Thursday 23 November 2017

Food can play a major role but it will be a tall order to save economy

With exports of €8bn, there is no reason why we couldn't become the Silicon Valley of food

ECONOMIST Jim Power says the economic turmoil has made "even the thickest politicians" appreciate the "sexiness" of the food sector, and any non-believers in the wider world could hardly fail to be moved by this week's powerful industry showing at Croke Park.

From half past seven on Tuesday morning, more than 150 Irish food and drink companies descended upon the nation's greatest stadium and transformed its corporate facilities into a showcase of their produce.

The 'Marketplace' was quickly populated by more than 300 international buyers from some of the world's biggest and most promising markets, boasting an eye-watering combined buying power of €85bn.

By mid-morning, the arena was oozing with an energy that only comes from hands being shook and contracts being promised. And if wasn't enough to qualify as "sexy" in these deal-deprived times, Marketplace organisers Bord Bia planned the whole event around the "speed dating" concept, with buyers hopping between meetings at the chime of an all-important bell.

But Friends First staffer and recently appointed 'Love Irish Food' chairman Power has long seen something far more significant than "sexiness" in Ireland's oldest industry -- he sees food and drink as the key to Ireland's economic salvation.

"All the big drivers of economic growth over the last decade are gone, but food is an industry that has the potential to really grow," he says. "There's no reason why Ireland couldn't be the Silicon Valley of food."

It's a notion that's been steadily gaining currency in recent months, with everyone from IFA president John Bryan to Cork property developer Owen O'Callaghan espousing the virtues of food as the cornerstone of Ireland's economic recovery.

The believers point to the food industry's annual exports of €8bn and the sector's massive employment as good starting blocks for Ireland's "next big thing", while a favourable climate and centuries of experience are added sweeteners to the economic mix.

A glance at the make-up of Ireland's stock exchange shows that the sector is already a significant force on the ISEQ, with food and drink plcs accounting for close to 18pc of the value of the overall index.

But closer scrutiny shows repeating that dominance in the wider economy and achieving the kind of growth needed to stimulate the entire country's recovery could be a far taller order.


One of the core arguments for food as the engine of economic growth stems from the employment-intensive nature of the industry, with 230,000 people already making their livelihoods from primary and secondary production.

Power says there's "no reason why" as many as 100,000 more jobs couldn't be created in the food sector if the Government stepped in with a range of supports -- employment that would be particularly welcome since more than 150,000 construction jobs have so recently evaporated.

Others, however, say that even if the food sector does experience significant growth in the coming years, that growth won't necessarily result in employment.

"The last 20 or 30y years have been driven by technology at the expense of labour," says Bloxhams' food analyst Joe Gill.

"All the evidence is that if the industry becomes more efficient there will be fewer jobs."

The massive new Grange Castle facility built by bakery giant Aryzta is cited as a particularly stark example.

"You walk around and the first thing you notice is how few people are in the building," says Merrion's food analyst Sam Farthing.

Similar trends are being played out amongst the smaller food companies as well. Dublin's Jelly Bean Factory employs just under 50 people now and is poised for continued growth over the coming years.

"We're investing in more equipment to become more efficient, so we can increase capacity without taking on additional people," says Richard Cullen, who founded the €8m turnover business with his father.

Davy's chief economist Rossa White sums up his views on the potential for 100,000 new food jobs succinctly. "I just don't think there's any chance of that," he says, "it's a serious stretch."


The potential for the global food industry to grow while so many other sectors are in decline is another plank that supports the "food is our future" theory.

On an industry level, Bord Bia's recent state-of-the-nation address pointed to a 40pc increase in global food demand by 2030, reflecting increases in the world's population and changing diets.

Those reassuring long-term global trends coupled with a more benign sterling environment and the inherent strength of Ireland's food base have prompted Bord Bia to predict a return to food export growth this year, reversing the 12pc decline of 2009.

The prediction of industry growth is one that Friends First's Power zealously espouses, while even Davy's White says the industry "could well grow" ahead of Ireland's medium-term growth prospects of 3pc since precautionary saving will fall and consumer spending will pick up.

The seeds of that growth can already be seen in the SMEs that account for so much of Ireland's food industry.

Back at Croke Park, Marketplace participants the Burren Smokehouse say they enjoyed "small growth" last year and see "tonnes of potential" for the future.

Down the hall, newcomer drinks company Coole Swan is set to expand its cream liqueur into 20 new markets in 2010 and founder David Phelan says the business is "on target" for growth plans laid out at its 2007 launch.

Six-year-old Soul Bakery grew 15pc last year after taking the plunge from farmer's' markets into Dunnes Stores and Spar last year and is in talks with Superquinn and Tesco about 2010 launches, while spread specialist JDS Food grew its business over the last three years despite punishing commodity prices.

Burren Smokehouse, Coole Swan, Soul Bakery, JDS Foods and Cullen's expanding Jelly Bean Factory are all very different companies, but a common trend runs through their growth and prospects.

At the most extreme end, Cullen sells 98pc of his jelly beans outside of Ireland, but all four other companies also have international markets to thank for their recent growth, a situation that's mirrored amongst Ireland's quoted food giants.

"We make 10 million to 12 million jelly beans every day and to sell all that in Ireland every man, woman and child would have to eat five beans a day," says Cullen, while his food boss peers also dismiss Ireland as the size of a single UK city.

Davy's White praises the ability of Ireland's food companies to "punch above their weight internationally", particularly since the international economy is expected to recover faster than Ireland's.

But some of our leading food players have become so international, it's hard to see how their growth can be central to the Irish economy.

Fruit giant Fyffes is a case in point -- its produce is sourced from the international markets and largely sold on the international markets.

"The Irish base is an accident of history," says company secretary Seamus Keenan, "although we can certainly leverage off the tax structure".

Bakery megalith Aryzta has gone one further, moving its primary listing to Switzerland, while analysts see international business as core to the prospects of Greencore, Kerry and Glanbia, to name but a few.

Completing the internationally-dominated picture, both Bloxhams' Gill and Merrion's Farthing see potential for Ireland's food plcs to engage in significant M&A activity this year, but both analysts predict that most of the action will take place overseas.

"If our turnover rises it does of course benefit Ireland (even if there aren't more jobs and the growth is all international)," says Cullen. "We pay corporation tax, in Ireland, we buy what raw materials we can locally, and we do a lot of our packaging locally and our design. "The more we grow, the more work we're giving to other Irish businesses."


One area where Ireland is far more in control of its own food destiny is the dairy sector. "We have the competitive advantage of year-round grass," says Farthing. "With that, we have the potential to be the cheapest dairy producers in the world."

The problem is that while Ireland's dairy industry has the natural advantage of a perfect climate, it also suffers from the historical drain of a sprawling network of co-ops that make our industry's efficiency pale in comparison to the likes of New Zealand.

Dairy plc Glanbia has spent years calling for consolidation, as has Kerry Group, though less vocally given the relatively small share of Kerry's income that comes from dairy.

The IFA and most co-ops have also acknowledged the need for change, but unfortunately that change has come dripping slow.

A crisis in world dairy markets briefly injected some momentum into the process last year, but Glanbia boss John Maloney admits there's "always a danger" that momentum will now lapse given the more benign market shaping up for 2010.

"We still maintain that, irrespective of where the market is, the structure needs to be looked at," says Maloney, who has seen dairy ingredients exert a niggling drag on his own recent earnings at the hands of the sector's inefficiency.

Maloney is hopeful that upcoming reform in Ireland's dairy markets, when quotas are abolished in 2015, will give the sector the push it needs to finally make changes, but he admits the path ahead is far from clear.

"ICOS, the Irish Co-operative Organisation Society, has facilitated people in coming together, and we hope to evolve that into detailed plans," says Maloney. "Even then, it's up to the individual entities to decide whether to sign up."

A more efficient dairy industry could mean fewer jobs as technology takes over, but it could also mean stronger margins for farmers and higher exports. "You could also do more research and development in Ireland, and dairy could feed into the whole knowledge economy," says Maloney.


It is a far more complex picture than the bullish portrait painted by Ireland's leading food figures when they gathered at the RDS to bang the industry drum in November, promising that government action on food policy could set the whole economy alight.

They may be proved right yet -- the Government has been given detailed proposals on the food industry's desired supports, the IFA says progress is being made on some of the issues, and so food could get its chance to live up to the massive potential beholden by the industry's many believers.

And even if it doesn't, there's always the smaller victories of successes by individual companies and events like Marketplace.

"With the amount of extra business generated today I see good potential for 2010," says Birgitta Hedin-Curtin of the Burren Smokehouse.

"It's been a good day."

Irish Independent

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