WHAT was looking like a difficult year for Irish food processors took on disastrous proportions late in the year when the dioxin scare hit the pig meat sector.

For a few days, it looked as though the entire Irish food industry could succumb to the disaster. However, as things panned out, such a calamity was averted.

Indeed, for those still in the pig processing business, things may be about to get better as from next year it looks as though Christmas ham is to get more expensive. A lot more, according to data supplied by Central States Commodities Inc in Kansas City, Missouri.

This suggests that hog prices are poised to jump 46pc by June to the highest since May 1996 as producers slaughter more breeding sows to limit losses from rising feed costs.

In the worst year for commodities in at least five decades, hogs rose 6.6pc -- the second-biggest gains on the Reuters/Jefferies CRB Commodity Index, behind cocoa.

'Supportive'

"We're going to have 3pc to 4pc less pigs next year, and that should be very supportive to higher pork prices," said Mark Greenwood, who manages about $1bn (€700m) of loans and leases to swine producers for AgStar Financial Services in Mankato, Minnesota.

"There is the potential for producers to have a better year in 2009," he added.

But whatever the long-term benefits of rising prices, the pork disaster did leave the industry at year's end counting the cost and also questioning the effectiveness of regulation.

If the country wants to sell itself as a pure green-food island, then we can hardly tolerate lax regulation on issues of food safety.

More than most, it was Kerry which suffered from the pig meat disaster.

Ironically the impact would have been even worse but for the refusal of the Competition Authority earlier in the year to rubber-stamp its acquisition of the processed meats business of Breeo Foods -- the old Dairygold company.

As it was, analysts estimated that Kerry would have a whopping €5m knocked from its profits because of the problem. Kerry is now the leading player in the Irish pig meat processing industry, with Denny regarded as one of its prime brands.

This comes mainly through sales under the Denny brand, and to a much lesser extent by its use of pork ingredients in its Rye Valley frozen ready-meals business.

In a detailed analysis of the impact of the pig meat contamination on Kerry Group, Goodbody analyst Liam Igoe said the company was the market leader in Ireland in this savoury products category.

"The initial financial implications will be one of a cash flow impact for processors as they have to reimburse customers for returned products.

"There will also be the costs of disposal and the costs associated with a re-initiation of the plants," Mr Igoe said.

However, the broker suggests that Kerry can recover quickly and that the loss is unlikely to be material in terms of the overall group. Goodbody is leaving its earnings forecast unchanged, pointing out that any loss is covered by the €5m leeway built into its forecast earnings of between 151c and 155c a share.

'Recover'

"Looking into 2009, we believe that normal demand levels will recover for this mainstream product range, as has been the experience with previous food scares," Mr Igoe said.

While Kerry was grappling with the fallout from the pork meat disaster, it will have found little comfort that the blocking of its takeover of Breo Foods by the Competition Authority (CA) reduced its exposure to the sector.

Kerry has already lodged an appeal against the CA's decision to block its €165m acquisition of Breeo from Reox Holdings, formerly known as Dairygold.

Kerry has already paid a non-refundable €20m deposit to Reox, but in its determination the CA found that in three of the markets affected by the acquisition the deal would lead to a substantial lessening of competition.

The markets involved were those for rashers, non-poultry cooked meats and natural cheese.

The CA said the merger would see the acquisition by the leading brand, Denny, of the second-ranked brand, Galtee, and that these two brands would then account for between 45pc and 50pc of the Irish rashers' market in terms of value.

It argued that there would be no credible alternative brands in the rashers market that would allow retailers to have a means of stopping the merged entity from raising prices permanently.

It also said that new entrants would be unable to establish a sufficiently strong presence in the rashers market within a two-year period to allow them to constrain the merged entity from raising prices after the acquisition.

The lengthy determination -- running to almost 150 pages -- concluded that despite having a combined market share of between 35pc and 40pc by value, private label rashers are not considered to be a sufficiently close competitor to Denny or Galtee.

"It is essential for retailers to stock the two 'must have' rasher brands, Denny and Galtee," the CA said.

Merger

While the CA's blocking move was one of the most significant stories of the year, it still must rank behind the merger in June of the Irish company IAWS and its Swiss partner Heistand. The deal was preceded by a spin-off from IAWS of its food ingredients business into the new vehicle, Origin Foods.

The merger resulted in the creation of a new company, Aryzta, with 83pc of the shares held by former IAWS shareholders. The name itself is a play on the noun Arista which means the top-most kernel of corn.

Aryzta is now headquartered in Switzerland and reports in Swiss francs, though dividends will still be paid out in euro.

IAWS shareholders were given some time to get used to the idea as, due to timing issues surrounding the transaction, chief executive Owen Killian said that shareholders would have to wait until Aryzta reports on figures for the year to the end of July 2009 before receiving their next dividend.

The comfort for them in these cash-strapped times is that the new firm will follow a similar dividend policy to IAWS.

Mr Killian also said the target now was to double group earnings over the next five years. As things stand, the merged group has annual revenues of €2.3bn and earnings of €213m.

The deal was effected through the acquisition of a 32pc stake in Hiestand from Lion Capital, a block of shares which the UK company acquired in February from another private equity investor, Focus Capital.

Together with its existing shareholding of 32pc, this brought IAWS to 64pc and under Swiss stock market rules IAWS was bound to make an outright bid for the rest of group.

Analysts gave a thumbs-up to the acquisition. Liam Igoe of Goodbody Stockbrokers' said that while it might dilute earnings for IAWS at the start, this would be less than 5pc and long-term synergies would yield additional value.

Deal

The deal opens up new markets for IAWS -- including the Asian market, where IAWS previously had no presence.

While it lost its London share listing, and along with this its FTSE status, Aryzta shares are now quoted on the Irish and Swiss markets and included in the ISEQ and SPI indices.

The terms also ensured the retention of all the executive talent within both companies -- something which Mr Igoe said was crucial to the success of the merger.

And in the now changed world, it may well be a good thing to have strong management to call on.

- Pat Boyle