Input costs and inflation are the top threats to Irish food business growth

Other major challenges are greater economic volatility and supply chain issues

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17 May 2022 | 0

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New research reveals high levels of concern among Irish food businesses, with rising input costs and inflationary pressures seen as the top threats to business growth.

The 2022 SME Food Barometer, published by Love Irish Food and PwC, found that 97% of participants identified rising input costs and inflationary pressures as the top threats to business growth.

Other top challenges were identified as greater economic volatility (86%) and supply chain issues (66%). Nearly half of participants stated that labour shortages are a key threat for future business growth. Indicating Covid-19 is hopefully behind us, health threats, which were the top concern last year, were not featured.

Meanwhile, just 24% of Irish food SMEs believe that Ireland’s economy will improve in the year ahead, down from 65% last year.

Still, the survey found that Irish food SMEs are resilient in the knowledge that they have robust business models and are taking action to control costs. A large majority (85%) are confident about the prospects for their own company’s revenue growth in the year ahead, up from 75% last year.

The survey suggests that planned investment is linked to cost reduction, innovation, and growth to offset the consistent challenges. Sustainability measures are uppermost in business’s minds with 63% confirming that sustainability is embedded in their overall business strategy with the greatest benefits being enhanced reputation and brand trust.

Key sustainability investments reported are in the areas of energy consumption (78%), packaging and plastics reduction (68%) and water usage (50%). In addition, over 70% of respondents have or are working towards a net zero commitment, though less than one fifth (19%) have made the commitment; however, less than half of Irish food SMEs reported that they are investing in the specific measurement (25%) or reporting (43%) of greenhouse gas emissions, important ingredients for reaching net zero targets.

Responding further to challenges, the top three general areas for investment in the year ahead are operational efficiencies (48%), production automation (41%) and new products and services (44%). In addition, over half (52%) of respondents are considering awarding pay rises to attract and retain key staff, while 33% will invest in people and skills despite majority concerns about talent availability.

With increased sales and increased positive customer engagement seen as the top two benefits of building brand trust by eight out of 10 respondents, specific actions relating to this are a focus for the majority. Over six out of 10 respondents specified increasing social media presence and investment in sustainability and in quality and standards as key brand building actions.

“The fact that Irish food SMEs are confident about their own organisations’ growth in the face of economic uncertainty is testament to their resilience and their confidence to weather current challenges,” said Owen McFeely director of PwC retail and consumer practice.

“They have become accustomed to dealing with recent challenges, both Brexit and Covid-19 have tested their crisis management and business resilience capabilities. Irish food SMEs are operating in a very uncertain environment, yet they remain focused on the priorities of growth, innovation, and cost control. Continuing to become sustainable businesses will also be a key focus, with over half planning to work towards a net zero commitment.”

Kieran Rumley, executive director of Love Irish Food, added: “Irish food producers now face a tidal wave of challenges that encompass near doubling of energy costs, limited availability of key food and non-food ingredients, wider supply chain issues, and labour retention costs. With inflation now estimated to reach between 7% and 9% in Q3 driven by energy costs, and with unemployment set to close at 5.5% in Q4, the food industry is set for the biggest challenge that it has faced in many decades.”

Rumley continued: “While the confidence of food businesses in their own strengths provides hope, some companies in the food sector will clearly struggle with the challenging market conditions. Focus and dogged determination will be needed by all sectors of the food industry to allow it to come through this period of challenge and to maintain a viable, independent source of food for the nation.”

 

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