Supply and demand
As consumers search for cheaper prices and retailers struggle to provide them, Irish producers needn't fear the worst just yet
18 May 2009
A hot question within the trade; how strongly will Tesco Ireland’s recently announced shift to international buying affect Irish suppliers? According to chief executive Tony Keohane, “If [Irish products] compete with the international products, there will be no decision on our side. If customers decide to buy a competing cheaper line, then that is a different issue.”
What consumers want?
On the face of it then, this represents a straight choice for Irish consumers. It could even provide some definitive answers for the rest of us. After all, each time the National Consumer Agency (NCA) releases its latest price survey results, retailers are keen to defend their pricing structures.
Value, it is said, encompasses much more than price. Consumers are reminded that sometimes when they’re charged more, they’re not being ripped off, but are simply paying more for quality, locally produced goods that support the national economy. Effectively Tesco is about to test this moot point and discover, what is it that Irish customers truly care about? But just as Tesco Ireland doesn’t release profits, we’re unlikely to find out how much time Irish products will be granted in this trial before their presence starts dwindling on Irish shelves.
The Department of Enterprise, Trade and Employment has also voiced concerns. A spokesperson told ShelfLife that “whilst such decisions are essentially matters for the businesses concerned, the Department is concerned at the possible implications for employment in Ireland, particularly if changes in supply chain arrangements reduce the level of purchases by retailers from Irish producers.”
While the Tánaiste awaits the findings of the Competition Authority study she requested be conducted in the retail import/distribution sector, the Department has said, although it recognises all businesses need to “reduce costs and streamline operations,” it is anxious that “benefits to consumers are maximised and the negative impact on employment is minimised.”
Could it be that when Tesco makes its switch however, consumers have more loyalty to local Irish produce than groups such as the Irish Farmers Association (IFA) feared? There are several indicators that suggest this is so, not least the rise of “alternative distribution channels such as farmers markets, box schemes, direct sales and farm shops,” which according to John O’Neill, development officer with the Irish Organic Farmers and Growers Association (IOFGA), “are ideally suited to many organic farmers.”
Websites selling organic produce directly to consumers have also witnessed impressive growth. For example, John Healy, founder of Absolutely Organic (www.absolutelyorganic.ie), based in the greater Dublin area, currently has around 300 customers with an average weekly or fortnightly delivery order worth €30 to €40.
The IFA has drawn attention to the fact that farmers only receive one-fifth of goods’ retail price in supermarkets, so do they fare any better under this type of scheme? Healy responds: “Definitely, my growers seem very happy. We don’t fix contracts, but we have a close relationship and we understand the vagaries of the weather.”
This seems to be an important aspect of such alternative distribution schemes. Rather than applying heavy commercial pressure for growers to supply quantity according to demand, the supply-demand balance takes a rather more holistic approach. The company informs customers about what’s in season through regular newsletters. “We include news about the organic sector. Customers understand the sheer difficulties of growing, especially in Ireland. Our growers are heroes,” says Healy, and it’s clear this belief is genuine, rather than an astute marketing ploy.
According to Healy though, government support for the sector has been “maybe well meant, but not properly focused. Bord Bia has actually been quite effective at raising awareness of organic, making customers want it. However production is lagging behind, the result being that this input has helped to increase imports.”
Absolutely Organic is certainly finding a demand exists for its products however. It plans to add to lines such as seeds, pulses, beans, tea, sugar and butter, and will expand its deliveries along the Eastern seaboard.
Another indication of Irish demand for local produce, is the establishment of Ireland’s first Community Supported Agriculture (CSA) scheme. The Soil Association defines CSA as being “a partnership between farmers and consumers where the responsibilities and rewards of farming are shared.”
The Irish scheme is being organised at the country’s first eco-village at Cloughjordan, Co Tipperary. The village’s €5 million infrastructure has been completed and over 130 individually-designed homes are to be built over the next two years at the energy-efficient development. Experienced grower Pat Malone who is overseeing the CSA project, says 53 families have already signed up. Each family will pay €20 a week into the scheme, but they are not just paying for their share of the produce; effectively they own the farm, animals (including seven cows, six sheep and one pig) and all produce (mainly traditional vegetables such as potatoes and carrots, and certain cereals.) Their contribution also enables a farmer to be paid approx. €20,000 a year along with lodgings.
Malone, who used to be a commercial grower for supermarkets, is well aware of the difficulties farmers face in supplying more traditional outlets. He explains: “The more I was growing the more vulnerable I became. After 10 years, I had become too specialized.
“Supermarkets ask for a narrower range and bigger quantities, so if one crop fails you are under pressure…Whereas commercial farmers need more, you can make a living off 40 acres, if you have a mixed farm.” A CSA farmer needn’t worry about flaws such as slugholes either; these are simply “part and parcel of nature.” He adds: “While the average supermarket product travels 3000 miles, our produce will travel one mile.”
Bord Bia breakthroughs
Life is undoubtedly easier at a 40 acre farm if it is surrounded by a large group of co-owners who are committed to incorporating it into their daily lives. However, what initiatives are Bord Bia introducing to help local producers elsewhere? Small business manager, Eileen Bentley says the Vantage Partner programme in Ireland and the UK is reaping dividends.
“We are actively working with 15 companies to secure new customers and business in Ireland and overseas. This involves working side by side with companies to help them identify growth potential in the home market and in the UK.” She explains that the intensive 12 month programme, in which Cully & Sully and Glenilen Farm previously participated, involves one to one mentoring and aims to help companies identify new opportunities, such as new retail listings.
Another interesting initiative being tested is a new distribution programme in Offaly and the South East. Says Bentley: “This involves organising producer clusters and getting them to share distribution costs. Not only do the companies cut costs but the pooling of products for distribution also creates potential new business. Pooling transport and supporting local networks is vital, if small producers are to maximise their coverage, improve truck fills and reduce food miles.”
It’s not just alternative channels of distribution that are aiming to give Irish suppliers a path to market. Supervalu recently launched a three month organic trial with a local grower in Galway, supplying eight stores. A spokesperson told ShelfLife: “Musgrave sources 100% Irish vegetables when in season through our central distribution centre (CDC). However, not all growers have the capacity to produce volumes required to service our CDC and the local initiative encourages and enables smaller growers to get their produce to market.”
Meanwhile Aldi gained attention recently when it announced 40% of its produce was Irish. The discounter believes the benefits of stocking Irish products are clear. A spokesperson for the group, which currently works with 70 Irish suppliers, said: “Irish consumers have distinct taste preferences and palates, which we have found are best provided for by offering locally sourced products.”
Squeezing out price squeezes?
What’s more, Aldi wants to increase its Irish produce further, and has therefore set up “a dedicated Irish buying department which works closely with Bord Bia.” In 2008, the group hosted seminars with Bord Bia where it “met with over 120 Irish suppliers, to strengthen existing relationships and develop new opportunities.” More seminars are planned for 2009 and Aldi has said: “Our door is open to Irish suppliers of all sizes and we would encourage local producers to contact us if they are interested in supplying us.”
Irish suppliers also have the possibility of breaking into international markets through working with Aldi. For example, Irish Yoghurts are now also supplying its UK business.
“Our goal is to build long lasting relationships with our suppliers. We work co-operatively with suppliers regarding the product quality, packaging specifications and design and logistics so as to make the relationship as productive and mutually beneficial as possible.”
Such policies could go some way to allaying producers’ fears about being squeezed on price. Says IOFGA’s John O’Neill: “Many organic growers are reluctant to become dependent on one large customer. They are fearful that this would make them vulnerable to being squeezed on price in the future and so are cautious of involvement with the major supermarket chains.”
Tesco’s supply switch intensified this fear. As IFA President Padraig Walshe commented, “the race to the bottom strategy” being persued by supermarket multiples “is driving family farms out of business and will ultimately lead to a breakdown in the European food supply chain.” However, Bord Bia has revealed 33% of all Irish grocery consumers would describe themselves as “foodies,” and the growth of alternative supply chains certainly supports this statistic. So perhaps a mass exodus from Irish produce won’t prove a bitter aftertaste of the recession afterall.