Wednesday 22 November 2017

The food sector will generate jobs and lead recovery

The State must prioritise an industry that is one of our greatest national assets as global demand for top produce presents Ireland with real opportunities, writes John Moloney of Glanbia

After the elimination of the milk quota, Ireland's output can grow 50 per cent by 2020 -- the extra output will be worth up to €1.5bn

IRELAND is going through a painful re-adjustment as a consequence of too high a dependence on too few economic sectors fuelling growth.

The impact of "irrational exuberance" about the prospects for such sectors as property and all related to it is now starkly clear. We were not alone and today many EU societies, where public spending was buoyed by unsustainable sectoral growth, are now retrenching, with challenging social and political consequences.

This has fuelled a banking and credit crisis and challenges the foundation of the single currency.

For many crises there is also opportunity: to reassess, take new paths and look for greater sustainability for both the public and private sectors. This is now where Ireland is and the choices we make will set our course for many years ahead.

To my mind this is about achieving balanced growth. This means driving exports and supporting domestic economic activities. With sustained growth over time we can outpace the issues that now beset the national consciousness.

We are not starting from a bad place. Adjustment has already began in lowering costs. We are adopting new technologies and have a young and well-educated workforce, a spirit of entrepreneurship, a gateway to Europe and a global perspective. This is about doing the most with what we have within ourselves and our country from our own resources.

I see the agri and food sector are right on the "sweet spot". This sector has been here for a long time, is predominantly Irish-owned and uses a lot of locally produced resources. It is heartening to see that in some ways we in this sector have been 'rediscovered' by policymakers.

The significance of the food sector can be set out simply. Total turnover is €25.4bn -- but importantly, €20bn of this stays in the Irish economy, a huge portion of the total value involved. Put another way, up to 80 per cent of the inputs to the sector come from the Irish economy and are dispersed across the country.

This has a huge 'trickle-down' effect, creating and supporting local jobs and services, both directly and indirectly. This cannot be lost and there are real options to build on it.

The world is entering an era where food demand and supply will become much more dynamic. By 2025, the world's population will reach almost eight billion. This will be accompanied by significant urbanisation and growth in the consuming classes, particularly in developing economies.

All of this is a function of rapid economic growth -- in particular across Asia and Latin America. China and India have doubled their GDP per capita in 12 and 16 years respectively. More than a century ago it took the United States 50 years to double its GDP per capita.

Food consumption will thus remain a huge issue and particularly there will be a demand to 'trade up' to meat and dairy products over time. This will challenge global resources but Ireland, with its naturally based systems, will have a significant opportunity.

For the dairy sector, the timing is opportune, as in 2015 the quota system in Europe -- which has restricted dairy output since 1984 -- will be removed. This will enable output to expand in the EU regions which can produce, process and market competitively. Ireland, in particular, is in such a place.

Of course, Glanbia plays a significant role in the food sector. We process a third of all milk produced on the island of Ireland, purchasing 1.6 billion litres of milk from over 5,000 farmers and processing this into a range of dairy products.

Some 14 per cent of all our production is for the Irish market -- we are the largest branded-food supplier into the Irish grocery sector, with household brands such as Avonmore, Premier, Kilmeaden, Snowcream, Petits Filous and CMP.

However, we export over 80 per cent of all our production to over 50 countries worldwide -- accounting for 20 per cent of all Irish exports.

Over the past three years in Glanbia we have had a significant focus on preparing for this opportunity; developing new fixed-forward milk pricing options to manage volatility; rolling out financial-assessment models to enable our farmer suppliers plan for growth; and validating with global customers the case for growth. We are also building a sustainability model for production, including carbon footprinting, from farm to factory, in conjunction with Bord Bia.

Milk produced on natural grass-based systems in Ireland will be dried and go in powdered form to the growth regions of the world. Here, recombined with other ingredients, it will form the basis of a wide range of consumer products attractive to emerging consuming classes in local markets.

After the elimination of the milk quota, Ireland's milk output can grow by 50 per cent by 2020. Combined with the value added in processing, the extra output will be worth up to €1.5bn. The jobs dividend from dairy growth alone (from farms, farm supplies though to processing and marketing, primary and secondary) has been estimated at 15,000.

All of this output will be exported, thus helping to drive the growth targets for food and agriculture products from just under €9bn to €12bn by 2020.

Prioritising and supporting this growth potential must be a priority for government. If a foreign direct investor were to announce 15,000 jobs we would have much welcome and fanfare -- and rightly so. We must equally support in a comprehensive fashion this domestic opportunity.

Long-term capital funding will be a key issue for new processing assets, which, by definition, are 'long-lifed'. After 31 years of output restrictions, new infrastructure to exploit expansion must be built, with returns released over a long period. Such funding needs are similar to the European Investment Bank mandate -- and I believe a case can be made for directing this funding into long-term growth sectors, such as dairy.

Finally, I see the food sector as a multi-faceted business sector. This is something to be encouraged -- from artisan producers to commercial farmers, from a dynamic evolving restaurant sector to scale processors for export.

All of these elements, combined, represent an attractive image for Ireland -- impacting both tourism and food production that can translate into a global brand. This is a great platform for growth and will see us along the road to recovery.

John Moloney is the group managing director of Glanbia Plc

Sunday Indo Business

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