Brexit challenge takes the biscuit for food producers as they target new opportunities
The UK's EU departure means big changes for the industry but - from biscuitmakers to chicken producers - there is hope
It was supposed to be an exciting week for the staff at East Coast Bakehouse but Friday, June 24 2016 is a day that Michael Carey will not forget in a hurry.
Carey, the executive chairman of the then brand new Drogheda, Co Louth biscuit manufacturer, had just stayed up all night watching in horror as the shock results of Britain's Brexit referendum rolled in.
Carey and his wife, Dragon's Den star and entrepreneur Alison Cowzer, had co-founded the business the previous year and set about building what they claim is the most efficient biscuit making plant in Europe.
The morning after the referendum they were in the new €20m biscuit factory carrying on with the frantic preparations that are needed by any startup. That very week, months of meticulous planning had come to fruition with the factory making its first sale of biscuits.
But the Brexit result, and the immediate crash it instigated in the value of sterling against the euro, had created a sudden and most unwelcome headache: East Coast Bakehouse's original business plan envisaged 80pc of its volume being sold into the UK.
On the Irish stock markets most companies were taking a tumble as the import of the referendum result hit home. For Irish food companies, with the crash in sterling and the sudden threat of tariffs and border controls disrupting sensitive logistics operations, the issues were particularly acute and, a year out from the departure of the EU next March, the implications remain concerning.
Love Irish Food, a representative organisation for the industry, has warned that a hard Brexit would have a severely negative impact in both Ireland and the UK on the availability of fresh food produce, finished goods and ingredients. It has also warned that there is potential for recession in the UK and possible contagion to Irish producers resulting in local market contraction following escalating prices as a result of a hard Brexit.
Ireland imports €3.5bn of food and drink from the UK and billions more across the UK land bridge from the EU.
"For fresh food and ingredients this will create significantly negative impacts," said economist Jim Power, who is chairman of Love Irish Food.
"With tariffs and delays in transit routes, changes will need to be applied and costs will inevitably increase.
"Given the short shelf life on many products entering Ireland through the UK from other EU countries, this may well have the effect of diminishing the range of food produce available on supermarket shelves as a result of significant price increases from tariffs and port delays."
But some Love Irish Food members also see opportunity in Brexit. Indeed, the reaction of Michael Carey and East Coast Bakehouse to the referendum result illustrates just how there may be Brexit silver linings for some Irish food companies, despite the gloom.
"The outcome of the referendum slowed us down hugely," said Carey. "We needed to find another way to grow the volume of biscuits we could sell that didn't involve such a reliance on the UK market."
Firstly, the company took immediate steps to enter other markets beyond the UK and Ireland, something it had not planned to do until the fourth year of its business plan.
"We are now trading in 12 countries and expect to be trading in 20. This has opened up great opportunity," he said.
The second thing the company has done is to refocus its efforts back on to the Irish domestic market, said Carey.
"Focusing more on the Irish market is proving to be a big opportunity for us. There is €5m worth of British biscuits imported here each week and it is unclear what will happen to that once Brexit kicks off. We have found that all of the retailers operating here in Ireland are keen to mitigate the risk of having most of their supply coming from Britain. They have been hugely supportive of our efforts," he said.
And neither has East Coast Bakehouse entirely given up on its plans for the British market, despite Brexit. It has invested up to €750,000 in recent months to allow it to manufacture higher-end produce for that market.
"With sterling we know we can't compete at the lower end but there is still a place in the market for us in Britain at the premium end and we have been investing in this as part of our revamped business plan," said Carey, who apart from his day job at East Coast Bakehouse, has just finished his term as chairman of Bord Bia.
The result of the change in focus since the Brexit vote has been that instead of selling 80pc of its biscuits in the UK and 20pc here, East Coast Bakehouse is selling 20pc in the UK, 40pc in Ireland and 40pc in other markets. The company now has a turnover close to €9m. That is based on one eight-hour shift out of a possible three. At full capacity the plant is capable of producing €30m worth of volume. Carey said the company plans to add a second production shift before the end of the year, which will have a big impact on volume and production.
And East Coast Bakehouse is not the only food company to see opportunity in what first appeared to be a calamity.
"I feel guilty even thinking positively," said the managing director of chicken producer Manor Farm, Vincent Carton. "The vernacular in the food industry, amongst farmers and everyone else, is that Brexit is just bad news no matter which way you turn it. We don't necessarily see it that way."
About four million chickens are used every week in Ireland, either consumed fresh or in ready-to-cook and ready-to-eat breaded products, explains Carton. The market is worth up to €400m and Carton believes that the three Irish suppliers in the market could grab a sizeable chunk of the 43pc of the breast fillet market that is currently imported.
This, said Carton, is because of the very tight timelines faced by importers. Fresh chicken is normally sold with a shelf life of "day of kill plus seven".
"Kept chilled we can be certain our chicken meets the required standards up to day 10 but the retailers put day of kill plus seven to allow for the fact that people may not keep the product properly chilled after purchase."
Forty-three per cent of fresh chicken consumed in this country is coming in each week in up to 100 huge container loads and they have to use the UK as a land bridge. If that supply system is in any way delayed then you have a problem.
Imported chicken is packed in such a way as to give it a few more days leeway. But even at that, Carton believes the importers will face serious challenges post-Brexit.
"Anything that gets in the way of the logistics of supplying a market like Ireland, which is at the furthest end possible of a very long supply chain and is really just an extension of the UK supply chain, is going to cause a problem," he said.
He cites the example of a change in the rules at the port of Dover last year whereby drivers had to leave their cabs to present their passports.
"That caused a 25-mile tailback. Can you imagine what will happen if they have to open trucks and validate the contents? If either tariffs or border logistics slow the process down then what will happen is that a segment of it will not get here and that will mean additional demand for local companies in Ireland."
There are only three chicken producers left in Ireland, down from 14. Manor Farm, Western Brand Poultry in Ballyhaunis and Shannon Vale Foods in Clonakilty.
"The amount currently imported is so large that it could give us growth in the order of 10pc, which is huge in our world. Ireland had 14 manufacturers and was once fully self sufficient in chicken and we can get back there again."
He also believes there could be a similar positive impact for Irish producers of other perishable foodstuffs with short shelf lives, including fish and vegetables, he said.
Kieran Rumley, executive director of Love Irish Food, agrees: "Any import tariff on finished goods or ingredients or transit delays create opportunities for local producers and especially where local ingredients can be sourced. Local production can ensure a greater continuity of supply to Irish retailers. In the new era it can assure responsiveness to market demand with fresh and safe EU standards of produce."
Without doubt, Brexit will throw up more challenges than opportunities. But for Irish companies that are nimble enough there is definitely plenty to fight for as the Brexit clock ticks down.
Sunday Indo Business