Prepared consumer foods sector can feed Ireland’s recovery

Shane Dempsey, Head of Consumer Foods, FDII
Shane Dempsey, Head of Consumer Foods, FDII

Shane Dempsey of IBEC’s Food and Drink Industry Ireland (FDII) explains why it’s paramount that we tend to the Irish food industry with care to fuel growth



14 February 2012

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The world’s population surpassed seven billion people around 31 October 2011. Since this symbolic date, the world’s population has grown by nearly 20 million; an increase of about 2.5 people per second.

The bulk of this population growth will be urban dwelling, middle class and live in the rapidly developing economies. Deloitte estimates that the global middle class will grow by 800 million by 2020. Major shifts in global food demand will follow in the wake of this demographic wave. As middle-classes grow, they shift demand from grain-based diets to foods rich in protein and dairy. 

Growth in Ireland’s food exports 

Both the government and the Irish food industry are hoping to capitalise on these global megatrends. There are positive signs: Ireland’s food exports increased by €1 billion to €8.85 billion in 2011. Increasing exports to diverse markets is the central plank of the government’s Food Harvest 2020 strategy; its blueprint for growth in the agri-food sector. Most sectors in food, particularly dairy and beef, are ramping up for significant increased output in the coming decade.
Ensuring Ireland has a strong and diverse cadre of prepared consumer foods (PCF) companies will translate more of this growth into economic growth and, most importantly, jobs. 
The sector adds significant value to Ireland’s agricultural and primary food sectors, with Gross Value Added of €4.4 billion and exports of nearly €1.5 billion of product, mainly to the UK. The sector has a turnover of €11 billion and employs 12,000 people directly. However CSO figures appear to grossly underrepresent employment levels in the sector. 
Industry and government are working together to overcome barriers to growth for the PCF sector. A key challenge is to ensure there is a coordinated approach across government and state agencies to the sector’s development. The agri-food sector is diverse, affecting every household and supporting jobs in every community. The risks of negative policy impacts from departments pursuing contradictory policy objectives are high.
FDII’s Consumer Foods Council is working with government and state agencies on a number of key priority areas in 2012. What is Paramount is making the domestic grocery sector a springboard for growth for food companies. Government must continue to take steps to improve competitiveness in the sector. Lower energy costs, reduced waste costs and optimal regulatory regimes will make Irish companies sustainably competitive. A weaker euro relative to sterling in 2012 will amplify this effect. 
The government must continue to take steps to improve competitiveness in the sector by lowering energy costs and reducing waste costs, says Dempsey

The government must continue to take steps to improve competitiveness in the sector by lowering energy costs and reducing waste costs, says Dempsey

Failure of voluntary code of practice 

However, government must address the issue of retailer buying power in the sector. Retail concentration in the sector has increased recently with the top three large retailers commanding over 77% of the grocery sector market. If this issue isn’t addressed PCF companies will continue to be forced to finance unfair demands, diverting investment from competitiveness measures, innovation and market diversification. This damages the long-term sustainability of the sector and will ultimately disadvantage the consumer by reducing choice, convenience and competition. 
The Department of Enterprise, Jobs and Innovation is considering the introduction of a statutory code, backed up by an ombudsman capable of pro-actively investigating compliance. Unfortunately, efforts to bring retailer and suppliers together to create a voluntary code of practice or to agree best business practices have failed. More could be achieved in terms of reaching the consumer in an omnichannel world, building a sustainable grocery sector and exports, whilst meeting challenges such as sustainability and obesity in collaboration. 
The government should establish criteria that must be met before the Irish flag or claims of supporting Irish suppliers can be made in retailers’ advertising. A commitment to behave ethically and comply with a code of practice in their dealings with the Irish supply base could form part of these criteria. Retailers should be able to verify compliance with criteria such as prompt payments before making claims in advertising.

Increase in investment needed

Another key challenge is increasing investment into the sector. There is a ‘market failure’ in funding available for food companies. Unfortunately, efforts to direct existing funds made available by the State such as the Seed Capital Fund, towards food companies have failed.
At a time when the government has acknowledged the need to promote growth in the sector, its funding mechanisms are directed at other sectors. Agri-food jobs yield many positive benefits to the Irish social fabric, and a higher percentage of its output is retained within the economy. FDII believes that a sector specific agri-food fund, managed by a VC with food industry expertise can address the funding gap.
To further increase the attractiveness of food companies, private investors should be incentivised to invest in food companies in existing or future funds. This may take the form of a Business Expansion Scheme type tax relief of 50% on money invested. FDII will examine tax incentives for private investment in other countries, in particular the UK, in formulating a potential suite of proposals to government.
The stars are aligning for the development of a sustainable Irish agri-economy. However, a series of barriers to growth must be overcome through effective collaboration between food companies, government and those stakeholders in the grocery sector. If this dynamic alignment occurs, the benefit to Ireland in terms of sustainable growth and employment is huge. n


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