Irish food and drink was a major contributor to the economy’s strong export performance in 2010, with export sales expanding by 11 per cent to reach €7.9 billion, according to Bord Bia. The increase, amounting to just over €800 million, was supported by a more stable consumer environment, reduced exchange rate pressures, and improved relative competitiveness. It was also boosted by rising global prices for most agricultural commodities. The expansion in food and drink exports outpaced the increase in total merchandise exports and is estimated to have accounted for almost one-third of total growth during the first nine months of 2010.
“The strength of the industry’s export performance is all the more commendable for the fact that it has been achieved in what remains a highly competitive marketing environment” according to Dan Browne, Chairman of Bord Bia. “All major categories recorded increases, led by dairy, which jumped by more than €300 million or 17 per cent. Meat and livestock exports were almost €200 million higher while beverage and prepared food exports recorded growth of €130 million and €100 million respectively.”
“The success of the industry in growing its penetration of Continental EU markets is also to be welcomed”, according to Mr.Browne, “with exports to the mainly eurozone markets increasing by 14 per cent.” Continental EU markets now account for 34 per cent of the industry’s total exports of food and drink. The economy continues to dominate consumer thinking and behaviour throughout many key European markets, where more consumers believe their purchasing power will decrease than increase over the coming two years. The results of the fourth wave of Bord Bia’s Feeling the Pinch survey, completed in late 2010, also shows a high degree of uncertainty remains among Irish and British consumers. Indeed, the only certainty that appears to be emerging is that significant change is unlikely to materialise in 2011 and as the search for value continues, consumers are embracing the “new normal”.
Nevertheless, looking ahead to 2011 the prospects for Irish food and drink exports remain positive, helped by strong global demand for commodity products and a relatively tight supply situation in a number of key product categories. “In a year in which the world’s population will reach seven billion, growth in global demand is set to underpin food markets well into the future, albeit with some volatility to be expected”, according to Aidan Cotter, Chief Executive of Bord Bia. He added that “the challenge for the Irish food and drink industry is to maintain its current momentum, particularly in the areas of cost competitiveness, innovation and marketing. Implementation of the recommendations of Food Harvest 2020* (incorporating Bord Bia’s Pathways for Growth), which reflect a consensus industry view for supporting growth, will be critical to sustaining this momentum and delivering on its ambitious targets in the decade ahead”, he said.
<b>Industry Optimism</b> Irish food and drink manufacturers across all categories are more optimistic and showing a more positive outlook, according to Bord Bia’s recent food industry survey (December 2010). In total, 70 per cent of exporters involved in the survey viewed the prospects for their business in 2011 as good or very good. When asked to compare their prospects to a year earlier, 56 per cent rated them as better. In terms of sales prospects, 64 per cent of exporters had increased their sales forecasts for 2011. When asked the source of new business generated over the last year some 76 per cent increased business with existing customers, 34 per cent won back business with former customers, while 18 per cent developed business with new customers.
Employment levels have generally held up well, although figures vary by sector. More than one fifth of respondents have increased full time staff numbers over the last year, with a further 61 per cent maintaining employment levels. Respondents also highlighted a number of key challenges facing their business including the value of the euro against the pound; pressure on consumer spending; changes in purchasing behaviour; and competition between retailers. The reaction by manufacturers to these challenges has focused on cost control, efficiencies and a review of their customer portfolio which has seen more than half of respondents increase their expenditure on business development over the last year. These measures may also be seen in the context of the difficulty cited by 75 per cent of respondents of securing price increases even as ingredient costs rise. Critically it highlights the need for continuous innovation as consumers embrace the ‘new normal’ in their search for value. Some 62 per cent of respondents listed changing consumer purchasing behaviour with a focus on value for money as a key challenge for industry.
As a consequence, Irish exporters now appear to be in a better position to deal with the ongoing movements in exchange rates. The results of the survey suggest that 82 per cent could sustain an exchange rate with the pound at 1€ = 85p in the long run with 62 per cent able to sustain their business if the rate was between 85p and Ł1.
Finally, the current strength of global food markets is providing a benign backdrop for the industry, particularly for the primary sectors. The FAO food price index reached an all-time high in December at 215 points, slightly higher than the previous peak in 2008 but as much as 25% higher than in December, 2009 and more than double its level, at 90 points, in 2000. Looking ahead, the growth in world food prices is expected to remain high by historical standards while varying across commodities, with the strongest growth expected in cereals. Ireland’s grass-based livestock production systems should be well positioned to cope with these price pressures (from an input perspective) and even improve relative competitiveness. <B> *Food Harvest 2020 – A Vision for Irish Agri-Food and Fisheries</B> Launched in July 2010 by An Taoiseach Brian Cowen TD and the Minister for Agriculture, Fisheries and Food Brendan Smith TD, the Food Harvest 2020 report proposes ambitious growth targets for the sector over the next ten years. The report is a strategic vision designed to place the agri-food, fishing and forestry sector at the centre of Ireland’s export led economic recovery and assure its full contribution to the economy.
Key targets include increasing the value of primary output in the agriculture, fisheries and forestry sector by €1.5 billion; increasing the value added in the agri-food, fisheries and wood products sector by €3 billion and achieving an export target of €12 billion for the sector. <B> Sectoral Analysis
Meat & Livestock</B> The combined value of meat and livestock exports grew by an estimated 9 per cent to almost €2.44 billion in 2010. The main growth drivers were increased export revenues for beef, live animals and pigmeat. The value of beef exports increased by 8 per cent or more than €110 million in 2010 as increased export volumes and stable prices helped trade. For the year, beef exports were valued at €1.51 billion.
A rise of almost 10 per cent in pigmeat export volumes coupled with largely unchanged average prices led to the value of exports rising by 10 per cent to €317 million. Poultry exports were boosted by higher average prices for fresh/chilled products while volumes also increased as the year progressed. This resulted in the value of exports rising by an estimated 9 per cent to €200 million.
The value of sheepmeat exports increased by 4 per cent to reach an estimated €170 million. A drop of 12 per cent in sheep supplies was more than offset by a strong price increase, which saw lamb prices rise by 17 per cent.
The strength of live cattle and pig exports boosted the value of livestock exports, with a rise of 15 per cent, valued at €245 million.
The prospects for the meat and livestock sector in 2011 remain reasonably positive with a tight supply situation both in Ireland and across Europe expected to boost the value of beef exports. Similarly, ongoing tight supplies are expected to help maintain the value of sheepmeat exports. Feed price developments will play a critical role in both the pigmeat and poultry sectors. . Bord Bia is working with the pigmeat sector, where producers have come under the most severe pressure, to intensify marketing activities over the next six months in particular and until such time as markets improve. <B> Dairy Products & Ingredients</b> The value of exports increased by 17 per cent to reach almost €2.29 billion, helped by stronger prices, higher production in Ireland and the release of SMP (skimmed milk powder) and butter from storage. European dairy prices increased by 7 – 40 per cent with the strongest increases evident in butter and powders, both of which had recorded significant falls in 2008 and early 2009. Cheese prices recorded slower growth but had better withstood previous price falls. Milk output in Ireland increased strongly as the year progressed as better prices and good grass growth boosted output. For the year, total milk deliveries are estimated to have increased by more than 6 per cent. In terms of products, there was a shift towards increased cheese production while SMP output declined as did WMP (whole milk powder).
The prospects for Irish dairy exports in 2011 remain positive with demand levels in key markets likely to help price levels. However, much will depend on supply levels from other exporters, most notably New Zealand and the United States. Irish producers are better placed than most to withstand higher feed costs, given the predominantly grass based form of production.
The Irish dairy sector continues to develop a growing portfolio of products and markets. This development will become ever more critical as the ending of dairy quotas approaches and the volume of dairy products available to export increases.
<b>Prepared Foods</b> Prepared food manufacturers continued to face a competitive market environment in 2010 due to a combination of price pressure from customers and rising input prices.
Overall, export values of products covered under the prepared foods category increased by an estimated 8 per cent to almost €1.4 billion. However, exports of consumer ready products, principally to the UK, recorded a drop of 6 per cent. The strongest performing categories during the year were ready meals, ingredients for the sandwich sector, bakery and sugar confectionery. These helped to partly offset a difficult environment for other categories.
A strong focus on product development and expanding the range of customers and markets served, helped the sector as the year progressed with a number of new listings reported across the Continent. Improved efficiencies evident among Irish manufacturers leave them in a better position to be competitive in key markets during 2011.
However, the strong rise in ingredient costs looks set to be maintained in 2011 and will put increased pressure on manufacturers to achieve higher returns from the marketplace. This is likely to be difficult in the current economic environment.
<b>Beverages</b> Exports of beverages performed strongly in 2010 following a very challenging trade for much of 2009. The return to more normal trading conditions with higher volumes recorded across most key categories helped trade although there continued to be a strong focus on value propositions. Overall, exports are estimated to have increased by 12 per cent in 2010 to €1.19 billion.
The strongest performing categories were whiskey, cream liqueur and beer. Cider exports improved as the year progressed with a stronger performance in the UK combined with increased sales to North America, Australia and Spain helping growth in trade.
Generally, the prospects for beverage exports remain positive for 2011 with stronger demand likely to be maintained while emerging markets continue to increase purchases of Irish beverages. However, the sector faces challenges in the form of higher dairy and other raw material prices, and the likely abolishment of intermediary excise tax relating to wine based cream liqueurs, which will substantially raise retail prices. <b> Seafood</b> The export market for Irish seafood showed significant improvement in 2010 as lower supplies across most species helped boost prices, while the exchange rate environment was more benign. The value of seafood exports is estimated to have increased by 18 per cent to an estimated €370 million.
The prospects for 2011 remain positive with ongoing tight supplies expected in a number of major species, most notably salmon and oysters. <b> Edible Horticulture & Cereals</b> The value of edible horticulture and cereal exports was marginally higher in 2010, estimated at €200 million. Mushroom exports to the UK put in a robust performance. The value of cereal exports improved strongly as the year progressed, while Ireland exported potatoes for the first time driven by demand from Eastern Europe towards the end of 2010.
The outlook for mushroom exports looks positive in 2011. A major EU sponsored promotion, supported by the Irish industry will take place in the UK during 2011 and continue to the end of 2013. The promotion is expected to boost sales and consequently, Irish exports.
<b>Bord Bia Initiatives 2011</b> In May 2010, Professor David E Bell and Mary Shelman of Harvard Business School presented ‘Pathways for Growth’ at Bord Bia’s Food and Drink Summit in Farmleigh. In doing so, they delivered a new perspective on pathways for growth over the next three to five years’ for the Irish food and drink industry.
Bord Bia has adopted the recommendations of the report and in the last six months has integrated them into its work programmes. This includes a specific focus on the key areas of co-opetition, branding and the customer feedback loop, innovation, entrepreneurship and education. While we are still at an early stage, the opportunities to fuel new growth and development are becoming clear. ‘Pathways for Growth’, as now incorporated into Food Harvest 2020, will formally guide Bord Bia’s strategic focus and priorities from 2011, evolving into the necessary milestone plans to achieve specific aims and outcomes by 2020.
Specific initiatives currently underway include: Branding and the customer feedback loop Brand propositions and sets of values have been developed for consumer and trade testing in six international markets. These propositions occupy different and distinctive territories, linked with the essence of Ireland’s reputation, and are credible to support a “we are natural and we can prove it” brand promise. The research commenced in late 2010 and will continue in our core export markets of the UK, Europe and the USA throughout early 2011.
The sustainability/environmental stewardship standards that will be associated with usage of ‘Brand Ireland’ are also being formulated. Co-opetition and the issue of scale Taking a broad and open definition of the concept, Bord Bia has identified 20 projects where strategic cooperation could add value in the supply chain. Further appraisal work has clarified projects where the potential benefits are significant and where there is a willingness among management teams to engage. Five such projects are currently being advanced.
Further projects are expected to emerge as companies continue to engage in the process. Bord Bia will continue to offer a range of supports including advice, mentoring, discussion facilitation and research to projects as they develop. Innovation & Entrepreneurship Research is underway to identify the critical factors for successful innovation in Ireland to facilitate greater understanding of the attitudes to innovation and new product development among Irish food manufacturers as well as the role of insight programmes. Bord Bia has launched the Food Entrepreneurs Network, which formally established a networking environment for food entrepreneurs. The inaugural event was used to facilitate a group of recently formed enterprise owner managers and the CEOs of larger firms to gain insights into the kind of supports they would like to see for food entrepreneurship to thrive.
<b>Education</b> Bord Bia’s Marketing Fellowship is a commercially focused programme designed to broaden the Irish food industry’s global footprint. It attracts graduates with at least two years experience to focus on delivering strategic market insight and sales for companies as part of an MSc in Marketing Practice with the Smurfit Business School. The second Bord Bia Fellowship Programme commenced in July 2010. In all, 80 companies are being assisted with 100 research assignments in 12 different markets.
The Food Industry Strategic Growth Programme (FISGP): also known as the ‘food alumni’ programme, commenced in December 2010 and offers a two-year executive training programme in conjunction with Smurfit Business School. Geared specifically towards developing strategic business development skills at senior management level, the programme involves a major assignment to strategically reposition each participant’s company. In conjunction with IBEC, Bord Bia has developed a food industry specific Export Orientation Programme (EOP). It is planned that a pilot of this extended 18 month programme, undertaken with a small number of client companies in 2010, will be rolled out to the broader food industry in 2011.