Tuesday 27 September 2016

What we can learn from the Danes about harvesting rewards in the food industry

Published 09/07/2015 | 02:30

The Roskilde Festival in Denmark, where festival-goers learned a thing or two about sustainable agriculture.
The Roskilde Festival in Denmark, where festival-goers learned a thing or two about sustainable agriculture.

It is good to be ambitious in business. It is also good to be realistic. The targets set for the food and agri industry in the Food Wise 2025 report are highly ambitious. It is too early to say whether they are realistic or not. The strategy document is aiming for an 85pc growth in Irish food and beverage exports by 2025 to €19bn.

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The enormous growth is based on adding more value to many of the commodities we already sell on international markets. Around 26,000 direct new jobs could be created in the sector if the target were achieved.

Such a relatively modest employment increase for nearly doubling our food exports, shows how much it will have to be driven by technology and innovation.

There are several things going in our favour. Food and beverage exports have grown by 40pc since 2009 and the goals set in 2010 under the Harvest 2020 report are already ahead of target.

Changes in global food consumption, especially in Asia and emerging economies elsewhere give us a tailwind. The end of milk quotas earlier this year will take off some of the shackles for our dairy industry.

Another tailwind has been the renewed focus on the sector and it's potential. After several years of flaffing around with property and consumer spending, the food and drink sector is very much centre stage. And so it should be.

During the boom some farmers were as interested in selling land with a bit of road frontage for sites, as they were with improving their efficiency.

On one level the performance of the sector in recent years has been brilliant. Around €2bn of additional food exports were added between 2009 and 2013 when they reached €10.3bn.

The Food Wise 2025 document contains lots of ideas for improving the sector even further to grow to the next level. But serious question marks remain.

The document doesn't say where the extra cost of the new initiatives will come from. Furthermore rapid growth from 2009 to 2013 - stalled somewhat last year as export growth was hit by price drops - volatility and slower economic performance in some markets. This year is likely to be even tougher.

The environmental impact of a 65pc increase in primary food production, including an additional 300,000 dairy cows will have to be carefully planned, not only in relation to greenhouse gas emissions, but other consequences too.

Farms are worried about producing extra product at a profit. The average dairy farmer in Ireland has 68 cows. That is expected to rise to over 100. It is an increase that for many will be funded by borrowing and it will involve big financial risks, as bank lending to the sector also helps to drive up land prices.

The average dairy farm in Denmark has borrowings of over €2m. Irish dairy farmers are closer to €100,000 in debt but that is changing rapidly. There are fears that some will over-extend themselves.

Bear in mind that no quotas means more milk, which means cheaper milk, and lower prices. The counterweight to that is for Irish food exporters to sell into new markets.

The biggest growth potential market is China. Our food exports to China are improving, but remain very modest. We now sell around €520m worth of food to China, but we are very reliant on one product - infant milk formula - which accounts for 80pc of our food exports to that market.

The UK still accounts for 42pc of our food exports and was worth around €4.2bn last year. Despite some success in selling to new markets we are still very heavily dependent on the UK.

For example ten years ago, 54pc of our beef exports went to the UK. Last year it was just over 50pc. Ten years ago, 80pc of poultry exports went to the UK. Last year it was around 82pc. Dairy is better spread but the UK still accounts for 32pc of exports. Our next biggest EU market for food is France with €730m of exports and then the Netherlands with €590m.

The Dutch are among the big guns of European food export selling €80bn worth of food and drink outside of the Netherlands through giants like Unilever and Heineken.

On a smaller scale we have our eye on countries like New Zealand and Denmark as operators worth emulating. Yet both of these smaller nations have beaten us in the race to the Chinese market.

New Zealand now exports more to China than it does to Australia. Its number one export product is dairy, then wood and then meat. New Zealand signed a Free Trade Agreement with China and has moved very quickly.

The Danes, with a population size not that different to ours, are exporting three times what we sell to China. Danish food exports in general grew from €4bn in 2001 to €16bn in 2011. The canny Danes are already selling over €1.5bn worth of food to China.

There are lots of reasons for this, but one factor is the fact that their embassies and diplomatic corps in places like China are full of people with MBAs and private sector experience in marketing and sales. Ours are more inclined to be traditional public servants.

The Danes have invested heavily in environmentally friendly policies, product innovation and efficiency. They are firmly rooted in making money from the land. It is not unusual for a Danish animal slaughterhouse to have tours come in and visit, including schoolchildren, to watch the kill.

If we did that, it would dominate Joe Duffy's Liveline radio programme for a week!

Ireland has introduced the Origin Green programme which has been very successful and is really beginning to pay dividends. But we still don't play the environmental card as well as the Danes.

Their Roskilde music festival in Denmark took it to extremes this year. There were signs advertising how the urine from 100,000 fans at Roskilde would be collected in giant tanks and used to fertilise malting barley.

They wanted to say that guests at the festival in 2017 will be served beer that was fertilised by their own urine two years earlier.

The Danish Agriculture and Food Council called the beer cycling project 'From piss to pilsener'. Now that is taking recycling to a whole new level!!!

Ireland has made significant progress in the development of the food industry. There are tremendous opportunities out there but it would be wrong to think that an opportunity is the same as money in the bank.

Achieving the new targets of Food Wise 2025 will not be easy and there are likely to be setbacks along the way.

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