irish food companies had broken the €9 billion barrier in exports for the first time. If the agri-food sector can maintain this momentum it may hit the ambitious targets envisaged in Food Harvest 2020; the blueprint for growth agreed with government in 2010.
However, it will be later in the year before we know if the light at the end of the tunnel is actually an oncoming train.
It remains to be seen if strong Christmas sales will usher in a period of increased consumer spending. Fragile consumer sentiment is likely to wobble as the EU continues to grapple with its financial crisis. Unfortunately, it feels inevitable that some external shock will send the consumer back under the bed again before the year is out. In addition, inflation is likely to continue to put pressure on all stakeholders in the grocery sector throughout 2013.
Despite these challenges, the domestic grocery sector can drive Ireland’s recovery. The government has little influence over the external factors impinging on our economy. However, the domestic grocery sector represents a potential delivery mechanism for economic stimulus, driving growth and creating employment across the economy.
Currently, the sector supports over 150,000 retail jobs, over 110,000 agri-food and related jobs and provides a route to market for the output of Ireland’s 120,000 farming families. Each of these stakeholders in turn supports the wider domestic economy. In all, the agri-food sector alone sustains one in eight jobs across every single community in Ireland.
So ensuring the grocery sector operates efficiently – low business costs, low regulatory burden and a level playing field – should be central to government’s efforts to drive recovery.
However, the recent budget indicates that the government will maintain a piecemeal approach to the sector. Increasing excise on the old reliables will further depress consumer spending. On a positive note, it’s hoped that measures to allow people to release Additional Voluntary Contributions from their private pensions will increase spending in the sector.
Stimulating the domestic grocery is also central to building a sustainable agri-food sector. The sector, when functioning correctly, provides a springboard for food companies seeking to export. The Department of Agriculture’s blueprint for the agri-food sector, Food Harvest 2020, predicts that exports can hit €12 billion by 2020. FDII research indicates that this could lead to the creation of up to 30,000 jobs right across the economy.
To achieve this, we need a significant proportion of our artisan and SME food companies to expand rapidly to meet an expected increase in global food demand of 50% in the coming decades. These companies will initially depend on the domestic grocery sector to build critical mass in terms of exports. Many of today’s leading food companies followed this same trajectory. However, industry leaders believe it would be impossible to build their companies from a starting point of today’s domestic grocery sector due to the imbalance of power in the sector and the increasing costs of doing business.
In addition, by 2020, both the meat and dairy sector expect increase in output of up to 45% and 50% respectively. We need a strong cadre of consumer foods companies in situ to add value to this output by producing innovative consumer products.
FDII has consistently stated that the continuing concentration of retailer buying power in the sector threatens to undermine these efforts. Over 90% of retail power is now concentrated amongst the top five retailers. Now, the EU Commission, respective member state competition authorities and indeed, retailers at a European level acknowledge it is an issue. Indeed, retailer and supplier organisations at EU level have agreed a voluntary code of practice and guiding principles for doing business in an effort to reduce abuses of retailer buying power.
At a local level, despite many retailer advertising campaigns featuring the Irish flag and/or suppliers, late payments and demands for support continue. Until a fully functioning code of practice, backed up by an ombudsman or adjudicator is in place, the growth of Irish food companies will be stunted. The UK has recently announced that their grocery sector adjudicator will be given the power to impose fines against those who transgress its grocery sector code of practice.
Successive Irish governments’ efforts to introduce a code of practice have been excruciatingly slow. This indicates a lack of willingness to address the issue head on. The Minister for Enterprise, Richard Bruton, previously indicated his antipathy towards introducing a code. He will have the power to introduce a code when the relevant legislation merging the National Consumer Agency and the Competition Authority is in place. However, this complex piece of legislation, three years in gestation, has yet to see the light of day.
FDII has consistently asked government to replicate the coordinated strategic approach it used to build Ireland’s software, pharma and medical devices sector when dealing with the food sector.
In summary, 2013 is an opportunity for this government to harness the grocery sector to drive Ireland’s recovery. Firstly, it must invest in bringing down business costs. Secondly, it should secure funding for food companies ready to expand. Finally, it must ensure that there is a level playing field in the grocery sector so suppliers, producers and consumers, not just retailers benefit. These measures will have huge positive resonance across the Irish economy and could bring economic recovery forward by years.
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