Saturday 16 December 2017

Thriving food industry drives return to land of milk and honey

Maeve Dineen

Amid all the gloom about the banks, it is easy to lose sight of the fact that an equally important sector of the economy and the stock exchange is doing well.

I'm speaking of the food sector, which has a bigger market capitalisation than the banks, employs more people and has an even greater fundamental importance than the banks -- you can't eat money, after all.

That sector is in good health despite the recession, and things may improve further as the overvalued euro begins to slide once more, making agricultural exports to Britain competitive again.

Farmers have been moaning about poor milk prices for some time now, and with justification, but the food stocks and co-ops many of these farmers own are performing very well on the stock exchange.

Fyffes has risen 130pc in the past 12 months; Aryzta is up 51pc; Kerry 44pc; while Glanbia's rise has been just 3pc. This growth is not limited to Ireland; food stocks elsewhere have also been performing well.

Stellar results like these, and the collapse of most other sectors of the economy, have shifted the focus back to the food industry and, in particular, the rationalisation of our dairy sector.

A strategic development plan for the Irish dairy processing sector was, when published in 2003, seen as laying out the only viable future for the industry. Among other things, it recommended that the number of dairy plants in Ireland be reduced from 17 to three.

Seven years on and our dairy industry hasn't budged an inch. While some feeble attempts have been made to get the dairy chiefs talking (ICOS, the country's co-op umbrella group, is now facilitating dairy industry talks) the main stumbling block remains: who will cough up the cash to pay for a massive restructuring of the industry?

Dairy chiefs will argue that they have spent two years subsidising poor milk prices and this has depleted their coffers.

And the Government, as we all know, simply doesn't have the money. Regardless, it's difficult to see the political will for something that will have huge social implications for rural Ireland and lead to thousands of jobs being lost.

But while massive change in in the industry is needed, is big really beautiful? If we have learned one lesson from the banking debacle, it is that we should not have companies that are too big to fail.

Will rationalisation be the panacea of all ills for the industry and the farmers who supply it? Not likely.

Ireland's product mix is still far too over-dependent on commodity products such as butter and skim milk powder, which leaves us at the whim of volumes coming in from the US and New Zealand.

The whole industry continues to pin its hopes on the emerging markets such as China and India developing the eating habits of the western world. China's middle class had developed a taste for yogurt and cheese, but the global recession put an end to that. It now appears that any returns from the market will remain supply-driven rather than demand-driven. This, in turn, goes against EU policy, where the plan is to raise the European-wide milk production ceiling by 1pc each year until quotas vanish altogether in 2015.

When the banks and the builders were booming during the last decade, the Government took its eye off the food sector. I'm not suggesting it can drive the economy on its own, but with the right investment and a government-led strategy for its future, it can play a positive part in rebuilding the economy by attracting investment from diverse areas.

The Government needs to remember the old adage: "Milk is good for you; it helps you grow strong." It's helping the markets, too.

Irish Independent

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