Brexit planning serves Irish food industry well in Covid-19 challenges
Ireland’s beef, dairy, seafood and spirits are much sought after the world over and exports of food and drink from our shores reached a record €13 billion in 2019, delivering 67 per cent growth in a decade.
The challenges the coronavirus pandemic has created for a usually robust industry are unprecedented but given the strong position the sector was in at the start of this year, we ask, can it weather the storm and return to levels anywhere near that of 2019?
The picture right now looks something like this: food and drink companies are seeing a huge reduction in demand from food service customers; as restaurants, cafes, takeaways and bars close the world over. Meanwhile, there is a spike in use of retail or supermarket products but issues around manufacturing and supply chains are making it more challenging to deliver on certain goods.
Prior to the pandemic “Irish exports were in tremendously good shape”, Damien McLoughlin, professor of marketing at UCD, says.
“We have seen the increasing emergence of significant global players in agriculture such as Kerry Group, Glanbia, Carberry Group, Dairygold, Kepak, Dawn, and these supply considerable volumes of important branded products,” he says. The vast majority of agricultural exports are being delivered by farms that are committed to lean manufacturing principles and as a result their cost base is already extremely low, he adds.
However, exports are “difficult at the moment” due to the health crisis and will take “a long, long time to unwind” due to the complexity of supply chains, Paul Kelly, head of food and drink at Ibec, says.
“Food commodity prices have dropped significantly (dairy and meat) causing a lot of turbulence. With regards to finance – working capital and liquidity – the small companies will find themselves under a lot of pressure in that regard. If they are selling into food service, they’ll have customers who may not be in a position to pay for products sold to them in February. When food service gets into a position to restart, will they have the financial wherewithal to pay for new product?” he says.
For the last couple of years Irish food and drinks manufacturers were working on the basis that another threat was just around the corner; Brexit. Many are now in a position to better deal with this current crisis because of Brexit planning.
Having said that, Britain leaving the EU remains a significant threat to the State. “The UK market accounts for a high proportion of Irish food and drink exports with the vast majority of this going to mainland UK but some sub-sectors such as milk/cream are heavily reliant on exports to Northern Ireland,” Prof Barry Quinn of Ulster University says.
“There is a danger of a heavy reliance in particular product sectors on the UK market. Around half of Ireland’s cheese exports are to the UK. This obviously presents a challenge for the Irish dairy industry should an EU-UK trade deal not be reached, with the added burden of regulatory and tariffs adding to the need for exporters to manage the risks inherent in currency exchange fluctuations. Attention, therefore, needs to move to other export markets,” he says.
Kelly hopes for a free trade agreement with zero tariffs and quotas. “This would allow us continued access to the UK market. We want to see minimising of the non-tariff barriers too, such as checks at ports, as a huge amount of exports to the EU, particularly fresh produce such as seafood and dairy, use the land bridge,” he says.
Trade deals agreed between the EU and Japan and the EU and Canada need to be fully implemented, while trade wars still impacting tariffs have been imposed by the US on a number of our important exports, in particular butter and spirits.
Putting Brexit aside, the Irish food industry has plenty of experience dealing with crisis. “In 1979, we had issues around the sterling exchange rate – it goes against us and suddenly we are in trouble. We had 40 years of that. The memory of that crisis is in the system. Last year it was Brexit, 10 years ago it was the global financial crisis. Our firms have the agility and flexibility in thought processes and business relationships which allow them to respond extremely well to crisis,” McLoughlin says.
Having said all that, Kelly says that it’s “very difficult to see how all businesses will survive without additional funding”. There has been a big focus on liquidity supports for businesses from central Government – a total package of €1 billion for the industry but, “it’s simply not enough and more is going to be needed”.
“Central Bank numbers show there is a huge finance requirement in the sector. The credit advanced to food and drink manufacturing is €2.8 billion per annum, hospitality is €3.7 billion per annum. These are the sums that are needed in normal times,” he says.
So will a pandemic of this scale see a reduction in exports worldwide? McLoughlin says no – “we overproduce food, so we need to export”.
“Food is at the top of the social priorities list in China, but they don’t have enough land and water to produce beef or dairy to meet their needs. Similarly the UK does not have land and space to grow the food it requires. Fifty per cent has to be imported. There will be short-term turbulence but I cannot see a situation where there will be less demand for food products in those major markets we sell into in,” he says.
What we may see at this time is a destruction of food, something Sinead Furey, lecturer in consumer management and food innovation at Ulster University, calls “disappointing”.
“It should be remembered that not only are there environmental considerations with food waste; but each food item has been produced with considerable investment of a number of inputs (feed, fuel, water, land availability, labour, processing for added value, packaging, transportation, warehousing and retailing among others). We need consumers and retailers, and all players in the food supply chain to recognise the value of food,” she says.
O’Loughlin says a stronger commitment to sustainability will emerge from this and that through the genuine recognition given to front-line workers throughout this crisis, farmers have also been seen as “essential to society”.
“In Ireland we spend a relatively small amount of our income on food. I think if we are willing to pay higher taxes to pay for a better and more sustainable health system, we will be more willing to pay a slightly higher price in order to support a sustainable agri system. Farmers will be paid higher prices in order to keep them on the land.”
“There is a very difficult 12-24 months ahead but the industry as a whole is highly resilient. We have a very open economy, exporting to 180 countries, we have to try to continue that,” Kelly concludes.
This article was written by Mimi Murray and first appeared in The Irish Times. Read the article here.