Irish Food Board Targets €10 Billion Food and Drink Exports by 2011

29/01/09 The Irish food, drink and horticulture industry has the potential to boost annual export returns by more than 20% to reach €10 billion by 2011” according to Bord Bia’s Chairman Dan Browne. Speaking at the launch of Bord Bia’s Statement of Strategy 2009 – 2011 in Dublin Mr. Browne commented “The indigenous nature of Ireland’s agri-food industry, its deep foundation in the Irish economy, and its potential for development in an expanding market puts it in a unique position to actively contribute to a national drive to secure sustainable economic renewal.”

“The relative stability of food markets during the downturn, combined with the relentless rise in the world’s population, growing at the rate of almost 80 million people a year, and shifting dietary habits will continue to underpin global demand for food” according to Mr. Browne.

He went on to point out that “as Bord Bia sets out its priorities for the period ahead however we must recognise that while the industry has an excellent track record of achievement it must overcome significant competitive challenges if it is to successfully grow market share at home and overseas”.

“The challenges facing Irish food, drink and horticulture exports were evident throughout 2008 with significant currency volatility, shifting shopping patterns and reduced access to credit all impacting on exporters” commented Aidan Cotter, Chief Executive, Bord Bia. Exports declined during the year by 6.5% to €8.16 billion. Yet the performance of the sector remains impressive considering 43% of our exports are destined for the UK market and that the average depreciation of sterling against the euro amounted to 22% according to Mr. Cotter.

Exchange rate movements also affected exports to destinations outside of Europe, which last year amounted to 24% of the total. The dollar was significantly weaker for much of 2008 and while the average decline across the year was over 7%, the cumulative depreciation since 2006 reached 17%.

In an encouraging development, diversification towards Continental Europe continued with 33% of exports now destined for those markets. This reflects the ongoing drive by the industry to increase its continental based customer and market portfolio.

The best performing sector in 2008 was meat and livestock, up by 2% to €2.58 billion. This was due to the value of Irish beef exports increasing by an estimated 7% to reach €1.7 billion. Recorded pigmeat exports are estimated to have fallen by 2% to €360 million as the product recall brought trade to a virtual standstill in December. Other areas that performed well included ready prepared meals, luxury chocolate confectionery and seafood.

A significant easing in dairy prices, falling from their 2007 peak, resulted in export sales dropping back by 5% to €2.2 billion. Meanwhile exports of alcoholic beverages, affected by slower consumer spending and the weakness of the US dollar, declined by 13% to €1.25 billion.

A return to export growth in 2009 will be largely dependent on a more stable exchange rate environment, with prospects for recovery in all sectors of the industry. In the medium-term, significant growth potential exists in the dairy sector as quotas rise and some buoyancy returns to the market, while opportunities for growth also exist in prepared foods, beef and alcoholic beverages.

Meanwhile a strong position on the domestic market is critical to Irish food manufacturers if they are to build success overseas. The retail food and beverage market has grown significantly and is now valued at €8bn at consumer prices. However, rising costs, adverse currency movements, and increased import competition, partly associated with a growing international retailer presence with its own overseas supply base, is placing new pressures on Irish suppliers, leading to structural change and some outsourcing.

Addressing the industry’s capacity to compete successfully at home and overseas has assumed a new urgency if it is to boost its export performance and maximise its share on the home market. Bord Bia has identified six key priorities to be addressed including that of enhancing the industry’s position on its home market if it is to capitalise on the potential for growth and expand exports towards €10 billion. These are:

Recent events have highlighted the fundamental importance of food safety. The impact of the product recall on the image of Ireland as a safe and reputable supplier of high quality food is not yet fully clear but it is evident that customer expectations will require evidence of actions taken to address perceived risks to food safety. In addition, the opportunity exists to reassess the platform on which we promote Ireland as a food island.

The United Nations estimate that by 2030 the world will need to produce 50% more food from less land, water and energy while also reducing the level of greenhouse gas emissions. “While overcoming immediate competitive challenges is a major priority, the industry must also now begin to address the key issue of sustainability to meet both current and emerging market needs” said Mr. Cotter. “The emergence of sustainability as a key strategic issue means that it is no longer enough to say that we are natural and green, we now must actively demonstrate and prove it” he added.

The UK will continue to be Ireland’s single largest export market and a major priority for exporters. Other Eurozone markets however offer the prospect of new opportunities and more stability in the light of recent exchange rate volatility. This is reflected in the recent growth in the share of exports destined for Continental Europe while Bord Bia research has prioritised key target markets for prepared foods and identified opportunities for cheese and dairy ingredients as the dairy sector continues to seek out new markets. Similarly the recent establishment by Bord Bia of a full-time presence in Shanghai, servicing the Asian region, and the relocation of the US office to New York reflect continued growth potential in these regions.

The competitive threat on the Irish market is highlighted by rising food imports which on a per capita basis have increased by 50% since 2000 to €1,070 in 2007, with growth strongest in the meat, vegetable and prepared foods categories. In terms of meat, strongest import growth has been evident in pigmeat and poultry putting significant pressure on local processors to maintain a viable business on the Irish market. It is estimated that as much as 90% of poultry and 60% of pigmeat sold at foodservice level consists of imported products.

Bord Bia will increase its focus on the Irish market to assist suppliers compete successfully through initiatives in consumer insight, innovation, and branding. In particular, the focus will be extended to highlighting the importance of supporting a dynamic domestic supply base and ensuring sustainable local food supplies. Promotion of the Bord Bia Quality Mark will be intensified with a view to expanding demand for meat, eggs and horticultural produce bearing the logo, which now enjoys 79% awareness levels.

Innovation in products, packaging, processing and branding will be critical to the success of the Irish industry in enhancing its position on the Irish market and extending its export reach. Data indicates that just over 2% of new products in the European food industry represent revolutionary innovation. The majority, around 80%, come from either line extensions or me-too products, highlighting the evolutionary nature of innovation.

Over the last decade however the average time to market for new products has reduced from 18 to 13 months. The competitive nature of the market is further highlighted by figures from The Grocer, which showed that in the UK only 300 ‘new’ product introductions annually achieve sales of more than £1m.

Bord Bia’s innovation programme will continue to evolve with the needs of food and horticulture manufacturers. Central to the programme will be the Foresight4Food initiative, which offers services in three core consumer focused innovation areas: stimulation, ideation and validation and seeks to assist an increased rate of successful product launches. Bord Bia’s Consumer Lifestyle Trends Programme will also continue to provide the insight and understanding necessary to help manufacturers identify potential gaps in the market.

The repositioning and differentiation strategy for Irish beef initiated over the last year remains a priority as the sector continues to enhance its role in the European market in advance of any future WTO deal. The industry which now has listings among 70 retailers across Europe has further consolidated its position over the last year, achieving 17 new retail premium product listings and 7 new such listings in foodservice in both existing and new accounts.

Following the pigmeat recall, a rebuilding of the domestic and international markets is critical while in the lamb sector quality assurance, promotion on the Irish and French markets combined with further market diversification will continue to be the principal focus.

A dynamic and growth oriented small business sector represents an integral part of a vibrant, entrepreneurial and innovative food, drink and horticulture industry. Small Irish food companies are supplying a speciality food market in Ireland with an estimated output valued at some €475 million at retail selling prices and growing at 10% annually. Most of these companies are owner managed, in many cases have a strong farming basis and tend to cover a diverse range of products.

Ireland’s agri-food sector continues to play an important role in the Irish economy, accounting for 10% of total Irish exports in 2007 compared to 7% in 2002 and representing approximately 8% of the national workforce. Output in the sector, as measured by Gross Value Added (GVA), reached almost €15 billion in 2007 having expanded by over 22% compared to 2006. Forfás estimate that 65% of manufacturing exports by Irish-owned firms consist of food and drink.

The combined value of meat and livestock exports is estimated at almost €2.58 billion for 2008. This is some 2% ahead of 2007 levels. Beef exports performed very strongly during the year, offsetting lower export values for pigmeat, poultry, sheepmeat and live animals.

The value of Irish beef exports increased by an estimated 7% in 2008 to reach €1,687m. Around 99% of exports in value terms stayed within the EU. A decline of almost 7% in numbers processed through export meat plants combined with lower carcase weights led to the volume of Irish beef exports easing by 8% to 483,000 tonnes. However, this was more than offset by a rise of around 16% in prices.

The value of Irish livestock exports fell by 13% in 2008 to an estimated €148m. Lower live cattle and pig exports were the principal drivers of the decline.

It is estimated the value of Irish pigmeat exports in 2008, excluding the impact of the product recall in December, fell by around 2% to €360m. A gradual improvement in EU pig prices during 2008 helped improve the market environment for Irish pigmeat as the year progressed. However, the recall of pigmeat products due to a small sample of pigmeat produced between September 1st and December 6th having traces of dioxin, impacted significantly on trade towards year end. It will be some time before the full extent of the product recall is known.

Irish poultry production continues to fall with a drop of almost 5% estimated for 2008. The fall in poultry production was partly offset by higher prices although a significantly more competitive market environment in the UK affected returns. Overall, the value of Irish poultry meat exports is estimated to have eased by 8% to €223m.

The value of Irish sheepmeat exports is estimated to have fallen by 10% in 2008 to €166m. A sharp fall in sheep availability led to export volumes falling by 15% to 42,000 tonnes cwe. Lamb prices showed some improvement during the year, rising by 4% to €3.70/kg.

Exports of dairy products lost some of the gains made during the previous year, when sales grew by 13% on the back of rising world commodity prices. They eased by 5% during 2008 to reach €2.21billion, but still remained ahead of 2006 levels. Stable to slightly lower volumes were evident for most product categories with the exception of infant formula. While prices declined as the year progressed, the levels evident for the first half of 2008 were for most products ahead of corresponding 2007 levels which helped to maintain export values.

The overall export performance of the prepared foods category was positive considering the competitive environment in which exporters were operating. Overall, exports of products covered under the prepared foods category fell by an estimated 15% to €1,543m. However, when “other” prepared foods, which consists largely of extracts and supplements from multinational companies, are removed, indigenous exports were broadly similar to 2007 levels. Ready meals, pizzas, luxury chocolate confectionery and bakery all put in positive export performances. However, the value added meat sector faced a more challenging market environment.

Beverage exports witnessed a more challenging market environment in 2008 due to the weakness of the US dollar and slower consumer spending. Overall, exports are estimated to have declined by 13% to almost €1,250m. The strongest performing category was whiskey, with exports recording double digit growth. Beer and cider exports slowed while overall liqueur exports were affected by structural changes in distribution.

The value of edible horticulture and cereal exports fell by 5% in 2008 to an estimated €236m. Mushroom exports fell by around 10% in both volume and value terms due to the continued weakness of Sterling and a competitive UK market exacerbated by strong supplies from both domestic producers and imports from countries such as Holland and Poland. Cereal exports increased further, although lower prices affected exports values as the year progressed.